16.07.2017: The sale of second-hand goods will not be subject to Goods and Services Tax (GST) if they are sold at a price lower than their purchase price, as per the government’s clarification on Saturday.
According to Rule 32(5) of the Central Goods and Services Tax (CGST) Rules, 2017, when a registered person deals in second-hand or used goods and does not claim input tax credit (ITC) on their purchase, the taxable value of supply is determined as the difference between the selling price and purchase price. If this difference is negative, meaning the goods are sold at a loss, it will be disregarded for GST purposes. This provision is referred to as the Margin Scheme.
This clarification was issued in response to concerns regarding the applicability of the Margin Scheme, particularly for dealers in second-hand goods and old, used empty bottles.
Under this scheme, tax will only be applicable on the margin—the difference between the selling and purchase price—provided the nature of the goods remains unchanged and no ITC is claimed. If the margin is negative, GST will not be applicable.
As a result, any registered dealer engaged in the sale of second-hand goods, including used empty bottles, can avail the Margin Scheme, provided they meet the conditions specified under Rule 32(5) of the CGST Rules, 2017.
Margin Scheme Under GST
The Margin Scheme under GST is designed for businesses that deal in second-hand goods. According to Rule 32(5) of the CGST Rules, 2017, if a registered person sells used goods without availing input tax credit (ITC) on the purchase, GST is only levied on the difference between the selling price and purchase price. If the margin is negative, meaning the goods are sold at a loss, GST is not applicable.
This scheme benefits small businesses engaged in the resale of second-hand goods, such as used furniture, electronics, and old empty bottles. It simplifies tax compliance and ensures that GST is not levied on the full transaction value, but only on the profit margin. Businesses opting for this scheme must ensure they do not claim ITC on such purchases to qualify for the tax benefit.
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