GST effect: Used car business could impact the new car market in India

The GST that will be enforced from 1 July has the potential to realign the largely unorganised used car market into a more organised frame work say industry leaders. Interestingly, sale of old and new cars is inextricably linked. It is estimated that about 27-28 per cent of new car sales accrue through exchange of old models. So if new car sales are pegged at about 3 million, we could be looking at about 8,40,000 used cars being exchanged for new ones at pre-owned outlets. The GST will be paid on the value of the exchange. For instance, if the new car costs Rs 6 lakh and exchange value of the old car is Rs 1 lakh, the customer will pay Rs 5 lakh but GST will be paid on Rs 6 lakh. The GST slabs that are yet to be clarified for the pre-owned vehicle segment could well toe the line of new vehicles, with a lag of a couple of months. Cars will attract a base GST rate of 28 percent excluding cess.