Purchase window


The business of second-hand goods has grown exponentially over the past few decades. This is the result of the participation of large organised corporates, as against the traditional times when the industry usually consisted of unorganised dealers. Goods such as used cars, vehicles, mobile phones, televisions, laptops, watch, handbags, and sneakers are some of the popular items that are being sold in the second-hand market. Various aggregator companies have developed platforms for the sale and transfer of old, used and second-hand goods, giving an impetus to such activities. becomes important to study how Indirect taxes i.e. GST affect the businesses engaged in trading such second-hand goods. Therefore, the government is also tapping into this industry to generate tax revenue while taking care of the nuances of this rather unorthodox business activity. One such consideration can be found under the GST laws which contain margin schemes for dealers of second-hand goods. The scheme aims to simplify the tax implications on the sale of second-hand goods. Let us understand the key points concerning the GST margin scheme in this article.

Concept of Margin Scheme

The Goods and Services Tax (GST) Margin Scheme allows dealers of second-hand goods to sell used goods by paying GST only on the differential value of such goods instead of the entire transaction value. Second-hand goods are goods that are already sold once and also taxed once. Levying a tax on the entire value of the goods would potentially raise an issue of double taxation. Hence, the GST margin scheme aims to avoid such double taxation as these second-hand goods have already borne the tax incidence earlier, and are merely re-entering the supply chain. The concept is similar to the structured margin schemes for second-hand goods dealers in countries like Singapore and Malaysia. In New Zealand, this scheme specifically excludes livestock and metal goods. In countries like Albania, Belgium, Finland, Israel, Italy, Mauritius and the UK, simplified tax measures are in place for dealers of artworks, collectables and antiques.

Second-hand goods are not defined under the GST Law and therefore, its understanding in common parlance is relied upon while evaluating its taxation. However, the valuation of such second-hand goods is dealt with under Rule 32(5) of the GST Rules and the same is commonly referred to as the ‘GST Margin Scheme’. As per Rule 32(5), any dealer in the business of buying and selling second-hand goods can avail of the benefits of the GST Margin Scheme. This is merely an option under the GST law and the dealer doesn’t need to follow a margin scheme. The dealer can still opt to levy, collect and deposit the full rate of tax, as applicable on the goods.

GST registration for Margin Scheme

Under the GST laws, a supplier must obtain GST registration if their total supplies exceed the minimum registration threshold. This threshold consists of all kinds of supplies and not merely taxable supplies. Dealers in second-hand goods must evaluate their total turnover similar to businesses in other industries. The gross value of sales is to be considered while calculating the total turnover and not the taxable margin. There is no separate registration required for a dealer to opt for the margin scheme. Besides, any registered supplier can avail of the benefit of the margin scheme after fulfilling the conditions under Rule 32(5). There are no restrictions concerning multiple businesses under a single registration and therefore, a person dealing in both new and used products doesn’t need two separate entities or two separate registrations under the GST law. The dealers can levy full tax on the new products and opt for a margin scheme for the resale of used products, maintaining proper books of accounts and segregating the different types of sales. However, regular suppliers who are not in the business of dealing in second-hand goods cannot sell their used goods under the margin scheme. Further, this scheme also cannot be opted for in case of the sale of used fixed assets. Even, personal assets such as vehicles, jewellery, etc. also are outside the purview of this scheme. Simply, the benefit of the margin scheme is available only to dealers who are ordinarily in the business of dealing with such goods and the sale of such goods is the course of their business.

Conditions for availing of the margin scheme

The primary conditions to avail of the benefit of the margin scheme are as follows: (a) The dealer must be a person ordinarily dealing in buying and selling of second-hand goods; (b) The goods being bought or sold must be used; (c) The predecessor owner of the goods being sold should be other than the dealer himself; (d) The goods should not undergo any kind of major processing which change the nature of such goods; (e) The dealer should not have availed any Input Tax Credit (ITC) on the purchase of such second-hand goods. Refurbished goods are considered second-hand goods and the benefit of the margin scheme can be applied to such goods, however, the refurbishments should not result in any major changes to the nature of such goods. It is important to note here that merely unboxing goods does not make the goods second-hand or used. The benefit of the margin scheme is available irrespective of whether the supply is intra-state or inter-state.

Value of supply under the margin scheme

The value of supply under the GST margin scheme is considered as the difference between the selling price and the purchase price of the goods. However, when the difference between the selling price and the purchase price is negative i.e. when goods are sold at loss, the value of such supply is considered Nil. Thus, one needs to keep in mind that the loss on such sales of second-hand goods cannot be offset by the profit from selling other second-hand goods. This is because, the value of such goods is considered Nil, and therefore, the resultant turnover would exclude them automatically. In case, the dealer adds any value to the second-hand goods by way of repair, refurbishment and reconditioning, the same shall be added to the value of goods and will be taxable.

Input tax credit under the margin scheme

For goods sold under the margin scheme, it is not mandatory to issue a tax invoice for the supply of second-hand goods. Thereby, the person purchasing such goods also cannot claim any input tax credit on the purchase of these goods. If the second-hand goods are purchased from an unregistered person, the dealer doesn’t need to pay any further tax on the purchase of such goods as the purchase of such goods from the unregistered person is specifically exempted from GST under Notification No. 10/2017 Central Tax (Rate) dated June 28, 2017. However, this is applicable only for purchases from unregistered persons, and in case of any purchase from a registered person, the dealer would be to pay tax without availing any input tax. Even if the supplier of goods is supplying the goods under the margin scheme, an input tax credit for such purchases will not be available. However, the dealer can take an input tax credit on other expenses apart from the purchase of second-hand goods, such as rent, advertisement, commission, professional expenses, etc.

Compliance under the margin scheme

Goods sold under the margin scheme are neither zero-rated supplies nor Nil-rated or exempted supplies. Hence, the total supplies of second-hand goods are to be reported in GST returns as taxable supplies in table 3.1 of GSTR-3B. The taxable value to be mentioned here is the taxable margin of such goods and not the full value. Similarly, in GSTR-1, such supplies of second-hand goods are to be reported under taxable supplies in tables 4, 5 and 7, as applicable. The provision of an e-way bill is applicable as usual if the gross value exceeds the threshold for generating an e-way bill. Even if the taxable value of such goods is below the threshold limit for generating an e-way bill, it is mandatory to generate an e-way bill for such sales, if the gross value exceeds the threshold. Also, e-invoicing rules shall be applicable if the aggregate annual turnover exceeds the threshold, as applicable to any other dealer. Here, the gross value shall be considered for calculating turnover, and not the taxable value.


The GST margin scheme is a simplified tax regime for dealers of old, used and second-hand goods. However, there are several aspects of the scheme that the Government still needs to clarify. Going ahead, there are going to be several complications in the same, as the trend of reuse and recycling is growing with environmental aspects in focus. Meanwhile, the GST margin scheme is certainly a good option for small dealers.