All about ITC and RCM on purchase and hiring of motor Vehicle

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The section 17 and sub section 5 of CGST Act has cleared the query of many of taxpayer that if the motor vehicle are using for the business purpose still the tax payers are not liable to claim input tax credit. Before the date of 01/02/2019 it is restricted for the taxpayers to claim input but after the amendment in CGST Act 2018 which is effectual from the date of 01/02/2019. And the amendment has substitute the clause and introduced the new clause and let the tax payer avail the input tax credit on their purchasing or hiring of the motor vehicle

The CBEC vide notification number 22/2019 on 30/09/2019 has introduced the rule in which renting the motor vehicle services comes under the reverse charge mechanism (RCM) 

On the purchase of motor vehicle for the personal use it is not allowed to claim ITC but for the business purpose it is allowed to avail the input tax credit but there are 2 cases where the scenario is different. Both cases are following.

Purchase for business purpose: – the vehicle should be used for all the purpose which is specified in the section 17(5) A or sitting capacity should be less than 13.

The specified purpose of in section 17(5) A is followings

  • Transportation of passenger.
  • Imparting training on driving.
  • Transportation of goods.
  • Further supply of such vehicles.

Hiring for the business purpose:-the hired vehicle should be used for all the purpose which is specified under section 17(5)A or the seating capacity should be less than 13 or the third condition is for obligatory to provide service to employee by law.

If the supplier is other than company and recipient is the company.

  • buyer can claim input tax credit if the supplier is not company¬†
  • GST chargeable as 12% if the supplier is other than company.
  • Buyer can’t claim input tax credit if the recipient is company.
  • gst chargeable as 5% RCM if the recipient is company
  • If the supplier is other than company and recipient is the company.

What is the meaning of motor vehicles under this scheme?

The  vehicle which is supposed to use on the road and refers to motor vehicle act 1988. The use of this vehicle should be on road but excluding the following purpose.

  • The vehicle is adapted only for the use in factory or.
  • The vehicle having less the four wheels which is fitted with the engine capacity should be not excluding 35CC or.
  • Vehicle running on fixed rails.

Purchase of motor vehicle

According to the section 17(5) A,AB : – It means ITC is not available for two clauses under section 17(5) both of the clauses are defined below.

Clause A: – the motor vehicle is uses for the purpose of transporting the passenger having seat including driver 13 or less than 13.

Clause B: – the motor vehicle is uses for the service of general insurances, repair and maintenance, and servicing of the vehicles.

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