Question ID : 36907

Exchange of Car

A GST registered person exchanges his old car for new car. The car Company credits him with 1)value of old car 2) Exchange Bonus and 3) Loyalty bonus. Item No. 1 is subject to GST as per notification No.8/2018 dated 25th January 2018. Are loyalty Bonus and exchange bonus are also subject to GST.

Loyalty Bonus and Exchange Bonus are deductions provided by the Car Dealer, which are in the nature of discounts for purchase of a new car. Such deductions are not linked to the type of old car exchanged, but linked to the new car being purchased (discounts could vary based on the type of new car purchased). In case of loyalty points, the buyer earns reward points on purchase of items and such points can be adjusted against payment to be made for future purchases. On the other hand, Loyalty discount is an upfront discount provided by the Dealer on purchase of new car. In my view, considering the practice of the Industry (Car Dealers), the consideration for sale of old car would be the actual consideration determined for such sale and would not include Exchange and Loyalty Bonus.