Used car platforms set for bumpy ride ahead

GST hike on small cars to hurt margins; buyers, too, may have to pay more

- Samiksha Goel & Sneha Shah

After cruising at a double-digit growth rate over the past five years since the pandemic, India's used car platforms seem to be headed for a bumpy ride following the government's decision to levy higher taxes on margins they make from the sale of small cars.

The Goods and Services Tax Council on Saturday decided to increase taxes on the margins of the supplier on sale of small used cars, including electric vehicles (EVs), from 12% to 18%.

If a used car platform purchased a small car for ₹1 lakh and sold it to a buyer for ₹1.4 lakh after refurbishment, the platform will now pay an 18% goods and services tax (GST) on the margin (₹40,000) compared with 12% earlier. Second-hand SUVs (sport utility vehicles) and EVs were already charged 18%.

This move to harmonize tax slabs is likely to impact startup margins in the short term, even though they will be able to offset this against input tax credits.