New Delhi. Last Saturday, a decision was taken in the GST Council meeting due to which Finance Minister Nirmala Sitharaman was made fun of on social media in the last 3-4 days. The example she gave while announcing this decision became a big problem for her. Nirmala Sitharaman said that now 18 percent GST will have to be paid on the profit made from the sale of old cars.

Giving an example, he said that suppose you buy a car for Rs 12 lakh and sell it for Rs 9 lakh, then 18% GST will be applicable on Rs 3 lakh. This is where things went wrong. In the absence of clarification, people started doing calculations and found out that they have to pay tax on the loss. That is, they are already selling a car worth Rs 12 lakh at a loss of Rs 3 lakh and they will have to pay 18% GST on that too. So their total loss is Rs 3 lakh + 18% GST, that is, the total loss is Rs 3.54 lakh. But is this correct?

What is the real thing?
First of all, this change is not going to affect any common man. That means if you are selling your old car to a friend, then this rule will not affect you. You will not have to pay any GST on the amount received from the sale of the car. This will only affect registered people. That means registered car sellers or businessmen. Whose work is to buy and sell old cars.

Tax will have to be paid on margin
If a car is worth Rs 10 lakh and is sold for Rs 5 lakh after 2 years, then 18% GST will have to be paid on Rs 5 lakh. But this calculation is not that simple. In the middle of this calculation will come the depreciated value, that is, the value of the car which is left after its use. Suppose a car worth Rs 10 lakh has depreciated its value by Rs 3 lakh in 2 years. That is, its depreciated value has become Rs 7 lakh. If you are selling that car for Rs 5 lakh only, then your margin has already become -2 lakh rupees, that is, negative. You do not have to pay any GST on negative margin. But if the value of that car has depreciated to Rs 3 lakh and you sold it for Rs 5 lakh, then you will be considered to have made a profit of Rs 2 lakh and you will have to pay GST on it. The registered person will have to inform the tax authority about this depreciation value. Based on this value, it will be decided whether GST will be levied on the margin of sale of a used car or not.

How to calculate depreciation value?
The value of an object, machine or property which decreases due to usage, time or obsolescence. To understand it in simple words, when we buy an asset, the decrease in its value over time is called depreciation. It is calculated in three ways. Straight line method, reducing balance method, units of production method and sum of the year digit method. We calculate the depreciated value of an object through one of these methods. We are using the straight line method here.

Annual depreciation = Price of the car – Salvage value (4-6% of ex-showroom price)/Useful life of the car

Car price- Rs 10 lakh
Salvage value- Rs 60,000
Useful life- 10 years

If you put these in the formula, you will get a value of Rs 94000. This means that the value of your car is decreasing by Rs 94000 every year. Now in this way you can see what will be the depreciated value of your car after driving it for so many years. From that depreciated value, you will be able to find out whether you will have to pay GST on the margin or not.