All About ITC on Motor Vehicle

In this article, we will discuss in details about Input Tax Credit on motor vehicle in depth. We shall learn in depth, whether we can avail Input Tax Credit (ITC) on the GST paid when purchasing a motor vehicle. We will explore various scenarios for understanding for eligibility and ineligibility of ITC.The CGST (Central Goods and Services Tax) Act defines that it excludes certain vehicles from being considered as "motor vehicles." These exclusions are as follows:

• Vehicles running upon fixed rails.
• Vehicles adapted for use only in a factory or enclosed premises.
• Two-wheelers or three-wheelers with an engine capacity of 25 CC or less.

If you have a vehicle which is covered by the above mentioned exclude points, then it will not be called a motor vehicle and the provisions as explained in this article will not be applicable.

General understanding of the law:

Now a days, two-wheeler or three wheelers generally have engine capacity more than 25 CC. Due to this, these vehicles are not excluded from the definition of Motor Vehicle and all the provisions of Motor Vehicle become applicable on two-wheeler or three wheelers also.

In which cases can ITC be claimed?

Generally, Section 17(5) blocks input tax credit for motor vehicles, but there are specific situations in which you can still avail of input tax credit under GST. If you fall into these cases, you can take benefit of ITC.

Transportation of goods:

If you are purchasing a motor vehicle for transporting goods, you can claim ITC. This includes vehicles like tempo, trucks, JCBs, dumpers, tippers, etc.

Example: Suppose you have a wholesale clothing business, and you purchase a tempo for transporting goods. In this case, you can claim ITC on the GST paid for the tempo.

Transportation of persons:

If you are purchasing a motor vehicle with a seating capacity of more than thirteen (13, including the driver's seat), you can claim ITC. However, if the seating capacity is thirteen or less, you will not be eligible for ITC.

Example 1: Let's say you run an employee transportation service and purchase a mini-bus with a seating capacity of more than thirteen. In this case, you can claim ITC.

Example 2: If you purchase a 12-seater traveler for employee transportation, which is less than thirteen in seating capacity, you will not be eligible for ITC.

Transportation of persons:

The GST Act provides an exemption where even if the seating capacity is thirteen or less, you can still claim ITC.

Let's see which cases allow us to claim ITC.

• If you are further supplying these motor vehicles, which means you are a motor vehicle dealer, you can claim ITC.
  Example: If you own a car dealership and purchase cars for further supply, you can claim ITC on all the cars you purchase for resale.
• If you provide driving training in these motor vehicles, as in the case of a driving school, you can claim ITC without considering the seating capacity.
• If you use these motor vehicles for transporting passengers because your business is related to passenger transportation, such as a transportation agency, you can claim ITC for all vehicles used in your passenger transportation business.
  Examples: Cabs, taxis, etc.

General understanding of the law for two-wheelers and three-wheelers:

In general, on purchase of two-wheelers or three-wheelers, we cannot claim ITC because its seating capacity is less than 13 persons. But some exemptions have been provided in the GST Act where its core purpose will be considered instead of seating capacity, so if your case falls in these exemption cases then you will also get the benefit of ITC. These exempted cases are the same as we saw in the case of motor vehicles in general.

Exempted cases are:

1. You are going to further supply these two/three wheelers, meaning you are a dealer.
2. You give driving training on these two/three wheelers, which means you have a driving school.
3. You are using these two/three wheelers for the transportation of passengers because your business is the transportation of passengers.
4. If you are using two-wheelers or three-wheelers for the transportation of goods, then in this case you can avail the benefit of ITC.
5. So, if your two/three wheeler falls in any of these three conditions then you will get the benefit of ITC in GST.

Other points

A. Whether ITC is allowed or disallowed on the services of general insurance, servicing, repair & maintenance related to motor vehicles will depend on whether ITC is allowed on that particular motor vehicle or not.

So, this rule works in such a way that if ITC is available on a motor vehicle then you can also claim ITC on the services of General insurance, servicing,
repair & maintenance related to that vehicle and if ITC is blocked on the motor vehicle then you can claim ITC on the services related to that vehicle. ITC
will also be blocked on the services of general insurance, servicing, repair & maintenance related to the vehicle.

B. In all these cases, the benefit of ITC is available only in those cases where you are eligible to avail ITC under other provisions related to ITC.

We are providing some examples for Better Understanding:

1. If the manufacturing company is purchasing a car for the official use of its employees, then ITC on purchase of the car will be blocked because the seating capacity of the car is generally not more than thirteen persons (including the driver), hence the benefit of ITC will not be available.

2. If a car dealer purchases a car to sell to his customer, then ITC on purchase of the car will be allowed. In this case, the provision of exemption will be applicable, hence the provision of seating capacity will not be applicable and the benefit of ITC will be available.

3. If a driving school purchases a car for its driving school, then ITC will be available in this case. Because the provision of exemption will apply in this case.

4. If the company purchases a truck for the transportation of its finished goods, then ITC will be available in this case. Because this case will fall in the provision of transportation of goods and the benefit of ITC will be available.

5. If the Company uses the truck for transportation of its finished goods and also incurs some repair & maintenance expenses on this truck, then in this case ITC on expenses of repair & maintenance will be available.

Frequently Asked Questions (FAQs) :

Q : Is ITC available for Insurance, servicing, repair, and maintenance of vehicles?
A: As per Section-17 (5) of CGST Act, {Block Credit}-No ITC is allowed in respect of services of general insurance, servicing, repair and maintenance of vehicle except the cases mentioned below :-

• Motor vehicles for transportation of persons having an approved seating capacity of more than thirteen persons (including the driver)
• further supply of such motor vehicles
• transportation of passengers
• Providing training in driving (Driving school)
• Received by a taxable person engaged manufacture of such motor vehicles

Q : Is GST input (ITC) available on car purchases for Company ?
A : As per Section-17 (5) of CGST Act, {Block Credit}-No Input Tax Credit (ITC) is allowed in respect of motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-

• further supply of such motor vehicles
• transportation of passengers
• Providing training of driving (Driving school)
• Received by a taxable person engaged manufacture of such motor vehicles

Q : How to claim GST on a car purchase when used for the conveyance of a director from office to Company, Is it eligible or blocked credit under GST?
A : The seating capacity of the Car is not more than thirteen persons (including the driver) Hence, ITC (Input Tax Credit) will not be allowed.

Q : Can I get an Input Tax Credit of GST on a commercial vehicle?
A : When you are purchasing a vehicle for commercial purposes like transportation of goods then ITC (Input Tax Credit) is eligible.

Q : We have purchased a Car in our company for the marketing team to visit places of customers. Is ITC (Input Tax Credit) eligible or ineligible in this case?
A : ITC (Input Tax Credit) cannot be claimed in the case of transportation of a person except where motor vehicles have an approved seating capacity of not more than thirteen persons (including the driver). Even though you are using the car to increase the revenue of the Company, but seating capacity of the Car is normally less than thirteen persons (including the driver), Hence, ITC (Input Tax Credit) will not be allowed in this case.

Q : Is ITC (Input Tax Credit) on renting of motor vehicle available?
A : As you are using the car for the purpose of renting ITC (Input Tax Credit) will be available.

Q : Can we claim GST on bike?
A : In general, on purchase of two-wheelers or three-wheelers, we cannot claim ITC because its seating capacity is less than 13 persons. However some exemptions have been provided in the GST Act where its core purpose will be considered instead of seating capacity.
Exempted cases may be like you are a dealer, provide driving training, or use the vehicles for passenger transportation, then ITC can be claimed even on a bike.

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