NEW DELHI: Used car market is expected to face headwinds following the GST Council’s recent decision to increase the tax rate on used vehicles from 12% to 18%.
Industry experts believe that this increase could slow growth and impact businesses that rely on second-hand vehicles.
“Used cars are the backbone of mobility for millions of Indians, especially in Tier 2/3 cities and rural areas, where they serve as an affordable way to achieve the dream of car ownership. In a country with single-digit car ownership, policies that impact affordability, like the recent GST hike, can unintentionally slow down this progress,” said Vikram Chopra, Founder & CEO of CARS24.
The GST revision applies to vehicles sold by businesses that claim depreciation and transact on a margin basis. For example, if a used car platform buys a car for Rs 2 lakh and sells it for Rs 2.4 lakh after refurbishment, the GST will be charged at 18% on the margin (Rs 40,000). Earlier, GST on such transactions were at 12%. Individual buyers and sellers of used cars will continue to pay 12% GST rate.
Sandeep Aggarwal, founder and CEO of Droom, a used car marketplace, said businesses that purchase pre-owned cars as capital assets such as certain ride-hailing companies and e-commerce platforms, will be hit the hardest by the higher tax rates. “In the last few years, due to ride-hailing, quick commerce, and food delivery, automobiles have become a significant asset to make money. For such businesses, buying used cars has now become more expensive,” Aggarwal said.
The tax hike is mainly concerning for the second-hand electric vehicle (EV) segment. While new EVs are taxed at a reduced 5% to encourage adoption, the 18% GST on used EVs may dampen demand in the resale market. Businesses reselling EVs will also face rising operational costs, as repair and maintenance services already attract an 18% GST. Last week, Korean automaker Kia had expressed concerns over the hike in GST on used EVs from 12% to 18%, emphasising that such a move could hinder the Indian automotive industry’s electrification journey.