GST advice on used-car buyback tax treatment

GST advice on used-car buyback tax treatment

I had a Hyundai Creta under a 48-month novated lease/lease-to-own arrangement with a leasing company. At the end of the lease, they have offered me the option to purchase the vehicle as the end user. They have issued a revised proforma buyback invoice charging CGST 20% and SGST 20%. So effectively 40% total GST on the buyback value of a used vehicle.

Their explanation is that due to post-2025 GST changes, the current GST rate for this category of car is 40%, and since leasing is treated as a supply of service, they are applying that logic. My issue is that this is not a lease rental invoice, it is a buyback / resale invoice for a used car.

My questions:
1. For end-of-term buyback of a used leased car, is GST charged as sale of a used vehicle?
2. Should GST be 40% total, or 18% total?
3. Should GST be on the full sale value or only on margin?
4. Does the novated lease structure change the GST treatment of the final buyback sale?
5. What notification / circular / provision should be checked?

Looking for a CA / GST expert’s view on whether this tax treatment appears correct.

Asked 5 days ago in GST

Dear ,

The final buyback should be treated as sale of an old/used vehicle, not lease rental. If the leasing company has not availed ITC on the car, GST is generally 18% on margin/depreciated margin, not on full value. If ITC was availed or margin benefit is not available, 40% may apply depending on vehicle classification.

Please ask them for written working under Notification No. 8/2018-CTR, as amended by Notification No. 04/2025-CTR and 12/2025-CTR, and Rule 32(5) margin calculation. The novated lease structure alone does not change the GST treatment of the final sale.

For a more detailed review of your case, you may book a phone consultation.

CA Shubham Goyal

Shubham Goyal

CA, Delhi

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Find reply to your querries

1. For end-of-term buyback of a used leased car, is GST charged as sale of a used vehicle?

- Yes it will be treated as sale of vehicle as there is no concept of used vehicle applicable in the given case. Car company ownerd the car and insted of selling it they lease it out so technically you become the first owner of car only

2. Should GST be 40% total, or 18% total?

- Lease rent attract GST @ 40% & sale of car value shall also attract GST @ 40% only.

3. Should GST be on the full sale value or only on margin?

- GSt Shall be be on the Sale value only, as technically you are first buyer there is no margin rule applicable in your case

4. Does the novated lease structure change the GST treatment of the final buyback sale?

- No as two are sepertae transactions for GST Purpose - GST is transactional tax so on lease it attracted as supply of Service while at the time of buyback it is attracted as sale of motor vehicle

5. What notification / circular / provision should be checked?

- There are no explicit notification or circular on the matter, however there is an AAAR which covers exact same case M/s True Solar Private Limited, AAAR Odisha (Order No. 03/ODISHA-AAAR/Appeal/2024-25, dated 18.12.2024)

Vishrut Rajesh Shah

CA, Ahmedabad

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