Input Tax Credit on Motor vehicles under GST: An analysis

Registered persons under GST are eligible to take input tax credit (ITC) in respect of goods and services used or intended to be used in the course or furtherance of the business. The provisions for availing ITC are given under section 16 of the CGST Act, 2017. However, there are certain restrictions on ITC which are given u/s 17(5) of the Act and due to such restriction Input Tax Credit on Motor vehicles become ineligible ITC. Section 17(5) gives us the cases of blocked credit – any goods or services which are getting covered under the provisions of section 17 (5) shall not be entitled for ITC.

Blocked Input Tax credit under section 17(5) of CGST Act

As per Section 17(5) of CGST Act, 2017 input tax credit is not available on:

  • Motor vehicles used 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:
  1. Further supply of such motor vehicles – the registered person is in the business of selling of such motor vehicles; or
  • Transportation of passengers – the registered person is in the business of transport services of passengers; or
  • Imparting training on driving such motor vehicles – the registered person is in the business of providing training on driving by using such motor vehicles

(aa) Vessels and aircraft except when they are used–

(i) For making the following taxable supplies, namely:

  1. further supply of such vessels or aircraft; or
  2. transportation of passengers; or
  3. imparting training on navigating such vessels; or
  4. imparting training on flying such aircraft;

(ii) For transportation of goods;

(ab) Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the input tax credit in respect of such services shall be available—

(i) Where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) Where received by a taxable person engaged—

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

Thus, in nutshell section 17(5)(a) of CGST Act, 2017 denies input tax credit on Motor vehicles used for transportation of persons having approved seating capacity of less than thirteen persons (including the driver) except when they are used for further supply of such motor vehicles or transportation of passengers or Imparting training on driving such motor vehicles.

Further, section 17(5)(ab) of CGST Act, 2017 denies input tax credit on the services of general insurance, servicing, repair and maintenance for motor vehicles having a seating capacity of less than thirteen except services related to motor vehicle insurance, repair and maintenance of such vehicles if they are used for the purposes mentioned in the Para above.

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ITC on motor vehicles used for transportation of goods

In case of Motor vehicles used for the business of transportation of goods, ITC is available and ITC on services of general insurance, servicing, repair and maintenance for such vehicles is also available.

This makes it clear that CGST Act restricts ITC only on those motor vehicles which are specified in Section 17(5)(a) with some exceptions and inclusions.

Input tax credit on motor vehicles: Conclusion

In light of the above analysis it can be concluded that:

  • 1. ITC is not available on motor vehicles used for transportation of persons having seating capacity of less than 13 including driver’s seat
  • 2. ITC is not available on the services of general insurance, servicing, repair and maintenance on motor vehicles used for transportation of persons having seating capacity of less than 13 including driver’s seat.
  • 3. ITC is available to the registered persons who further supplies such motor vehicles having seating capacity less than 13.
  • 4. ITC is available to the registered persons who is involved in the business of transportation of passengers even if such motor vehicles having seating capacity less than 13.
  • 5. ITC is available to the registered persons who provides training on driving on motor vehicles having seating capacity of less than 13.
  • 6. ITC is available on services of general insurance, servicing, repair and maintenance on motor vehicles having seating capacity less than 13 as long as they are used for providing the supplies as mentioned in Points No.3, 4 & 5 above and to those who are involved in the manufacture of such vehicles and are in the business of providing general insurance services for such motor vehicles.
  • 7. ITC available on motor vehicles used for transportation of goods.
  • 8. ITC available on the services of general insurance, servicing, repair and maintenance of motor vehicles used for transportation of goods.

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