Selling an old company car or a delivery van often creates confusion during return filing. Business owners and accountants ask whether they must charge GST on the full invoice value, reverse input tax credit, or pay tax on the profit margin. The answer depends entirely on the ITC history of that vehicle.
Before preparing the outward invoice or filing returns, review whether credit was availed on purchase. For details on why car purchases are generally blocked, see our guide on GST input tax credit on car purchase and the specific rules for sole proprietorship car purchases.
The two distinct legal regimes for used vehicle sales
GST law divides used vehicle disposals into two mutually exclusive statutory paths:
- Path 1: The margin scheme under Notification No. 8/2018-Central Tax (Rate). This applies when no input tax credit was availed on the vehicle under GST, VAT, or central excise. Paragraph 2 of Notification No. 8/2018-Central Tax (Rate) states plainly that the concessional rate does not apply if the supplier has availed input tax credit as defined in Section 2(63) of the CGST Act.
- Path 2: Capital goods ITC reversal under Section 18(6) read with Rule 44(6). This applies when the business originally availed input tax credit on the vehicle, which is common for commercial goods transport trucks, tourist passenger cabs, or driving school training cars. See Section 18(6) of the CGST Act and ITC reversal on sale of capital goods under Rule 44.
Common mistake: Charging 18 percent or 28 percent GST on the total sales realization of an old staff car whose ITC was blocked under Section 17(5)(a). Charging tax on the full selling price causes double taxation because the business already absorbed uncredited GST on purchase. Conversely, using the margin scheme for a delivery van where ITC was availed in Form GSTR-3B triggers audit demands with interest under Section 50.
When Notification 8/2018 margin scheme applies
Most corporate cars, executive sedans, and proprietor utility vehicles have their input tax credit blocked under Section 17(5)(a) of the CGST Act because they seat 13 or fewer passengers and are not used for taxable passenger transport, driving instruction, or vehicle reselling. Similarly, vehicles acquired from unregistered individuals carry no credit.
Because no credit entered the electronic credit ledger, the business qualifies under Notification No. 8/2018-Central Tax (Rate) dated 25 January 2018 (as amended by Notification No. 04/2025-Central Tax (Rate)). This notification gives two statutory benefits:
- Valuation on margin only: Tax is charged only on the margin of supply, rather than the gross sale price.
- Concessional tax rates: GST rates are reduced to either 12 percent or 18 percent total (central tax plus state tax, or integrated tax), depending on engine capacity and fuel type, with compensation cess completely exempted under Notification No. 1/2018-Compensation Cess (Rate).
| Vehicle category | Specifications | CGST rate | SGST rate | Total GST rate |
|---|---|---|---|---|
| Petrol, LPG, CNG cars | Engine capacity 1200 cc or more and length 4000 mm or more | 9% | 9% | 18% |
| Diesel cars | Engine capacity 1500 cc or more and length 4000 mm or more | 9% | 9% | 18% |
| Sports Utility Vehicles (SUVs) | Engine exceeding 1500 cc, length exceeding 4000 mm, ground clearance 170 mm and above | 9% | 9% | 18% |
| Other old and used motor vehicles | Small cars under 1200 cc petrol / 1500 cc diesel, two-wheelers, or other motor vehicles | 9% | 9% | 18% |
Calculating the margin of supply under income tax depreciation
How do you determine the margin for a vehicle held on the company balance sheet? Explanation clause (i) of Notification No. 8/2018-Central Tax (Rate) gives the statutory formula:
“in case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act, 1961 (43 of 1961) on the said goods, the value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply, and where the margin of such supply is negative, it shall be ignored;” Notification No. 8/2018-Central Tax (Rate), Explanation (i)
The rules of this formula are straightforward:
First, calculate consideration received, which is the gross selling price agreed with the buyer. Next, determine the depreciated value, which represents the written down value (WDV) of the specific vehicle on the date of sale, calculated using the depreciation rates prescribed under Section 32 of the Income-tax Act, 1961.
If the selling price exceeds the depreciated value, the margin is positive and tax is calculated on this margin amount. When the selling price is lower than the depreciated value, the margin is negative and must be ignored. In that situation, the taxable value is treated as zero, and no GST is payable.
When Section 18(6) applies: vehicles with ITC availed
If your business purchased a commercial goods carriage or a passenger transport bus, credit was not blocked under Section 17(5)(a). You claimed full ITC in Table 4(A)(5) of Form GSTR-3B at the time of purchase. See the rules governing these vehicles in our article on commercial vehicle ITC for goods versus passenger transport.
When you later sell that vehicle, Notification No. 8/2018 does not apply. Instead, Section 18(6) of the CGST Act read with Rule 44(6) of the CGST Rules mandates a comparison between two numbers:
- Pro-rata reduced ITC: The total input tax credit originally availed, reduced by 5 percentage points for every calendar quarter or part quarter elapsed from the invoice date to the sale date. Under Rule 44(1)(b), the statutory life of capital goods is taken as 5 years (60 months or 20 quarters).
- Tax on transaction value: The GST payable on the actual sale price determined under Section 15 of the CGST Act at the standard rate applicable to the vehicle.
The registered person must pay whichever amount is higher. If the reduced credit amount exceeds the tax on transaction value, the higher amount forms part of the output tax liability.
Worked examples: comparing both scenarios
To see how both methods operate in practice, let us examine two businesses selling a vehicle after 3 years (12 quarters) of business use.
Case 1: Company executive car sold under Notification 8/2018 (no ITC availed)
A manufacturing company bought a mid-size petrol sedan (1500 cc, length over 4000 mm) in June 2023 for ₹14,00,000 plus ₹3,92,000 GST (28%). Because seating capacity was 5 persons, ITC was blocked under Section 17(5)(a). In October 2026, the company sells the car.
- Original cost capitalised in books: ₹17,92,000 (invoice value plus taxes).
- Depreciated book value under Section 32 of Income-tax Act on sale date: ₹7,50,000.
- Scenario A (sold at profit above book value): Sale consideration is ₹8,50,000. Taxable margin = ₹8,50,000 minus ₹7,50,000 = ₹1,00,000. GST payable at 18% (9% CGST + 9% SGST) = ₹18,000.
- Scenario B (sold below book value): Sale consideration is ₹6,80,000. Margin = ₹6,80,000 minus ₹7,50,000 = negative ₹70,000. The negative margin is ignored. Taxable value is zero, and GST payable is ₹0.
Case 2: Commercial delivery truck sold under Section 18(6) (ITC was availed)
A logistics company bought a commercial cargo truck in June 2023 for ₹16,00,000 plus ₹4,48,000 GST (28%). Because it is a goods carriage, the company availed full ITC of ₹4,48,000 in Form GSTR-3B. The truck is sold in October 2026 for ₹7,00,000 plus applicable taxes.
| Calculation step | Statutory rule | Amount |
|---|---|---|
| Original ITC availed | Inward supply invoice June 2023 | ₹4,48,000 |
| Quarters elapsed | June 2023 to October 2026 (14 quarters or part quarters) | 14 quarters |
| Percentage reduction | 14 quarters × 5 percentage points | 70% |
| Remaining ITC payable (A) | ₹4,48,000 × (100% minus 70% = 30%) | ₹1,34,400 |
| Agreed sale value | Transaction value under Section 15 | ₹7,00,000 |
| Tax on transaction value (B) | ₹7,00,000 × 28% | ₹1,96,000 |
| Final GST payable | Higher of (A) or (B) under Section 18(6) | ₹1,96,000 |
In this example, the tax on transaction value (₹1,96,000) exceeds the pro-rata reduced credit (₹1,34,400), so the company pays ₹1,96,000. If the vehicle had been sold for scrap at ₹3,00,000 (tax ₹84,000), the company would have been required to pay the higher figure of ₹1,34,400.
Invoicing and return filing procedure
The documentation and return reporting rules differ between both methods. Follow these verified portal steps for each case:
Invoicing under the margin scheme
- Do not show tax separately to unregistered buyers: If selling to an individual consumer, do not display the margin tax breakdown on the customer copy if you do not want to disclose your book profit margin.
- Mandatory invoice note: Add a clear declaration on the invoice: “Supply of old and used motor vehicle covered under Notification No. 8/2018-Central Tax (Rate). Tax payable on margin of supply.”
- No ITC for buyer: The buyer cannot claim input tax credit on a margin-scheme invoice.
Reporting in Form GSTR-1 and Form GSTR-3B
When reporting margin scheme vehicle sales on the GST portal (tutorial.gst.gov.in GSTR-1 manual):
- In Form GSTR-1, enter the taxable margin as the taxable value in Table 4A (for registered buyers) or Table 5 / Table 7 (for unregistered buyers). If the margin is zero or negative, no taxable supply is created; however, the gross sale consideration can be reported under exempt or non-GST outward supplies in Table 8 to reconcile bank book receipts.
- In Form GSTR-3B, the taxable margin and output tax auto-populate or are declared in Table 3.1(a) as outward taxable supplies.
- When selling under Section 18(6), report the transaction value in Form GSTR-1 Table 4A. If the pro-rata reduced credit is higher than the transaction tax, declare the differential liability in Form GSTR-1 and pay it through Table 3.1(a) of Form GSTR-3B.
Related guides
- Pharma expired medicine ITC reversal: circular rules and procedure
- ITC reversal on goods sent for exhibition abroad not sold: GST rules and Circular 108
- ITC reversal under Section 17(5)(d) for building and civil structure expenses
- ITC on demolition and reconstruction of building: plant vs civil structure rules
Frequently asked questions
When does Notification 8/2018-Central Tax (Rate) margin scheme apply to a vehicle sale?
The concessional margin scheme under Notification No. 8/2018-Central Tax (Rate) applies only when the registered person did not avail input tax credit on the purchase of the motor vehicle, such as when ITC was blocked under Section 17(5)(a) or when the vehicle was bought second-hand from an unregistered person.
How is margin calculated if depreciation was claimed under Section 32 of the Income-tax Act?
Under explanation clause (i) of Notification No. 8/2018-Central Tax (Rate), the taxable margin equals the consideration received on sale minus the depreciated book value of the motor vehicle on the date of supply calculated under Section 32 of the Income-tax Act. If the margin is negative or zero, it is ignored and no GST is payable.
What rule applies when a business sells a vehicle on which ITC was originally claimed?
When ITC was originally claimed on purchase, such as for commercial passenger transport or goods transport vehicles, Section 18(6) of the CGST Act read with Rule 44(6) applies. The supplier must pay an amount equal to the ITC availed reduced by five percentage points per quarter or part thereof of usage, or the GST on the actual transaction value determined under Section 15, whichever is higher.
Where is the vehicle sale reported in Form GSTR-1 and Form GSTR-3B under the margin scheme?
In Form GSTR-1, the taxable margin is entered as the taxable value in Table 4 (for B2B supplies) or Table 5 and Table 7 (for B2C supplies) with the applicable concessional tax rate. In Form GSTR-3B, the taxable margin and output tax are declared in Table 3.1(a). The non-margin portion of the invoice is not subject to tax.
Reconcile your inward supplies before return filing
When purchasing assets or reviewing vendor bills, verify every invoice against your auto-populated GSTR-2B. gstr2bmatch.in reads your portal JSON and purchase register directly in your browser without uploading your financial data to any server.
Last checked: 19 October 2026. Sources: Notification No. 8/2018-Central Tax (Rate), Section 18 of the CGST Act, Rule 44 of the CGST Rules, GSTN GSTR-1 User Manual.