Being a professional Chartered Accountant with a rich experience of more than 4 years in GST and other taxation practices, one of the most general queries that businesses have come up with is: Can a company claim GST input on the purchase of a car?
The answer depends on many factors: the purpose of the purchase, the kind of car, and how the vehicle is used in the business.
In this blog, I will break down the rules, exceptions, and practical aspects surrounding the claim of GST input credit on car purchases under the Indian GST regime.
Understanding Input Tax Credit under GST:
ITC is an enablement for any business to reduce the burden of tax payable on its output by way of credit for the amount of GST already paid on its inputs. The mechanism thus ensures that only the value addition at every stage in a supply chain is subjected to tax.
General Conditions for ITC
The following are the conditions that must be satisfied for claiming ITC:
- Goods or Services Must Be Used for Business: ITC shall be available only for goods or services used for the purpose of business.
- Possession of Tax Invoice: ITC can be claimed only when there is a valid tax invoice or debit note.
- The goods or services should not be blocked: According to Section 17(5) of the GST Act, certain goods and services are blocked.
- The GST is to be paid to the government: The supplier has to pay the GST to the government.
Now, let's see how these apply to motor vehicles.
GST Rules on ITC for Motor Vehicle - Blocked Credit under Section 17(5)
In this regard, the ITC on motor vehicles used for transporting persons, having a seating capacity of less than or equal to 13 persons (including the driver), has been specifically blocked in the GST law. It thus implies that ITC on cars, SUVs, and similar types of vehicles is generally not available. However, exceptions do exist.
When can a Company Claim ITC on Car Purchases?
Used for Specific Businesses
ITC is available if the motor vehicle is used in the following business activities:
- Transportation of Goods: Vehicles like trucks, tempos, or any other goods carriers are covered to claim ITC.
- Passenger Transport Services: If the business is engaged in the supply of passenger transport services, such as taxis or buses, it can claim ITC.
- Training Services: Vehicles used for imparting driving training or for similar purposes are permitted.
Vehicles Having Seating Capacity of More Than 13 Persons
ITC can be claimed on motor vehicles having a seating capacity of more than 13 persons, for instance, buses and big vans.
Leasing, Renting, or Selling of Vehicles
If the business involves letting out vehicles on lease, renting or sale of vehicles, ITC can be claimed on the purchase of such vehicles.
Special Utility Vehicles
Vehicles used for emergency services, such as ambulances, fire engines, or other specialized purposes, can avail ITC.
Common Scenarios
Company Buys a Car for Directors or Employees
- No ITC: If the car is used for personal or employee-related purposes, ITC cannot be claimed.
- Possible Exception: If the motor car is utilized only for the purpose of journey related to business and it also meets other criteria, such as its utilization in a taxi service, then ITC may be considered.
Purchase of a Commercial Vehicle (e.g., Truck)
- ITC Allowed: Since it is used for the transportation of goods, ITC can be claimed.
Company Buys a Bus for Employees' Transport
- ITC Allowed: If the seating capacity exceeds 13 persons and the same is used for employee transport exclusively.
Leasing or Rental Business
- ITC Allowed: Companies engaged in renting, leasing, or fleet management business, ITC will be available in full, on the cars purchased out of business use.
Practical Tips for ITC
- Documentation: Clearly establish the business purpose of the vehicle through the invoice, contract, and other records.
- Business and Personal Use to be Kept Separate: Maintain the log and keep all records necessary to distinguish between business use and personal use.
- Compliance: Timely filing of returns along with fulfilling all the conditions related to ITC shall help to avoid litigation with the department.
Conclusion
While claiming GST input on car purchases is generally restricted, businesses can benefit from ITC in specific cases. Understanding the nuances of GST laws and maintaining proper documentation is essential to make the most of available tax benefits.
As an experienced Chartered Accountant, I recommend consulting with a GST expert to evaluate your company’s specific situation. Proper planning and compliance may save a lot and also avoid potential penalties. Please ask for any personalized advice or help on your specific GST compliance needs!
Have Questions? Drop your queries in the comments below, and I’ll be happy to help clarify!
