A car dealer generally displays one variant of every car model that is in his/her dealership as a demo car. When this is the case, the car dealers will have to carefully categorise the cars as stock or capital goods depending on the situation. The exact use of the car in the business will be the deciding factor here. In this article, we will illustrate the components of GST on Demo car for sale.
Generally, car dealers purchase cars directly from Manufacturers and then supply them to end-users. The Car Dealer may use a few cars as demo cars. These demo cars will be treated as an inward supply when received by the Car Dealer. After that, the dealer may capitalise the demo car (in the books of accounts) as it will be used for the furtherance of business. When the car is ultimately sold, it will end up as a second-hand sale or sale of a used car, rather than a sale of a brand-new car (compared to the other cars in stock-in-trade). The car dealer has two options for charging GST on demo cars for sale in India at the time of sale:
The car dealer can charge the above rates only after considering the below-mentioned points:
The taxpayer/car dealer can charge GST at 28% (in line with other cars supplied) plus the compensation cess that ranges between 1% and 22% depending on the type of car. However, in this option, the taxpayer/car dealer can claim ITC.
ITC on Motor vehicles with a seating capacity of up to thirteen passengers is generally blocked for taxpayers. The exceptions are when the motor vehicles are used for:
For further details on blocked credit, please refer to our article on Blocked Credit here. The points to be noted here are:
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