MARGIN SCHEME UNDER GST
What is Margin Scheme?
In the “Margin Scheme” taxpayers who are dealing in second-hand or used goods, may at his option, discharge tax on the sale of used or second-hand goods on the margin amount which is the difference between the selling price and purchase price of the goods. The margin scheme is non mandatory for the taxpayer. Further, the taxpayer opting for the margin scheme is bolted from availing input tax credit, if any paid on the goods being sold under the margin scheme.
The margin Scheme has been introduced by Notification No. 10/2017- Central tax dated 28-06-2017 by making amendments in Rule 32(5) CGST Rules, 2017. Further, in the exercise of power given by Section 11 read with Section 15 of the CGST Act, the Government has issued Notification Number 08/2018-C.T.R., dated 25 January 2018 which provides for levy of GST at a concessional rate on margin amount in case of sale of second-hand motor vehicles.
What are the conditions for availing Margin Scheme?
1. Supply must be taxable
2. The supplier must be a second-hand goods dealers
3. the taxpayer opting for a margin scheme is bolted from availing of input tax credit
4. The nature of goods should not be changed after processing
The rate of tax under the marginal scheme will be the same as leviable on unused goods except in the case of motor vehicles for which Notification Number 08/2018-C.T.R., dated 25 January 2018 has been issued for payment of GST at a concessional rate on reduced value i.e. margin amount. The rate of GST on used cars is currently 12% and 18%. 12% for vehicles which are sub 4000 mm and 18% for vehicles above 4,000 mm
Is input tax credit available on the purchase of second-hand goods?
- If Dealer is option for Margin Scheme, he cannot opt for ITC on purchase of Second-Hand Goods
- This is one of the pre-condition for Margin Scheme as mentioned in Rule 32(5)
Cases, where Second Hand Goods are sold directly by the Second Hand Goods Owner to Consumer/Buyer & Commission, is charged on such sale
- In such cases, ‘Margin Scheme’ shall not apply to him
- he shall be liable to pay GST at the rate of 18% on the commission
- Threshold of 20 lakh / 10 lakh for services applicable for commission in such cases
Threshold for Registration in GST
Threshold for Registration as per Section 22 if Aggregate Turnover exceeds 40 lakhs
Aggregate Turnover means Aggregate Value of All Taxable Supplies, Exempt Supplies, Exports & Interstate branch transfer within same PAN
Split opinion over this point among experts as per Rule 32(5) read with Rule 15(1)
Opinion 1: Margin Value only
Opinion 2: Whole Sale Amount of Car
On the Safer side, it is better if you take the Whole Sale Value amount for the calculation of the Threshold
Composition Scheme for Margin Scheme
A person who is under Margin Scheme cannot opt for Composition Scheme i.e., paying Composition Tax on Margin Value
The dealer may opt for the Normal Composition Scheme, but he has to pay GST Composition Tax on the full Value of Sale amount of such Second-Hand Goods
Practically, if we see, the Threshold for Composition is 1.5 Cr which may get exhausted after the sale of only a few 4 wheelers, also, you have to consider the margin per vehicle and the amount