Even though 18% GST is now imposed on second-hand cars, the customer's budget will increase by only 1%, this is the correct calculation.

Recently, when the GST Council met, the GST on the sale of second-hand cars was increased from 12% to 18%. This is a direct 50 percent increase in tax on used cars. Many confusions arose regarding this increase, and many calculations also came to the fore. But what does this mean for a customer? How much has his car-buying budget increased due to this tax increase? What is the correct calculation of the impact on his pocket? Let us answer all your questions here…

First of all, you should clear one of your confusions. When Finance Minister Nirmala Sitharaman said that if you buy a car worth Rs 12 lakh and sell it for Rs 9 lakh, then 18 percent GST will be levied on the margin. Actually, this is the basic principle of taxation that tax is not levied on loss, but tax is levied only on profit. Therefore, what Nirmala Sitharaman meant was that if you buy a car worth Rs 12 lakh, sell it for Rs 9 lakh and when it is sold again for Rs 10 lakh, then 18 percent GST will be levied only on the profit margin of Rs 1 lakh. But how will this affect your pocket budget…

The cost of buying a second hand car will increase by just 1%

As a customer, when you go to buy a second hand car, what will be the impact on your pocket. This is the biggest question. According to ET's news, this GST hike by the government will mainly affect second hand car dealers like Cars 24, Maruti True Value, Mahindra First Choice and Spinny. If you sell your old car to these dealers and they refurbish it and sell it to someone else, then the profit margin will be taxed. This means you will get the full value of your old car and you will not have to pay any tax on selling it.

Now, if any value addition has been done by the companies in the second hand cars that new customers will buy from them, then you will have to pay tax on that value. These companies say that the cost increased by GST will only increase up to 1% of the total budget of the customers to buy the car or the overall value of the car. Let us understand this also with an example…

Cost of second hand Maruti Dzire

Suppose you sell your old Maruti Dzire to the country's largest second hand car dealer company 'Maruti True Value' for just Rs 4 lakh. Then you will get the full money for it. Now Maruti True Value refurbishes the same car by investing Rs 10,000 and then sells the car for Rs 4.50 lakh. In this way, GST at the rate of 18% on this price of second hand car will be only Rs 9000.

If this old GST slab of 12% was applied, it would have been Rs 6000. In such a situation, the tax liability on a second-hand car has increased by only Rs 3,000. In this way, the overall value of this Maruti Dzire car is less than 1 percent of Rs 4.50 lakh. There is also a catch in this that the second-hand car dealer charges only a part of this tax from you and not the entire value, usually second-hand car dealers keep a margin of only 6 to 8 percent on the resale of small cars.