VAT on Used cars

sharadmumbai · 14th November 2011, 23:34

Is anyone aware of the VAT rules on transferring a car from Employer to employee?

I'm shifting jobs and suddenly the car transfer has become a headache.
My company is saying that they will charge 12.5% on the book value of the Car as VAT even though the VAT has already been paid once on the new car. Can someone confirm if this is correct?

Also, my car is MH01 and I stay in thane inside the octroi limits. My company is again forcing me to pay octroi because as per them, RTO requires the octroi receipt to transfer the car in my name. Is it so?

MOD: Don't know if this is the right thread. Move if needed.

shankar.balan · 15th November 2011, 06:43

yes the employer would charge VAT for a car transfer to employee. However, this would be on the written down value.
since the Octroi has also been paid at the outset, they ought not to charge Octroi a second time. Ask them for the original Octroi paid receipt when they bought the car at first, and then check again with the RTO.
again, since the written down value is likely to be very much less than the original price of the vehicle, and since the employee himself has been owning and driving the vehicle, it should not be too much of a pain to pay up and take the vehicle. after all there is a considerable gain by way of the "book value" of the vehicle which is certainly going to be much much less than the current market value of the vehicle.

sharadmumbai · 15th November 2011, 20:01

Update on octroi Bit: It needs to be paid again and the value on which it is to be levied is determined by the officials. Receipt is required by the RTO without which the transfer can't happen. :(
On VAT issue, my company is seeking opinion of tax consultants and it appears that will also hit me.

sgiitk · 16th November 2011, 09:08

Should not the transferor claim VAT credit, since it is a case of sale at a lower price and VAT is Value Added Tax. Here the addition is negative!

Warwithwheels · 16th November 2011, 10:53

AFAIK..... Going by general reasoning VAT on second hand cars would be levied only if the seller/transferor (in this your Employer) is in the business of Buying/ Selling cars. This is because the car would be treated as Stock in Hand.

I presume in your case, your company's business is not buying/ selling cars. In that case, according to the generally accepted accounting principles, the car would be treated as a Fixed Asset.

But VAT laws differ from state to state. IIRC, Maharashtra VAT is one of the very few legislations that levy VAT on used cars. Remember reading somewhere that the rate is 1.875% of the WDV as per your company books. You must also check for Income Tax Implication on the above transaction.

Bomi · 16th November 2011, 14:53

Your company's stand is correct. VAT will be payable on the value at which the car is sold to you. Even Octroi will be payable as the car is moving from one municipal jurisdiction (MH01 is Greater Mumbai) to another (Thane).
Many companies have a rule that if the employee does not want the car he can find a buyer who will be ready to pay the company's WDV. The company can then sell the car to such a person. You can try this alternative, but I am sure you will have a deadline to exit the company, so this alternative may not be possible.

14th November 2011, 23:34	#1
sharadmumbai BHPian Join Date: May 2010 Location: Gurgaon Posts: 187 Thanked: 98 Times View My Garage	VAT on Used cars Is anyone aware of the VAT rules on transferring a car from Employer to employee? I'm shifting jobs and suddenly the car transfer has become a headache. My company is saying that they will charge 12.5% on the book value of the Car as VAT even though the VAT has already been paid once on the new car. Can someone confirm if this is correct? Also, my car is MH01 and I stay in thane inside the octroi limits. My company is again forcing me to pay octroi because as per them, RTO requires the octroi receipt to transfer the car in my name. Is it so? MOD: Don't know if this is the right thread. Move if needed.
	() Thanks

15th November 2011, 06:43	#2
shankar.balan Senior - BHPian Join Date: Apr 2008 Location: Bangalore Posts: 11,445 Thanked: 24,083 Times View My Garage Infractions: 0/2 (9)	Re: VAT on Used cars yes the employer would charge VAT for a car transfer to employee. However, this would be on the written down value. since the Octroi has also been paid at the outset, they ought not to charge Octroi a second time. Ask them for the original Octroi paid receipt when they bought the car at first, and then check again with the RTO. again, since the written down value is likely to be very much less than the original price of the vehicle, and since the employee himself has been owning and driving the vehicle, it should not be too much of a pain to pay up and take the vehicle. after all there is a considerable gain by way of the "book value" of the vehicle which is certainly going to be much much less than the current market value of the vehicle.
	(1) Thanks

15th November 2011, 20:01	#3
sharadmumbai BHPian Join Date: May 2010 Location: Gurgaon Posts: 187 Thanked: 98 Times View My Garage	Re: VAT on Used cars Update on octroi Bit: It needs to be paid again and the value on which it is to be levied is determined by the officials. Receipt is required by the RTO without which the transfer can't happen. :( On VAT issue, my company is seeking opinion of tax consultants and it appears that will also hit me.
	() Thanks

16th November 2011, 09:08	#4
sgiitk Senior - BHPian Join Date: Dec 2007 Location: Gurugram Posts: 7,971 Thanked: 4,799 Times	Re: VAT on Used cars Should not the transferor claim VAT credit, since it is a case of sale at a lower price and VAT is Value Added Tax. Here the addition is negative!
	() Thanks

16th November 2011, 10:53	#5
Warwithwheels Senior - BHPian Join Date: Aug 2009 Location: India Posts: 1,354 Thanked: 1,761 Times	Re: VAT on Used cars AFAIK..... Going by general reasoning VAT on second hand cars would be levied only if the seller/transferor (in this your Employer) is in the business of Buying/ Selling cars. This is because the car would be treated as Stock in Hand. I presume in your case, your company's business is not buying/ selling cars. In that case, according to the generally accepted accounting principles, the car would be treated as a Fixed Asset. But VAT laws differ from state to state. IIRC, Maharashtra VAT is one of the very few legislations that levy VAT on used cars. Remember reading somewhere that the rate is 1.875% of the WDV as per your company books. You must also check for Income Tax Implication on the above transaction. Last edited by Warwithwheels : 16th November 2011 at 10:54.
	() Thanks

16th November 2011, 14:53	#6
Bomi BHPian Join Date: Oct 2005 Location: Mumbai Posts: 286 Thanked: 79 Times	Re: VAT on Used cars Your company's stand is correct. VAT will be payable on the value at which the car is sold to you. Even Octroi will be payable as the car is moving from one municipal jurisdiction (MH01 is Greater Mumbai) to another (Thane). Many companies have a rule that if the employee does not want the car he can find a buyer who will be ready to pay the company's WDV. The company can then sell the car to such a person. You can try this alternative, but I am sure you will have a deadline to exit the company, so this alternative may not be possible.
	() Thanks