Margin Scheme under GST

The Margin Scheme under Rule 32(5) of the CGST Rules allows a registered dealer of second-hand goods to pay GST only on the margin between selling price and purchase price, rather than on the full transaction value. The scheme prevents cascading of tax on goods that have already borne GST in their first sale. It applies to used cars, jewellery, electronics, and antiques, provided no input tax credit has been claimed on the purchase. If the margin is negative the value is taken as nil, and tax is charged at the applicable rate, with used motor vehicles taxed at 12 percent or 18 percent depending on engine size and category.

Mayank Wadhera

Published: 26 Nov 2022

Updated: 16 May 2026

4 min read

The Margin Scheme is a special valuation mechanism under GST that allows dealers of second-hand goods to pay tax only on the value addition — i.e., the margin between the selling price and the purchase price — instead of the full transaction value. Notified under Rule 32(5) of the CGST Rules, the scheme prevents the cascading of GST on goods that have already borne tax in their first sale. In 2026, it remains a critical tool for resellers of used cars, jewellery, electronics, and antiques.

Who can opt for the Margin Scheme?

A registered person dealing in buying and selling of second-hand goods, i.e., used goods 'as such' or after minor processing that does not change the nature of the goods.
Examples: used-car dealers, pre-owned smartphone retailers, second-hand jewellery showrooms, antique dealers.
The scheme cannot be used if input tax credit has been claimed on the purchase of the goods.

How is value determined?

Value of supply = Selling Price − Purchase Price. If the result is negative (i.e., loss on the transaction), it is ignored — value is taken as nil for that transaction, but no setoff against profitable transactions is allowed. GST is charged on this margin at the applicable rate of the goods (e.g., 18% for used cars in certain categories, varying for jewellery).

Worked example — used car dealer

Dealer buys a used car from an individual (unregistered) at ₹4,00,000.
Dealer refurbishes lightly and sells at ₹5,00,000.
Margin = ₹5,00,000 − ₹4,00,000 = ₹1,00,000.
Assuming GST rate applicable to that used car is 18%, GST payable = ₹18,000.
Without margin scheme, GST would have been ₹90,000 on the full ₹5,00,000 — a cascading effect since the car already bore GST on its first sale.

Used motor vehicles — special rates

For used motor vehicles, Notification 8/2018-CT(R) prescribes specific GST rates on the margin: 18% for petrol-LPG-CNG vehicles with engine ≥ 1,200cc and length ≥ 4,000mm; 18% for diesel vehicles with engine ≥ 1,500cc and length ≥ 4,000mm; 18% for SUVs meeting the four-condition test; and 12% for all other used vehicles. ITC must not have been availed on the original purchase by the dealer.

Documentation requirements

Tax invoice issued by the dealer must mention the margin value and the GST rate applied.
Books must clearly identify the purchase price of each item (especially important for inventory tracking).
Where the supplier is unregistered, no GST is charged on the purchase, but the dealer should retain proof of purchase (receipt with PAN if value above ₹2 lakh, etc.).
The dealer must not claim ITC on the purchase value — this is the trade-off for using the margin scheme.

Common errors to avoid

Mistakenly claiming ITC on purchases of second-hand goods, which disqualifies the margin scheme.
Failing to maintain item-wise purchase records, especially in high-volume electronics resale.
Applying margin scheme on goods that have undergone substantial transformation — these are treated as fresh manufacture, not used goods.
Not segregating margin-scheme transactions from regular transactions in GSTR-1 reporting.

Reporting in GST returns

Margin-scheme supplies are reported in GSTR-1 like any other outward supply, but the taxable value reported is only the margin, not the full sale value. In GSTR-3B, only margin-based GST flows through Table 3.1. Reconciliation with books should clearly distinguish gross sales (for accounting and income-tax) from taxable margin (for GST).

Practical advantages and limitations of the scheme

From a competitive standpoint, the Margin Scheme is a meaningful pricing edge in the second-hand market — a used-car dealer who applies the scheme can quote 10-15% lower than a competitor charging GST on full sale value. But the scheme is not without trade-offs. Loss-making transactions yield no carry-forward benefit; the dealer cannot claim ITC even on legitimate business inputs against the second-hand inventory; and the bookkeeping discipline (item-wise purchase price tracking) is heavier than regular GST. For some businesses — high-volume electronics resale, for instance — the operational overhead may outweigh the savings. Conduct a cost-benefit analysis: if your gross margin is consistently above 15%, the Margin Scheme delivers strong tax savings; if margins are thin and volumes high, the regular scheme with ITC on overheads may be more efficient. Also consider customer profile — corporate buyers seeking ITC will prefer regular GST suppliers, while individual buyers don't care and benefit from the lower scheme-based price. The right answer is segment-specific.

Conclusion

The Margin Scheme keeps the second-hand-goods economy in India tax-efficient by taxing only the value addition. In 2026, use the scheme wherever you deal in pre-owned products and have not claimed ITC. Document each transaction's margin, file returns accurately, and you turn a complex valuation rule into a clean compliance routine — and a meaningful pricing edge over competitors who don't know the rule.

Frequently Asked Questions

What is the Margin Scheme under GST?

The Margin Scheme under Rule 32(5) of the CGST Rules allows dealers of second-hand goods to pay GST only on the margin — selling price minus purchase price — instead of the full transaction value. It prevents cascading of tax on goods that have already borne GST in their first sale to a consumer.

Can ITC be claimed under the Margin Scheme?

No. If the dealer claims input tax credit on the purchase of second-hand goods, the Margin Scheme cannot be used. The benefit of paying GST only on margin is conditional on no ITC having been availed on that specific purchase. Records must be maintained item-wise to evidence this.

What GST rate applies to a used car under the Margin Scheme?

Used petrol or LPG-CNG cars with engine ≥ 1,200cc and length ≥ 4,000mm, used diesel cars with engine ≥ 1,500cc and length ≥ 4,000mm, and SUVs attract 18% GST on the margin under Notification 8/2018-CT(R). All other used motor vehicles attract 12% GST on the margin.

What if the margin is negative on a sale?

Under Rule 32(5), if the selling price is lower than the purchase price, the margin is treated as nil for that transaction and no GST is payable. However, the loss cannot be set off against margins from other profitable transactions — each sale is evaluated independently for margin computation.