Second-hand goods dealers in used cars, refurbished electronics, antiques or pre-owned jewellery can pay GST only on the margin under the GST Margin Scheme..s guide explains eligibility, calculation and documentation.
What Is the Margin Scheme?
The GST Margin Scheme under Notification 8/2018-CT(Rate) and Rule 32(5) allows eligible dealers to pay GST on the margin (selling price minus purchase price) rather than the full value. This prevents double taxation when goods already bore GST at the first supply stage.
| Goods Category | Margin Scheme? | GST Rate on Margin |
|---|
| Used motor vehicles (no ITC ever claimed on the vehicle) | Yes | 18% on margin (unified rate from 16 Jan 2025; see below) |
| Second-hand jewellery (no ITC claimed) | Yes | 3% on margin |
| Refurbished electronics (no ITC claimed) | Yes | Applicable rate on margin |
| Goods purchased with a tax invoice where ITC WAS claimed | No | Full value |
Key Eligibility Condition
⚠️The Test Is "No ITC Claimed," Not "Unregistered Supplier": Rule 32(5) of the CGST Rules and Notification 8/2018-CT(Rate) make eligibility turn on whether the dealer availed input tax credit on the purchase — not on whether the supplier was registered. A dealer can still use the margin scheme on goods bought from a registered supplier, provided no ITC was claimed on that purchase (for example, where ITC was never available because the original purchase was a blocked credit, or where the dealer simply chose not to claim it and can substantiate that). Conversely, claiming ITC on the purchase disqualifies the margin scheme regardless of the supplier's registration status. Purchases from unregistered persons are also separately relieved from reverse charge under the margin-scheme notification, which is likely the source of the common "must be unregistered" misconception.
Calculation and Case Study
Case Study: Used Car Dealer — 3 Vehicles (Post-16 Jan 2025 Unified Rate)
All purchased with no ITC claimed on the purchase
Vehicle A: SP Rs.8L, PP Rs.6.5L
Margin Rs.1.5L × 18% = Rs.27,000 GST
Vehicle B: SP Rs.22L, PP Rs.20L
Margin Rs.2L × 18% = Rs.36,000 GST
Vehicle C: SP Rs.5L, PP Rs.5.5L
Negative margin → Rs.0 GST
Total GST
Rs.63,000 (positive margins only; no netting)
Notification 04/2025-CTR (effective 16 January 2025) unified the previously split 12%/18% rate structure for old and used vehicles under the margin scheme into a single 18% rate on the margin, regardless of engine size or vehicle category. Always verify the current rate before invoicing, since rates in this category have changed more than once in recent years.
ITC Under Margin Scheme
When the margin scheme is used, no ITC is available on the purchase of the second-hand goods (no tax invoice from unregistered seller). ITC on overheads (rent, repairs, electricity) is claimable as usual.
✓ Key Points
- Each vehicle assessed individually — negative margins cannot offset positive margins from other vehicles
- Invoice should show selling price inclusive of GST; tax amount need not be separately disclosed
- Registration threshold: Rs.20L of aggregate turnover (full selling price, not just margins)
FAQ
Can a dealer use both margin scheme and regular scheme? +
Yes, but not for the same vehicle. The deciding factor for each individual vehicle is whether ITC was claimed on its purchase — not who the supplier was. Margin scheme applies to vehicles where no ITC was claimed (whether bought from a registered or unregistered seller); regular full-value taxation applies where ITC was claimed on acquisition. Track each vehicle's ITC status separately and maintain documentation to substantiate the no-ITC position.
Does GST on margin need to be shown on the invoice? +
For margin scheme invoices, the GST amount need not be separately shown. The invoice shows the selling price inclusive of GST. The dealer maintains internal records of purchase price and margin for GSTR filing.
What is the threshold for margin scheme registration? +
No separate threshold. The Rs.20L registration threshold applies to overall turnover (full selling price). Once registered, margin scheme GST applies to every eligible transaction.
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