Now You Have to Pay GST on Losses as Well!

Recently, a few announcements made by our Finance Minister, Nirmala Sitharaman, sparked widespread discussions, particularly in the retail and automobile sectors. Some panic ensued, driven by misunderstandings about the impact of changes in tax rates on the sale of old cars. Let’s break down the scenario for better clarity.

 

The New GST Rule for Selling Old Cars

 

Previously, the GST rate on old cars ranged from 5% to 28%, depending on various factors. To simplify the tax structure and create consistency, the government has now standardized the GST rate for old cars at 18%.

This raised an important question:

 

“On what amount do you have to pay GST?”

 

GST Is Payable on the Margin — Not the Entire Selling Price

 

The new rule specifies that GST applies only to the profit margin in the sale of old cars, not on the full transaction value.

 

Example 1: Profit Scenario

·       You bought a car five years ago for ₹20 lakhs.

·       After depreciation, its value is now ₹12 lakhs.

·       If you sell the car for ₹15 lakhs, the GST will apply only on the margin of ₹3 lakhs (15 – 12 lakhs).

 

Example 2: Loss Scenario

·       If you sell the same car for ₹10 lakhs instead, no GST is applicable because you made a loss.

·       Taxes are never levied on losses, so there’s no burden in this situation.

 

Key Clarifications

1.      Only Businesses Need to Pay GST: Individuals selling their personal cars are not required to pay GST.

2.      No GST on Losses: Despite recent discussions and concerns, the rule remains clear—GST is not charged when a sale results in a loss.

 

A Simplified and Business-Friendly Move

The new unified GST rate aims to provide greater clarity and reduce complexities. While some initial confusion is natural, understanding that taxes are applied