Finance Minister Nirmala Sitharaman has found herself in the eye of a storm after a video of her explaining the recent GST hike on used cars went viral for all the wrong reasons. The GST Council’s decision to raise the tax on pre-owned small cars from 12% to 18% has already raised eyebrows, but Sitharaman’s comments have added fuel to the fire, with netizens calling her explanation “absurd” and “beyond comprehension.”
A Video That Lit the Internet on Fire
The now-infamous video, shared widely on X (formerly Twitter), shows Sitharaman trying to demystify the revised tax structure. “The tax will apply to the margin value, the difference between purchase price and selling price. So, if a car is bought for ₹12 lakh and sold for ₹9 lakh, the tax is on ₹3 lakh, not the selling price,” she explained confidently. But her example didn’t land well.
Critics were quick to point out the glaring flaw: taxing the margin in this case would mean taxing depreciation, or the loss incurred when selling a car. “She’s taxing losses! Has this government run out of ideas for revenue generation?” one outraged user posted.
Another user shared, Nimmo Tai explains her genius GST scheme on used cars. She says you will be charged GST on the margin which is the difference in the purchase price & sale price. Means, if you buy a car 10 years ago for 10L & sell today for 1L, you pay 18% GST on only 9L, which she calls margin!
What Did She Actually Mean?
Amid the online frenzy, tax experts rushed to clarify the facts. The GST revision only targets registered businesses, such as car dealerships, not individual transactions. For instance, if a dealership buys a used car for ₹9 lakh and sells it for ₹10 lakh, GST is levied on the ₹1 lakh profit margin, not the depreciation or selling price.
Sitharaman’s example, though intended to explain this, ended up misleading many into believing that even private car sales would be taxed. This miscommunication has now become a textbook case of how not to explain policy changes.
The Fallout – Will Used Cars Get Costlier?
The GST hike is set to shake up India’s booming pre-owned car market, which has been growing at a 15% CAGR compared to 10% for new cars. Industry giants like Spinny, Cars24, and Maruti True Value may now face slimmer profit margins unless they pass the burden onto consumers. If they do, expect used car prices already at record highs to climb even further.
It is affordability that makes the used car market so popular; the high cost of a new car pushes the cash-strapped to the pre-owned segment. But with the GST hike and a boost from Sitharaman’s explanation, buyers and sellers alike have lost their way.
- Growth Rate: Used cars are growing at a 15% CAGR, outpacing the 10% growth of new cars, indicating a strong preference for affordability.
- Profit Margins: New cars generally have higher profit margins (20%) compared to used cars (10%), making the GST hike more impactful on used car dealers.
- Impact on Prices: The GST hike is expected to increase used car prices significantly (80%), whereas new car prices might see a smaller impact (40%).
Netizens Didn’t Hold Back
While the video continues to go viral, the slander doesn’t seem to be subsiding. On social media, jokes and messages criticising Nirmala Sitharaman abound. “First they tax your car, then they tax your dreams!” One viral message quipped, “I just sold my old bike. Is it time to start saving on my depreciation for GST?”
It isn’t the first time a policy announcement has riled the government, but Sitharaman’s slip was sure to make the news, causing not only debates over GST but India’s taxation regime to boil over.
What Lies Ahead?
With the trend brewing, industry observers are now curious to see how dealers and aggregators respond to the tax change.
Will companies bear the brunt, or do buyers shoulder the burden? More significantly, how will the state regain mastery of the story?
