GST on second hand Goods- Margin Scheme
After the introduction of GST, one of the most complicated issues before the authorities was “Tax implication on sale of used or second-hand goods”. The Government took note of the issue timely and brought necessary changes in GST laws by simplifying the provisions related to second-hand goods. The Government introduced “Margin Scheme” under GST for those taxpayers who are dealing in second hand or used goods.
We all are aware that GST is chargeable on the “Transaction Value” of the goods as per the GST laws. But, in the case of second-hand goods, the dealer can opt for the “Margin Scheme” and pay tax on the margin amount only. If the margin is negative, no tax is payable. In this article, we will discuss the concept of the “Margin Scheme”.
Margin Scheme under GST
What is Margin Scheme?
Margin Scheme has been introduced by Notification No. 10/2017- Central tax dated 28-06-2017 by making amendments in CGST Rules, 2017.
Margin Scheme is applicable for those GST registered taxpayers who deal in the purchase and sale of second-hand or used goods and makes the purchase of such goods from unregistered persons.
Under this scheme, if the dealer opts, he is required to pay GST only on the margin i.e. the difference between the sale price and the purchase price of the second-hand goods. However, if there is either no margin or there is a loss, no GST is payable.
When the second-hand goods dealer purchases goods from an unregistered person, no GST is levied at that point. GST shall be chargeable only when such dealer resells the goods either as such or after minor refurbishing/ repairs. GST will not be payable on the entire transaction value rather on the margin earned by the dealer. We will take an example to understand the scheme below.
Margin Scheme is applicable only when there is no change or minor processing (repairing/ refurbishing) of the goods. If such processing changes the nature of goods, the dealer cannot opt for the ‘Margin Scheme’. For example, a jeweller purchases a gold bracelet from an unregistered person and converts it into a gold chain before the sale, the jeweller cannot opt for ‘Margin Scheme’.
Cost of repair, refurbishing, reconditioning etc. incurred by the dealer shall also be considered for calculating margin.
Example:
Cars24 deals in buying and selling second-hand cars. It purchases a second-hand car (original price Rs. 4 Lakhs) for Rs. 2,50,000 from Mr Ramesh (unregistered person) and sells it again to Mr Suresh after minor repairs for Rs. 3,00,000. Suppose, repairing cost is Rs. 10,000.
In this example, the supply of car by Mr Ramesh to Cars24 shall not be chargeable to tax.
Supply of car by Cars24 to Mr Suresh will be liable for GST.
GST will be levied on the margin earned by Cars24.
The margin will be derived on the basis of the difference of sale price and purchase price including repairs cost i.e. Rs. 40,000 [3,00,000 – (2,50,000 + 10,000)]
IS THERE ANY MARGIN SCHEME IN GST ?
A NORMAL DEALER CAN ADOPT THIS SCHEME?
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