GST-on-Used-Goods

GST on Used Goods – Margin Scheme

GST on Used Goods – Margin Scheme

As per the GST Council, GST shall apply to used goods or second hand goods as tax applies on the transaction value. However, if the concerned person registered with Margin scheme under GST, then the person shall pay taxes only on the margin accumulated from the sales. Thus the registered person can file the tax on the profit margin and not on the entire transaction. This avoids double taxation and the person can exempt from filing GST if loss occurred during the transaction. Any person registered with GST can avail this scheme. In this article, we look at the GST margin scheme and sale of used goods under GST in detail.

Conditions for Availing Margin Scheme

The GST Council implemented the Margin Scheme under GST and released it through the Notification No. 10/2017 on 28th June 2017. It applies for registered members dealing with buying and selling second hand goods excluding inward supply of second hand goods received by the person. To avail this benefit, the registered person should comply with two conditions as proposed by the GST Council. The two conditions are:

  1. As per rule 32 (5) of CGST rules 2017, the registered person shall pay GST on the outward supply of such second hand goods. The concerned individual shall determine the GST for the second hand goods through the above-mentioned rule
  2. The registered person must have obtained goods from an unregistered person.

Claiming Depreciation on Second Hand Vehicles

Persons registered with GST can claim depreciation on second hand vehicles. As per Notification No. 8/2018 released by the GST Council on 25th January 2018, states that, person selling second hand vehicle can claim depreciation as per Section 32 of the Income Tax act 1961. The value of the supply shall be calculated as (Value of the goods while selling – Depreciation Value of the asset).

Taxable Value of Used Goods

Taxable supply is provided by a person involved with buying and selling of used goods. In case of used goods sale, for which no input tax credit has been availed on the purchase, the value of supply will be the difference between the selling price and the purchase price, i.e. the margin. In case the value of such a supply is negative, it would be ignored and value of supply would be assumed as zero. (Rule 32(5) of the CGST Rules, 2017).

In case of purchase of used goods that has been recovered from an unregistered defaulting borrower, the amount of loan would be deemed to be the purchase price of the goods reduced by 5 percentage points for every quarter, between the date of purchase and date of disposal by the person making such repossession.

Parameters for Availing the Scheme

To avail the scheme the registered person under GST must satisfy all the 6 parameters in the transaction made between the buyer and the seller:

  • Applies only to the supply of goods and services and anything other than goods and services shall exempt from the benefit
  • The individual should produce Review or Analysis document for the purchased goods or services from the unregistered person
  • The individual should come in terms with the supplier of availing goods or services in the future
  • It applies only to persons registered with GST
  • The supply made the unregistered person should apply as a taxable supply
  • The supply obtained by the individual should have occurred within the limits of the taxable territory

Example

Let’s take an example of a company dealing with selling and buying of second-hand bikes. The company purchases a second-hand bike from an unregistered person for Rs.1 lakh. The same bike is in turn sold by the company for Rs.1.5 lakh after minor refurbishing. In such a case, the taxable value of supply would be Rs.50,000 and GST would be levied on that amount.

In case, any other value is added in terms of repair, refurbishment, reconditioning, then that amount would be added to the value of goods and become a part of the margin. If margin scheme has opted for a transaction of used goods, the persons selling the product to the company will not issue any tax invoice. The company purchasing the product should not claim any input tax credit.

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