With the rise of the resale and refurbishment market, understanding how Goods and Services Tax (GST) applies to second-hand goods has become crucial for businesses operating in this space. Be it second hand cars, bikes, furniture, mobiles, laptops, other electronic goods & various household items etc, most of the people are exploring both online & offline markets for secondhand goods for budget friendly purchases.
Under GST law second hand goods are not defined separately so before understanding tax implication on these goods we need to check that they come under the purview of GST or not. In this Article we have tried to cover all important aspects of GST on second hand goods in an easy & simple manner which is explained below.
Goods under GST
Section 2(52) of the Central Goods and Services Tax Act states that “Goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply”.
Hence second hand goods not specifically excluded in the definition, are included in the definition of goods and the GST law shall apply to second hand goods in the same manner as it applies to new goods.
Supply under GST
Supply includes all forms of supply of goods or services or both
such as sale, transfer, barter, exchange, licence,rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Hence, supply of second hand goods made for a consideration in the course or furtherance of business shall be taxable under GST law and all the provisions of GST law shall be applied to such supply.
Margin Scheme [Rule 32(5)]
Margin scheme is for persons who deal in purchase and sale of second hand goods. Under this scheme, GST is payable only on the margin difference between the purchase and sale price of the second hand goods. Margin Scheme was introduced to avoid double taxation on same goods.
Example : Purchase Price: Rs.10,000
Sale Price: Rs.14,000
Margin (Taxable Value): Rs.14,000 – Rs.10,000 = Rs.4,000
Applicable GST Rate: 18%
GST Payable = 18% of Rs.4,000 = Rs.720
So, instead of paying GST on the full sale price of Rs.14,000, ABC Traders only pays Rs.720 on the margin of Rs.4,000.
Following conditions are mandatory to opt Margin scheme on used goods
- The supply should be of second hand goods only.
- Pre-owned goods are not necessarily deemed to be second hand goods or used goods. The goods should actually be used before.
- The person should be dealing in both buying and selling of second hand goods. Just one or two sales of unwanted second hand goods/assets cannot be deemed to be dealing in such goods.
- The dealer can carry out minor processing like repairs, refurbishing, re-boxing, etc. The nature of goods should not change. If different accessories and goods are bought and assembled into a new kind of product, which is different in nature as compared to the goods bought earlier, the valuation rule benefit would not apply.
- No input tax credit should have been availed on purchases. The taxes paid on purchases either under forward charger under reverse charge, both should not have been claimed as Input tax credit.
- Where the selling price is lower than the purchase price, GST on negative value shall be NIL and such negative margin cannot be set-off for tax payable on other positive margins.
If the supplier of Second hand goods charges GST on the difference i.e. his margin, the buyer can easily get to know the margin of the supplier by making a reverse calculation which none of the sellers would like to disclose.
GST on purchase of Secondhand goods (RCM)
In case of second hand goods,Used vehicles, seized and confiscated goods, old and used goods, waste and scrap, RCM is applicable only if supply is by Central Government, State Government, Union territory or a local authority [excluding Ministry of Railways (Indian Railways)] to any registered person notified in Notification No. 36/2017-Central Tax (Rate) for intra state supply and Notification No. 37/2017-Integrated Tax (Rate) for inter state supply, both dated 13-10-2017.
Even if these supplies are made by Government Authorities, these are taxable under GST, same was clarified through Circular No. 76/50/2018-GST, dated 31-12-2018.
Important :
(Prior to Amendment )According to Section 9(4) of the CGST Act,2017 if the recipient, being a registered person, gets supply from any supplier, being an unregistered person, the tax on such supply shall be borne and paid by the recipient under Reverse charge mechanism.
Many People are still in doubt regarding RCM u/s 9(4), that Sale of secondhand goods within the state by an unregistered person to a registered supplier will not be liable to GST under RCM u/s 9(4) through exemption Notification 10/2017 Central Tax (Rate) dated 28 Jun 2017.
But that Notification was issued on 28 June 2017 considering that 9(4) is a blanket RCM for registered recipients receiving supply from unregistered persons. Which is now not the case as the section 9(4) has been amended and it is now applicable only on goods & services or both received by promoters as notified in Notification No. 7/2019 -Central Tax (Rate) dated 29-03-2019.
However there is no withdrawal issued for Notification 10/2017 Central Tax (Rate) dated 28 Jun 2017 but notification is a delegated legislation. So when section 9(4) itself got amended all notifications which are not in line with the amended section becomes invalid.
Valuation of Second Hand Goods
There are two methods for determining the valuation of second hand goods for charging GST
(A.) Transaction Value (Section 15)
(B.) Margin value (Rule 32(5))
Further, the valuation method is dependent upon whether ITC was taken at the time of purchase of those goods or not, which is explained below
Scenario 1: If ITC is taken on purchase of goods
Transaction Value
Case A. Second hand goods( except capital goods and plant & machinery ) : If a person is selling a used goods on which ITC is already taken then the valuation for charging GST will be the Transaction value (determined u/s 15) which is paid or to be paid by prospective buyer.
Case B. Second hand goods such as capital goods and plant & machinery : If a person is selling a used capital goods on which ITC is already taken then the valuation for charging GST will be higher of the following
- Amount equal to ITC attributable to remaining useful life of the asset
- Transaction value (determined u/s 15)
This is because section 18(6) of CGST Act, specifically talks about the determining the liability to pay GST at the time of sale of capital goods when ITC of capital goods is taken by a taxpayer .
According to Rule 40(2) of CGST Rules, “Amount equal to ITC attributable to remaining useful life of the asset” shall be calculated by reducing the input tax on the said goods at the rate of five percentage points for every quarter or part thereof from the date of the issue of the invoice for such goods to the date of sale/disposal.
According to Section 2(19) of the CGST Act Capital Goods means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
Scenario 2: If ITC is not taken on purchase of goods
Margin Scheme
Case A. All Second hand goods (except Motor Vehicles on which depreciation has been claimed in Income Tax Act ) : Persons who are engaged in dealing of taxable second hand items can opt for margin scheme if they have not claimed ITC on purchase as per Rule 32(5). Valuation for charging GST will be the difference between selling price & purchase price.
If any minor repair/reprocess is done which does not change the nature of goods, cost of that repair/reprocessing will also be considered in calculating margin.
Any Negative value shall be ignored for the purpose of GST.
Margin Value = Selling price of used good – (minus) purchase price – cost of minor repair/reprocess
Case B. Second hand Motor Vehicles on which depreciation has been claimed : If a person is selling used motor vehicles(cars) on which depreciation was claimed in Books the valuation as per margin scheme will be calculated as below
Margin Value = Selling price of Motor Vehicle – (minus) Depreciated value of the motor vehicle on the date of sale as per Income Tax act.If the margin is negative, it shall be ignored.
Note : Margin scheme is optional , Supplier can either opt for Transaction value or margin value according to his choice. A supplier has to fulfill all conditions (mentioned above) to become eligible for opting Margin scheme.
Value of Purchase in case of repossession from Defaulting Borrower
If the goods are repossessed from the defaulting borrower then purchase price (of second hand goods dealer) in such case will be calculated as Original Purchase price less 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.
Example
Mr. Ram sold goods which were re-possessed from Mr.Bharat for Rs. 7,00,000/-, on 31 March, 2025, the goods were purchased on 01 January, 2024 for Rs. 5,00,000/-.
Now to arrive at the taxable Value first Rs 5,00,000/- i.e. purchase price will be reduced by (5%*5 = 25% of 500000= 125000) i.e. Rs 3,75,000/- (500000-125000)
Taxable Value shall be Rs 3,25,000/- (7,00,000-3,75,000)
Dealer acting as an agent of Second hand goods
If the second hand dealer is not purchasing and selling goods but acting as an agent for seller to find the buyer then such a scheme is not applicable on such dealers. GST at the rate of 18% is applicable on the commission received by Agent (dealer) either from the seller or from the buyer.
Invoicing in case of second hand goods
Same rules of invoice shall apply to second hand goods also in case the supplier is paying GST at transaction value.
Also, in case of margin scheme too the same rules of invoicing apply.
No format for invoice under Margin scheme is notified by the department yet. Below is the suggested format for Invoicing under Margin scheme
Sample Invoice: Margin Scheme – Second-hand Goods
- Invoice Number: INV/2025/001
- Date: 04-May-2025
- Seller: ABC Second-hand Traders
- Buyer: XYZ Enterprises
- Description: Used Laptop – Dell i5
- HSN Code: 8471
- Purchase Price: Rs. 20,000
- Sale Price: Rs. 25,000
- Margin: Rs.5,000
- GST Rate: 18%
- GST on Margin: Rs. 900
- Total Invoice Value: Rs. 25,900
Declaration
“Tax paid on margin under Rule 32(5) of CGST Rules. No ITC claimed on purchase.”
Further Eway bill rules & E invoice rules shall also apply to all the supplies of second hand goods in the same manner as they apply to normal goods.
GST Rates & HSN on second hand goods
Under GST, there is no distinction between new goods and second-hand goods. Thus, the same GST rates are applicable on the sale of used goods as applicable on the sale of new goods.You have to charge GST according to the HSN code of your product.
However in case of some specific used motor vehicles exemption has been provided through Notification No.8/2018-Central tax (Rate) on the sale of motor vehicles for the specified tariff headings in case the supplier opts for margin scheme.
Recent update in GST rate on second hand motor vehicles (cars) w.e.f. 16 Jan 2025
GST council in its 55th meeting held on 21 Dec 2024 proposed a single GST rate of 18% for all used vehicles (motor cars) including electronic vehicles (EVs) which came into effect through Notification 04/2025 dated 16 Jan 2025.
Input Tax Credit (ITC) on second hand goods
(A.) ITC on purchase of Second hand goods itself
There are two points where ITC can be claimed for secondhand goods
- At the time of first purchase : A dealer can claim ITC when he purchased goods for the first time But if he does so then he will not be eligible to pay GST under Margin scheme as not claiming ITC on purchase is a must condition for opting Margin Scheme.
If Not opting for Margin scheme Dealer can take ITC on purchase & pay GST on second hand goods on transaction value (explained above)
- At the time of second purchase: If a dealer of second hand goods is issuing B2B invoice & charging GST either on Transaction value or on margin then Buyer of second hand goods can take input tax credit (ITC) of that GST provided he would become ineligible to opt for Margin scheme for supply of such second hand goods.
Many people are in doubt that Supplier under margin scheme can not issue Tax Invoice & buyer can not claim ITC, but it is not true. Supplier of second hand goods can issue Tax Invoice being in margin scheme & buyer can claim ITC & Ruling for same was given by the authority for advance ruling – in karnataka – goods and services tax
(B.) ITC on other business expenses & capital goods used for business
It is clear that If ITC was claimed on purchase of second hand goods then the Supplier can not take benefit of the Margin scheme.
But he can claim input tax credit of other business expenses such as rent, commission, professional exp. etc subject to basic conditions of ITC availability under section 16 to section 21 of CGST Act & Rule 36 to 45 of CGST Rules. Ruling for the same was given in
M/s. Attica Gold Private Limited AAR Karnataka 2022
Other Important points
- There is still no clear directive from the tax authorities on how turnover should be reported in GSTR 1 & GSTR 3B when the margin scheme is adopted. As a result, a commonly followed practice is to report the gross taxable value in returns, with a bifurcation—recording the purchase value under 0% tax and applying the applicable GST rate (e.g. 18%) only on the margin. While this approach is widely accepted, but It is not clarified by department yet.
- In case of Capital Goods lost or destroyed due to any accident or are gifted to any unrelated person, there is no consideration and hence in such case, only ITC attributable to the remaining life to be paid.
- The Margin amount should not be inclusive of GST .The department is of the view that tax will be payable over and above the margin amount. (Deccan Wheels – 2022 (57) G.S.T.L. 74 (A.A.R. – GST – Mah.)
- In case of Capital Goods such as refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, tax shall be paid on the transaction value and the Margin scheme shall not apply.
- To many people it is unclear whether turnover for GST registration should be based on the gross sale amount or just the margin. It is clarified that for calculating Average Annual turnover for registration threshold gross amount is to be taken into account not the margin.
