Margin Scheme for Second Hand Vehicle Dealers is explained in the article below in most simplified manner for ease of understanding for all such Second hand Vehicle dealers and professional. Please note all the updated till Nov’22 have been incorporated in the detailed article below.
The article was based on study of CBIC article on Margin Scheme under GST, refer link >> https://www.cbic.gov.in/resources//htdocs-cbec/gst/51_GST_Flyer_Chapter30.pdf
What is Margin Scheme for Second Hand Vehicle Dealers?
GST is levied on Transaction Value normally, but in case of Second Hand goods, a person is allowed to levy tax on the Margin Amount i.e. difference between Resale Value and Purchase Value. If no margin, no need to levy GST.
The purpose of the Margin Scheme is to avoid double taxation on the goods as they have already borne incidence of tax, as they are re-entering the supply chain.
Valuation under Margin Scheme for Second Hand Vehicle Dealers?
As per Rule 32(5) of the CGST Rules, 2017, where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.
The proviso to the above rule further provides that in case of the purchase value of goods repossessed from an unregistered defaulting borrower, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price 251 of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.
Applicable Rates under Margin Scheme for Second Hand Vehicle Dealers?
For the following category of second hand vehicles, GST rate is charged as per Notification No. 8/2018 -Central Tax (Rate) :
| Vehicle Category | SGST | CGST |
|---|---|---|
| Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 mm or more. | 9 | 9 |
| Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm | 9 | 9 |
| Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles. | 9 | 9 |
| All Old and used Vehicles other than those mentioned above | 6 | 6 |
Please note no Input Tax Credit on processing/refurbishment/denting/painting can be obtained. Further, No Input Tax Credit available for indirect expenses such as rent, insurance, professional fees, advertisement or any other expenses in course of business.
Non availability of Input Tax credit for indirect expenses is also backed by Maharashtra Authority of Advance Rulings for details refer >> https://mahagst.gov.in/sites/default/files/ddq/GST%20ARA%20ORDER_DECCAN%20WHEELS.pdf
Practical difficulties while paying GST as per Margin Scheme for Second Hand Vehicle Dealers
- Calculation of Margin is = Sales value – ( Purchase value + processing value ) or Margin = Sales Value – Purchase Value ?
- Is Margin so determined inclusive of GST? ( Eg : Margin Value = 1000 if inclusive of GST, then GST Amount is 1000*18/118 = 152.54 or Margin Value = 1000 if exclusive of GST, then GST Amount is 1000*18% = 180)
- The notification has mentioned “No input tax Credit” can be availed if rates applied as per said notification. However, Margin scheme for Second Hand Dealers other than those of vehicle dealers, the applicable rates are as per Notification No. 1/2017 -Central Tax (Rate) and wherein no such thing is mentioned that “No Input Tax Credit” can be availed. Can second hand dealers other than those of vehicles can avail credit on indirect expenses such as rent, insurance, professional fees, advertisement or any other expenses in course of business ?
Please note Intra State Supply of Second Hand Vehicles is exempt from GST.
For Notification No. 8/2018 -Central Tax (Rate) refer >> https://cbic-gst.gov.in/pdf/central-tax-rate/notfctn-08-2018-cgst-rate-english.pdf
Need Expert Assistance for Margin Scheme for Second Hand Vehicle Dealers in Udaipur and Rajasthan
For expert assistance on Margin Scheme for Second Hand Vehicle Dealers and their GST Return filling in Udaipur and Rajasthan, reach our professionals at Tax Ledger Advisor.
Also refer article on GST Return filing from TaxLedgerAdvisor >> https://www.taxledgeradvisor.com/gst-return-filing/
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