Gst Margin Scheme

Goods & Service Tax had been introduced in India from 1st July 2017. One of the main

advantages of GST is the simplification of tax and simplification of the procedural aspects involved under the same. In order to simplify the taxes, the GST law has come up with a various scheme. One such scheme is the Margin Scheme. In this article, we look at the Gst Margin Scheme in detail. circumstantial Know more about GST on used goods.

Margin Scheme

Margin scheme under GST helps avoid double taxation on the supply of goods which has been taxed already. Under Margin scheme, GST the supplier or the seller of the goods can calculate on the difference between the value of the supplied by the seller and the purchase value of the goods received by the customer. Normally, as per valuation rules,

GST is charged on the actual transaction value of supply of the goods, however, in respect of the second hand goods, a person dealing in such goods, may be allowed to pay tax on the margin. If there is no margin, then, no GST would be payable on such transaction. This is the basis of the Gst Margin Scheme.

Valuation of Supply under the Margin Scheme

As per provisions of rule 32(5) of the CGST Rules, 2017, where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored. The proviso to the aforesaid rule further provides that in case of the purchase value of goods repossessed from a unregistered defaulting borrower, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession. In this regard, Notification No.10/2017-Central Tax (Rate) New Delhi, dated 28th June 2017 exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5) of rule 32 of the CGST Rules, 2017, from an unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts.

Click here to read about GST on Renting of Motor Vehicle

Notification No.10/2017-Central Tax

An extract from Notification No.10/2017-Central Tax pertaining to the above subject matter of valuation of supply posted below for reference:

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Example for Margin Scheme

For example, XYZ, a car selling company, which deals in buying and selling of second hand cars, purchases a second hand car at Rs.5,00,000 from an unregistered person and sells the same after minor furbishing at Rs.5,75,000, exemption of GST shall for the purchased value of the vehicle. However, when XYZ, a registered user sold the same vehicle to a customer at the price value of Rs.5,75,000, GST shall apply to the difference amount i.e, Rs.75,000. Hence, GST applies only to the margin amount. In case if the seller adds other value to the total amount by way of repair, refurbishing, reconditioning or other services, the seller shall add the expenses to the value of goods and should apply as part of the margin. If the unregistered user opts for the margin scheme for a transaction of second hand goods, then the person selling the car to the company would not issue any

taxable invoice and the company purchasing the car cannot claim any input tax credit. Click here to register for a Private Limited Company, One Person Company or Public Limited Company

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Frequently Asked Questions

Common questions about GST Margin Scheme for Second Hand Goods in India.

The GST Margin Scheme is a provision under GST law that allows suppliers of second-hand goods to pay tax only on the margin or profit earned on the sale, rather than on the entire selling price. This helps avoid double taxation on goods that have already been taxed previously.

The GST Margin Scheme applies when a registered person deals in buying and selling second-hand goods, such as used cars, furniture, or machinery, without availing input tax credit on the purchase of such goods.

Under the Margin Scheme, the value of supply is calculated as the difference between the selling price and the purchase price of the second-hand goods. If the value of supply is negative, it is ignored for GST calculation.

Yes, the Margin Scheme can be applied to goods repossessed from unregistered defaulting borrowers for the recovery of loans or debts. In such cases, the purchase value is deemed to be the defaulting borrower's purchase price reduced by 5% for every quarter or part thereof between the purchase date and the repossession date.

The primary benefit of the GST Margin Scheme is that it avoids double taxation on second-hand goods that have already been taxed previously. It also simplifies the tax calculation process for dealers of second-hand goods, as they only need to pay GST on the profit margin.

No, input tax credit cannot be claimed on the purchase of second-hand goods if the Margin Scheme is opted for. This is because the scheme is designed to avoid double taxation on goods that have already been taxed previously.

The Margin Scheme is an optional provision under GST law. Dealers of second-hand goods can choose to either follow the regular GST calculation method or opt for the Margin Scheme.

The Margin Scheme is applicable only for the supply of second-hand goods and not for new goods or services. Additionally, it can only be used if the supplier has not availed input tax credit on the purchase of the second-hand goods.

Yes, the Margin Scheme can be used for both intra-state and inter-state supplies of second-hand goods, subject to the applicable GST rates and provisions.

Yes, the GST Margin Scheme is governed by Rule 32(5) of the CGST Rules, 2017, and Notification No. 10/2017-Central Tax (Rate) dated 28th June 2017, which provides exemptions and clarifications related to the scheme.