GST Hike Raises Concerns
The GST Council recently announced an increase in the tax rate on used cars. The rate will rise from 12% to 18%. The decision, made on December 21, aligns with the broader tax structure for vehicles.
Currently, petrol, LPG, and CNG vehicles with engines above 1200cc and lengths over 4000mm attract 18% GST. Diesel vehicles with engines exceeding 1500cc, including SUVs, also fall in this bracket. The new rule extends this rate to vehicles previously taxed at 12%, including older electric vehicles (EVs) sold by businesses.
Impact on Businesses and Consumers
The tax hike applies only to businesses reselling vehicles, not individual buyers or sellers. Private transactions remain at the earlier 12% rate. However, companies purchasing used cars at higher rates may pass the added costs to customers.
Industry experts fear this move could hurt the second-hand car market, especially in Tier 2 and Tier 3 cities. Vikram Chopra, founder of Cars24, called used cars essential for mobility and economic growth. He urged the government to focus on policies promoting sustainability and affordability rather than raising taxes.
Challenges for Buyers
Used cars often require higher maintenance, which already attracts 18% GST on spare parts. The increased tax on vehicle purchases will add to these costs, making old cars less affordable for many buyers. Analysts warn that this could dampen demand and place financial strain on businesses.
EV Market Faces Setbacks
The new rates also affect the resale of electric vehicles, which already struggle in the used market. Experts believe this hike could slow EV adoption further. While EV sales grew significantly in FY24, reaching 90,432 units, the increased tax might hinder this progress.
Future of the Pre-Owned Market
India’s used car market is still evolving. In FY23, it recorded sales of 51 lakh vehicles worth $34 billion. By FY28, the market is expected to grow to $73 billion and sell 1.09 crore vehicles. However, the GST hike could impact this growth, especially as affordability becomes a major concern for buyers.
Industry stakeholders are calling for policy adjustments to ensure the market remains sustainable while supporting consumers and businesses alike.
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