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Margin Scheme Under GST - Special Provision for Taxing Second Goods and Used Motor Vehicles



Introduction

The government implemented the Margin Scheme to avoid double taxation on the supply of such items. GST is often levied on the transaction value, which is the price paid or to be paid for the supply of goods and services. However, in this arrangement, GST is determined based on the profit margin - the difference between the value of the items supplied and the price paid for them.


The Margin Scheme is an alternative for taxpayers who deal in second-hand or used items. Under this system, tax on the sale of such products might be discharged depending on the margin amount, which is the difference between the selling and purchasing prices of the goods. It is crucial to note that the Margin plan is optional and taxpayers normally opt for it when they are into the business of purchasing the items from unregistered persons and taxpayers who choose it will not be able to claim input tax credits on the goods sold under the plan.


GST Rate Applicable on Second Hand Goods

GST rate in case of sale of second hand goods will be same as applicable on original product except in case of sale of second hand / used motor vehicles on which different GST rate are specially notified by government as under :

Description of Goods

GST Rate

Old and used LPG or CNG driven motor vehicles with engine capacity of 1200 CC or more and Length of 4000 mm or more

18%

Old and used Diesel driven motor vehicles with engine capacity of 1500 cc or more and Length of 4000 mm or more

18%

Old and used Sports Utility Vehicle (SUVs) with engine capacity of 1500 cc or more

18%

All old and used vehicles other than the above three categories

12%

Conditions to Fulfill to Fall Under Margin Scheme:

  • GST registered taxpayers who deals in the purchase and sale of second-hand or used goods.

  • Cannot opt under composition shceme. However, taxpayers at its option can opt for composition scheme and not to opt under Margin Scheme. Anyon scheme can only be opted by individual.

  • Cannot Avail Input Credit on Purchases of Second Hand Goods.

  • Supplier of Goods do not issue any tax invoice.

  • Margin Scheme is available only if second-hand goods purchased are sold as it is or after doing minor refurbishment without changing the nature of goods. If thee nature of goods is chaned, it cannot fall under Margin Scheme.

Calculation of Margin under the Scheme


Valuation Rules i.e Rule 13(5) of CGST Rules mentions following formulae in case supplier of goods is dealing in second hand goods:

  • Margin = Sale Consideration – [(Purchase Price) + (Minor Refurb Expense)]

  • In case used goods are repassed due to default in loan payment then Purchase Price = Original Purchase Price of Default Borrower – 5% depreciation for each quarter or part thereof


Special Provision for GST Registered Entity in case of sale of Used Cars

  • In the case of a Motor Vehicle Sold by registered persons who claimed depreciation u/s 32 of the Income Tax Act – Margin = Sale Consideration Less WDV Value of Motor Vehicle as per Income Tax Act. If the margin comes less than zero then no GST is to be levied.

  • The above provision is specifically applicable to all GST Registered Entity and not only to second-hand dealers. Thus a company selling second-hand car after use can levy GST as per above formulae and as per the GST rate mentioned as per above special rates for used cars.

  • The above calculations can also be used by second-hand dealers and in other case as per default formulae of Slae Price Less Purchase Price.

  • In case unregistered persons or individual sells motor vehicles than no GST will be applicable as they are not registered and also it .

  • Above formulae cannot be used in case of sale of anyother capital asset

 

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