GST Council Hikes Tax on Used EVs to 18 Per Cent: What It Means To You

In a significant decision, the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, convened its 55th meeting in Jaisalmer, Rajasthan, on December 21, 2024. Among key agenda items, the Council approved a tax hike on the sale of old and used vehicles, including electric vehicles (EVs), increasing the Goods and Services Tax (GST) from 12 per cent to 18 per cent.

Who Will Be Affected?

The new tax rate applies to all used vehicles—petrol, diesel, hybrid, and electric cars. Previously, used EVs attracted 12 per cent GST, while new EVs benefited from a lower rate of 5 per cent to promote eco-friendly transportation. This tax hike will make pre-owned vehicles more expensive for buyers, potentially impacting affordability in a segment already sensitive to price changes. 

Impact on Consumers?

Consumers purchasing pre-owned cars may now face higher upfront costs. This increase could discourage budget-conscious buyers who rely on the used vehicle market for affordable mobility options. The move may also deter potential adopters of pre-owned EVs, a category that has been gaining traction due to its eco-friendly benefits and relatively lower prices compared to new EVs. 

Impact on Dealers?

The tax hike poses challenges for dealers specialising in used vehicles. GST on repairs and maintenance for used vehicles already stands at 18 per cent, and with the increased tax rate on sales, operational costs for dealers are likely to rise. This could lead to lower profit margins or higher prices passed on to consumers. 

Additionally, there is concern that higher costs could drive more transactions into the unorganised sector, which operates outside the GST framework. Reduced compliance in such cases could undermine the government’s revenue collection efforts. 

Government’s Perspective

The GST Council’s decision appears aimed at increasing revenue collection from the automotive sector, which is one of the largest contributors to indirect taxes. However, a few analysts that Acko Drive spoke with have cautioned that the higher tax burden might dampen demand in the used vehicle segment, potentially offsetting the expected revenue gains.

Consumer Advice

Buyers planning to purchase used cars, particularly EVs, may need to reassess their budgets in light of the increased GST. For those looking at affordability, exploring new EV options—still taxed at a lower 5 per cent rate—could present a viable alternative.