GST on Second-Hand Goods — Margin Scheme and Dealer Compliance

The GST Margin Scheme allows dealers in second-hand goods (used vehicles, electronics, furniture, etc.) to pay GST only on the profit margin — not on the full sale price. This prevents double taxation where the goods were already taxed when originally sold. Here is the complete guide to the GST Margin Scheme in India.

What is the GST Margin Scheme?

Under Rule 32(5) of the CGST Rules, a registered dealer in second-hand goods can opt to pay GST on the difference between the selling price and the purchase price (i.e., the margin) — instead of on the full sale value. If the margin is negative (bought at a higher price than sold), no GST is payable on that transaction.

Who Can Use the Margin Scheme?

• Only a registered GST dealer dealing in second-hand goods
• The goods must have been purchased from an unregistered person (i.e., an individual who sold their used goods without charging GST)
• If the goods were purchased from a registered person who charged GST, the margin scheme cannot be used — the full GST applies on the sale price, but the dealer can claim ITC on the purchase

Eligible Goods Under the Margin Scheme

• Used/second-hand motor vehicles (cars, two-wheelers, commercial vehicles)
• Used electronics (phones, laptops, televisions)
• Used furniture and home appliances
• Any second-hand goods purchased from unregistered individual sellers

GST Rate Under the Margin Scheme

The GST rate applied under the margin scheme is the same rate as applicable to that category of goods — but applied only to the margin. For example, if a used car attracts 18% GST and the dealer bought it for ₹3 lakh and sells for ₹3.5 lakh, GST = 18% of ₹50,000 = ₹9,000 (instead of 18% of ₹3.5 lakh = ₹63,000).

Special GST Rates for Used Vehicles

Notification 8/2018 prescribes reduced GST rates for sale of old and used motor vehicles when the margin scheme applies: 12% for small vehicles (petrol/CNG <1200cc, diesel <1500cc) and 18% for larger vehicles — compared to 28% on new vehicles. The concessional rate applies only under the margin scheme.

Invoicing Under the Margin Scheme

The tax invoice must clearly mention that it is issued under the margin scheme, and the purchase price and selling price must be mentioned. The GST amount is calculated only on the margin.

Conclusion

The GST Margin Scheme is a significant benefit for second-hand goods dealers — reducing the effective GST burden dramatically on low-margin transactions. SPOTON provides GST advisory and compliance for second-hand goods businesses across Kerala. Contact us for expert GST services for the used goods industry.