"WDV, Wheels & the GST Wheelspin!"
GST on sale of used vehicles when depreciation was claimed
If your business sells a used car that sat on your balance sheet and depreciation was claimed under the Income-tax Act, the GST playbook is very different from selling a brand-new vehicle-or even from flipping any other second-hand asset. The rules care about whether you took ITC, how you valued the car, and what the rate is on the "margin."
Let’s demystify the lot, with clean steps, practical examples, and a pinch of humour so your brain’s gearbox doesn’t grind.
1) The quick gist (TL;DR for busy CFOs)
If you claimed depreciation on the car (typical for business assets) and did not avail ITC on that car, you can use the special "margin" valuation for old/used vehicles: Taxable value = Selling price - WDV (depreciated value) on the sale date (ignore negative).
GST rate on that margin is 18% (uniform since 16 Jan 2025 for categories previously at 12%)
Compensation Cess = Nil for old/used vehicles only if no ITC was availed (the cess exemption is conditional).
If you did avail ITC (e.g., you’re a cab operator/car dealer using cars for "further supply" or passenger transport), the concessional margin scheme does not apply; you pay tax at regular rates/cess on the transaction value, subject to the floor created by section 18(6) (higher of output tax on transaction value or reduced-credit amount per Rules 40(2)/44(6)).
2) The legal scaffolding (what the law actually says)
a) The margin formula when depreciation was claimed (no ITC)
Notification 8/2018-Central Tax (Rate) introduced a special regime for old and used vehicles:
GST applies only on the margin, and where depreciation under s.32 (Income-tax Act) was claimed, the margin is Selling price minus the WDV on the date of supply; if negative, ignore (i.e., no GST). Condition: benefit unavailable if ITC was availed on that vehicle.
b) The rate today: 18% on margin (uniform)
With effect from 16 January 2025, the Government amended 8/2018 to increase the 12% bucket to 18%, creating a uniform 18% GST on the margin for all old/used vehicles that qualify (those already at 18% remain 18%).
c) Compensation Cess (the good news-conditionally nil)
Cess on all old/used motor vehicles is NIL provided no ITC was availed on that vehicle. If ITC was availed, this cess exemption does not apply.
d) Rule 32(5) vs. 8/2018-don’t mix lanes
Rule 32(5) is the general "second-hand goods margin scheme" (margin = sell - buy; negative ignored), but it applies to dealers in second-hand goods who have not availed ITC. For old/used motor vehicles, 8/2018 specifically overlays the WDV rule where depreciation was claimed. Think of 8/2018 as the "vehicle-specific lane" when depreciation exists.
e) If ITC was availed (demo cars, fleet used for passenger transport, etc.)
You cannot use 8/2018’s concessional margin route.
Sale is a supply taxed at regular rates/cess, and section 18(6) kicks in to ensure you pay at least the higher of:
(i) Tax on transaction value, or (ii) ITC originally taken, reduced by 5% per quarter (or proportionate months) per Rules 40(2)/44(6).
Joke pit-stop: GST on used cars is like a car’s service schedule: skip the ITC, and you get a "lite" service (margin scheme). Take ITC, and they offer the full diagnostic with all the add-ons.
3) Step-by-step when depreciation was claimed (and no ITC)
Step 1: Establish eligibility
Confirm that no ITC was availed on the vehicle. If yes → you’re out of the 8/2018 lane.
Confirm the car is indeed an old/used motor vehicle you are supplying (selling, disposing, etc.).
Step 2: Compute WDV as on the date of sale
Use Income-tax Act depreciation (typically 15% WDV for motor cars; check your factsheet). The WDV on sale date becomes the comparator under 8/2018.
Step 3: Calculate "margin"
Margin = Selling price - WDV (on the sale date).
If margin ≤ 0, ignore (no GST). If positive, that’s your taxable value.
Step 4: Apply the rate
18% GST on the positive margin (CGST 9% + SGST 9% for intra-state; IGST 18% for inter-state).
Step 5: Cess check
Cess: NIL (since you didn’t avail ITC).
Step 6: Invoice note (good practice)
Add a note such as: "GST charged on margin in terms of Notification 8/2018-CT(R) (as amended). No ITC availed on the vehicle." (Not mandated verbatim, but helps audit trail.)
4) Numerical examples you can reuse
Example A – Sale above WDV (taxable margin)
Facts:
Purchase (new) price: Rs. 10,00,000 (ITC not availed)
Put to use: 01-Apr-2022
Sale date: 30-Sep-2025
Depreciation (IT Act): assume 15% WDV annually for illustration.
WDV as on 30-Sep-2025 (after applying IT depreciation up to sale date) → say Rs. 5,95,000 (illustrative).
Sale price: Rs. 7,00,000
Computation:
Margin = Rs. 7,00,000 - Rs. 5,95,000 = Rs. 1,05,000
GST @18% on Rs. 1,05,000 = Rs. 18,900
Cess = Nil
Notes: Negative margin ignored (not the case here). If your accounts compute a slightly different WDV because of precise dates/half-year rule, recalc the margin accordingly; GST follows your actual WDV per books under the Income-tax rules. The authority for WDV-based margin is Explanation (i) to Notification 8/2018.
Example B – Sale below WDV (no GST)
Facts: Same as above, but sale price Rs. 5,50,000.
Computation:
Margin = Rs. 5,50,000 - Rs. 5,95,000 =
(-)Rs. 45,000 ⇒
ignored GST = Nil; Cess = Nil.
Documentation: Do raise a tax invoice (value can be shown; GST amount will be zero due to negative margin). Keep the WDV workings on file.
Example C – When ITC was availed (e.g., cab operator)
Facts: You’re a passenger transport operator; ITC was availed on the car (permitted under s.17(5)(a) exceptions). You now sell the car for Rs. 6,00,000.
Result: You cannot apply 8/2018 margin. Compute tax on transaction value as per regular 87-series HSN rate plus applicable cess; then compare with the reduced-credit amount under s.18(6) (5% per quarter or proportionate months per Rules 40(2)/44(6)) and pay whichever is higher.
Joke pit-stop: Think of 18(6) as the "minimum speed" sign on a highway-you can pay more tax (if regular tax is higher), but you can’t pay less than the reduced-credit figure.
5) Rates over time (why you’ll now mostly see 18%)
Pre-Jan 2025, 8/2018 had two buckets-effectively 12% on many old/used vehicles and 18% on specified larger ones/SUVs (all on margin). On 16 Jan 2025, Notification 04/2025-CT(R) amended 8/2018 to increase the 12% bucket to 18%, making the effective GST 18% on margin for all qualifying old/used vehicles.
The cess position (nil for old/used vehicles only if no ITC was availed) comes from Notification 1/2018-Compensation Cess (Rate) and remains the crucial condition.
6) Interaction with section 17(5) (ITC block) and why it matters
Most businesses cannot take ITC on motor vehicles used to transport persons (≤13 seats), unless used for further supply, passenger transport, or driver training, etc. (s.17(5)(a)). If you couldn’t take ITC, chances are you didn’t-and that’s exactly when 8/2018 margin + WDV valuation + nil cess applies.
Authorized car dealers’ demo cars: CBIC has clarified ITC eligibility for demo vehicles used for further supply (i.e., sale) by car dealers. When they sell such demo cars, they won’t get the 8/2018 concession (because ITC was availed) and must tax the sale normally; 18(6) comparison applies.
7) Compliance checklist (so your file passes an audit test drive)
1. Evidence of no ITC: Ledger extract/returns showing no credit availed on the car. (Gatekeeper for 8/2018 + nil cess.)
2. WDV working up to sale date: income-tax depreciation schedule backing the number used in the margin.
3. Invoice wording: Mention margin valuation & no ITC. (Good practice; avoids interpretational pit-stops.)
4. If ITC was availed: Keep 18(6) computations (Rule 40(2)/44(6)) plus regular rate/cess calculation; pay the higher.
5. Negative margin: Keep calculation-NIL GST is lawful; don’t "volunteer" tax on losses.
6. Related-party/employee sale: If you are not in 8/2018 (e.g., ITC availed), valuation rules (open market value) can apply-document pricing logic.
8) Special situations & FAQs
Q1. We bought the car before GST era; no ITC was ever taken. Do we still get WDV-margin?
Yes-8/2018 applies to old and used vehicles with no ITC condition; use WDV on sale date to compute margin (negative ignored); apply 18% on the margin (post 16-01-2025); cess nil.
Q2. We’re a second-hand car dealer; we don’t take ITC on purchases. Do we use Rule 32(5) or 8/2018?
If you claimed depreciation (e.g., kept the car as your own asset before sale), 8/2018’s WDV rule fits. If you simply trade in used cars without claiming depreciation, you’ll typically operate under Rule 32(5) (margin = sell - buy) at 18% (post-Jan 2025 harmonisation for used vehicles), subject to cess nil where 1/2018 conditions are met.
Q3. Sold to an employee at a "friendly" price-any risk?
If you’re using 8/2018 (no ITC, depreciation claimed), the law still says margin = sale price - WDV; if that margin is negative, it’s ignored (no GST). Keep robust documentation to defend the sale price as bona fide. If ITC was availed, 8/2018 isn’t available and normal valuation rules (including related-party adjustments) can bite.
Q4. Does reverse charge apply anywhere here?
RCM is a different story mainly for Government departments selling used vehicles to registered persons (not your typical private seller case). For businesses disposing their own vehicles, forward charge applies.
Q5. What if we refurbish the car before sale?
Minor refurb doesn’t change the "used vehicle" nature; still, if depreciation was claimed & no ITC, 8/2018 margin remains the method on sale of the car. Any refurb inputs’ ITC treatment follows normal rules (often blocked if used for a passenger vehicle not qualifying under 17(5)).
9) Common pitfalls (avoid these potholes)
Forgetting the date: Rate harmonisation to 18% became operative 16-Jan-2025; deals before might have been at 12% or 18% depending on category-your tax invoice must reflect the correct period.
Using purchase price instead of WDV: When depreciation was claimed, use WDV on the sale date, not original cost.
Assuming cess is always nil: Nil cess only if no ITC was availed. If ITC was availed, cess may apply per schedule (and 8/2018 isn’t available).
Ignoring section 18(6) when ITC was availed: Always compute the reduced-credit figure and compare with tax on transaction value; pay the higher.
Joke pit-stop: Why did the auditor bring a magnifying glass to the car sale file? To see if the margin was visible to the naked eye!
10) A neat "decision tree" you can follow
1. Was ITC availed on the vehicle?
No → You’re in 8/2018 territory.
Compute WDV on the sale date.
Taxable value = Sale price - WDV (if positive; else zero).
Rate = 18% on the margin (post 16-Jan-2025).
Cess = Nil.
Yes → 8/2018 not available.
11) Worked illustration with full period depreciation (for your files)
Purchase (no ITC availed): Rs. 12,00,000 on 01-Apr-2021
Depreciation @ 15% WDV (illustrative):
FY 2021-22: Rs. 1,80,000 → WDV Rs. 10,20,000
FY 2022-23: Rs. 1,53,000 → WDV Rs. 8,67,000
FY 2023-24: Rs. 1,30,050 → WDV Rs. 7,36,950
FY 2024-25: Rs. 1,10,543 → WDV Rs. 6,26,407
FY 2025-26 (to 23-Aug-2025): time-apportion if you maintain daily/periodic for internal accuracy, or compute to period end as per accounting policy, then adjust to sale date-document your method.
Sale on 23-Aug-2025 at Rs. 7,50,000
Assume WDV on sale date Rs. 6,20,000 (illustrative after time apportionment).
Margin = 7,50,000 - 6,20,000 = Rs. 1,30,000
GST @18% = Rs. 23,400; Cess = Nil.
Invoice note: "GST on margin-Notification 8/2018-CT(R) (as amended by 04/2025). No ITC availed."
12) Documentation pack (what to keep)
Copy of purchase invoice (even if pre-GST era) and proof that ITC wasn’t availed.
Income-tax depreciation schedule to derive WDV on sale date.
Sale invoice with margin wording.
Where relevant, board approval for disposal and any independent valuation used for internal governance.
13) Final thoughts (and one last light quip)
The law on selling used business vehicles isn’t trying to tax your entire sale value twice-it’s trying to tax only your "economic gain" when you didn’t claim ITC in the first place; hence the WDV-based margin and nil cess design. But once you did claim ITC, it asks you to square up properly via section 18(6).
Last quip: In GST, selling a used car is like trading in your phone-if you never took the charger (ITC), they only care about the "upgrade price" (margin). If you did take the charger, they’ll want it back with interest-quarter by quarter!
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.