Dealer guide · GST

The GST margin scheme for used cars, explained.

If you buy and sell used cars as a registered dealer in India, you do not pay GST on the full sale price — you pay it on your margin. This guide explains how the margin scheme works, when it applies, and how to invoice correctly.

This guide is general information for dealers, not tax advice. Rates and notifications change — confirm specifics with your chartered accountant.

What is the margin scheme?

Under Rule 32(5) of the CGST Rules, a registered person dealing in second-hand goods — including used vehicles — who sells the goods as they are (or after minor refurbishing that doesn't change their nature) and who has not claimed input tax credit on the purchase, pays GST only on the difference between selling price and purchase price.

For motor vehicles specifically, Notification 8/2018-Central Tax (Rate) prescribed concessional rates on this margin. Following the GST Council's 55th meeting, the rate was unified at 18% on the margin for all used vehicles — petrol, diesel and electric alike — for registered persons.

The formula

• Margin = Selling price − Purchase price.
• If you claimed depreciation under Section 32 of the Income-tax Act, margin = Selling price − Written-down value.
• If the margin is negative, the value of supply is nil — no GST is payable on that sale.
• The 18% applies to the margin; where the margin is treated as tax-inclusive, tax works out to margin × 18 ⁄ 118.

A worked example

Had you sold the car for ₹6,00,000 — a ₹40,000 loss — the margin would be negative and no GST would be due on the sale.

Conditions you must meet

• You are registered under GST and deal in second-hand vehicles.
• You did not claim input tax credit on the vehicle's purchase.
• The vehicle is sold as-is or after minor refurbishment that doesn't change its nature.
• Purchases from unregistered individuals don't attract reverse-charge GST for this purpose (exempted by Notification 10/2017-CT (Rate)).

What the invoice must show

Your sale invoice should carry the vehicle's registration number, HSN code 8703, your GSTIN, the buyer's details (PAN/Aadhaar for higher-value sales), the taxable margin value and the CGST/SGST or IGST break-up. RTOs and buyers' financiers routinely ask for exactly this format.

MotorIQ generates this invoice automatically — it knows the purchase price and per-vehicle expenses, computes the margin-scheme tax, and prints an RTO-ready format in one click. See how GST invoicing works in MotorIQ →

Common questions