How Will GST Affect The Used Cars Industry In India?

GST (Goods and Service Tax) rolled across the country from July 1, 2017. As far as the new car industry is concerned, there’s been a considerable reduction in prices across all categories, particularly the luxury space. Let us find out how GST will impact India’s ever increasing used car industry.

Used cars may cost more

The tax component on the used car dealer has increased multiple times now. Such a scenario could result in several outcomes.

1. Firstly, prices of preowned cars could quickly increase, which is the widely anticipated outcome in this case, as dealers would pass on the additional tax to car buyers. Otherwise, they could reduce their purchase price to offset increased tax. This means that it will either be the customer or the dealer who has to bear the burden of GST on pre-owned cars.
2. Bulk customers are eligible for some tax credit as invoices will include the taxed amount. GST may also enhance the working capital of dealers of pre-owned cars.

Earlier the tax calculation was done on the discounted value of a vehicle in the case of exchange schemes after the market value of the old car was deducted. But the GST rules, implemented by the government, will also consider the market value of the new vehicle while calculating the tax burden. So, car buyers may end up paying more amount, since the discount done would be taxed.

2. Boost in the inter-state pre-owned car market

GST is expected to remove some complexities & attempt to achieve a better price equilibrium as the demand and supply gap can match more efficiently. Several pre-owned vehicle dealers have a premonition that after GST; the online market in automobiles will show positive growth, especially across the states.

In the current scenario, transfer of the name from the owner in one state to a pre-owned car buyer in another state is a hurdle in terms of additional cost. A few states levy an additional octroi charge of 4.5% over and above road tax when bringing the car from one state to another. Used cars will attract GST only on the value of the transaction. It will come under the ambit of standard SGST rate and enables the buyers to transfer car between cities without paying the additional 4.5%.

3. Sales of used cars will be bolstered by new car price drop

The pre-owned automobile industry may see a fringe benefit from GST. New car sales are expected to grow further, considering the notable decrease in prices, particularly for the high-end cars. It will also let the buyers trade their old vehicle for newer ones, increasing the number of pre-owned cars in the market.

Additionally, the roll out of GST could impact organised dealers especially the ones who are spread across India. Even the unorganised ones will get affected but in lower proportions especially as the cash paid while buying a pre-owned car from the unorganised dealers isn’t white money, and so the effective tax component would be comparatively lesser.

Confused about GST on Indian Auto Industry? Understand the impact of GST on various segments here: GST Implementation and its Impact on Indian Auto Industry