What is the Road Tax Like for Used Cars in India?

What Do You Need to Know About Road Taxes?

Initially, many types of taxes were applicable when buying a vehicle. In 2017, the Indian government developed GST – a collective term to minimize many indirect taxes. The GST on new cars was more accessible to relate and calculate. However, GST on pre-owned cars was not entirely sorted in the initial phases.

Before introducing the GST on pre-owned cars, agents and second-hand car dealers needed to pay 5% VAT while selling a car. Presently, the taxes with the new tax regime have changed. Taxes can be as high as 28% on second-hand vehicles now.

What is the GST Tax on Cars in India?

The intention of bringing in the GST tax regime is a uniform structure. Read on to learn of the various tax slabs on cars in India.

Small sized cars

Cars with a length of 4 meters or less and engine sizes of less than 1200 cc for petrol cars and 1500 cc for diesel cars are in the "small cars" section. GST for the small cars category is 12%.

Medium-sized cars

Most of the car models in India are in the medium-sized car segment. The GST for this segment is 18%.

Premium or big cars

Luxury cars come in this segment. Cars produced by premium manufacturers like the German trio of Audi, Mercedes and BMW come in this category. Sports cars like the Ferrari and Lamborghini also come in this segment. Since they are in the luxury sector, the GST on such vehicles is 28%.

GST rates are based on the segment the car falls under.

What are the Tax Rates on Used Cars?

Initially, when GST was introduced, the tax on second-hand cars was the same as on new cars. However, to boost the used cars and vehicles market, the GST rates were reduced. The GST on pre-owned cars depends on the type of car mentioned above.

Currently, the GST on second-hand cars is 18% for vehicles with an engine displacement of 1200 cc or more for petrol-driven cars and 1500 cc or more for diesel-driven vehicles.

What is Compensation Cess in GST?

Compensation cess is nothing but a charge levied on top of GST. The GST Act brought in the cess. Earlier, VAT was imposed on the producing states even if there was an interstate movement of goods. The compensation cess was implemented to compensate the producing states under the GST regime. However, it would help if you remembered that the compensation fee does not apply to GST on used cars.

How are Cars Valued for GST Calculation?

Taxes are calculated based on the total value of a product. The same goes for used cars as well. The supply value's margin plays a vital role in the valuation of a vehicle on which GST rates depend. Tax calculations for a pre-owned car are applicable in the following instances:

• If the used car is sold by the Central, State or UT government/local authority, the buyer must pay GST.
• GST registration might not be required if a business person uses a vehicle for business purposes and the cumulative turnover is less than 40 lakhs. If the used car's turnover is less than 40 lakhs, no GST will be paid.

What is Insurance Like for Used Cars?

Availing car insurance for a pre-owned car is as important as getting one for a new car or paying GST on old vehicles. Not having a valid insurance policy on your used car can lead to many financial and legal risks. Not having a third-party insurance cover for your used vehicle can pose a hefty penalty from the road and transport department.

Insurance also comes in handy when there is an accident. The vehicle's owner must bear all the damages incurred during an accident; an insurance policy makes it all easier. Getting a comprehensive policy would be a great choice in such an instance. It provides the advantages of third-party insurance and gives you the cushion to relax in case of car damage.

Wrapping Up

GST was used to bring all the different taxes under one roof. If you are considering buying a pre-owned vehicle, you must know the implications of GST on the purchase.