Input Tax Credit (ITC) on Motor Vehicles
There is a myth among the person that GST paid on buying any motor vehicle is available as eligible ITC. But reality is that ITC is not available on motor vehicle providing transportation with seating capacity less than or equal to 13 passengers (including the driver). Further, ITC is not available on vessels and aircraft.
If BabaTax buys a car (sitting capacity of 5 persons) for business purpose can’t claim ITC.
However, there are some exceptions to this. One can claim ITC on a motor vehicle for making Taxable supplies in the cases below-
Supply of Motor Vehicles.
A registered person is in the business of selling or buying cars then the ITC can be claimed.
If a car dealer purchases a car and paid 4 lakhs as GST. Later he sold that car and GST tax liability arises at Rs. 5 lakhs. Since he is a dealer and cars are his stock in trade, he can take ITC of Rs 4 lakh and pay only Rs. 1 lakh.
Transportation of passengers.
A registered person is running a business to provide transportation services to passengers.
ABC Company bought a Taxi and started providing Services of transportation to passengers. In this case, GST paid on buying Taxi will be available as ITC.
Providing Training on these vehicles.
A business entity is providing training “How to drive” to its customers. Then it can claim ITC of GST paid on their vehicles.
Driving Academies buy cars to teach driving to their students. ITC is available.
Transportation of goods.
If the vehicle is used for transportation of raw material/ work in progress / finished goods, ITC is available.
The vehicle is used for the transferring of finished goods from factory to stores then GST paid on buying such vehicles will be available as credit.
A business entity who is the manufacturer of motor vehicles then also credit of GST paid on input goods or input services is available.
ABC limited is the manufacture of vehicles then ITC will be available for the procurement of related input goods or services.
The Author of the above article is Aditya Kishore, ICAI.