In India, claiming Input Tax Credit (ITC) on purchases helps businesses reduce their overall tax burden. But when it comes to cars/motor vehicles, things get a bit tricky.
Here’s a breakdown of ITC eligibility for car purchases under GST:
Section 17(5) of the CGST Act restricts ITC on motor vehicles with a seating capacity of less than 13 people (including the driver). This covers most personal and regular cars. This means most standard cars you see on the road wouldn’t qualify for ITC. This applies even if you use the car for business purposes.
Vehicles with More Than 13 Seats:
Larger vehicles like buses or vans used for passenger transport (like a tourist company) qualify for ITC.
Vehicles for Further Supply/ Selling Vehicles/ Selling Cars :
- If your business deals in selling cars (new or used), you can claim ITC on the purchase of those vehicles for resale.
- If your business is involved in selling cars, then ITC on the purchase of those cars is claimable
Passenger Transport:
Businesses providing passenger transport services, like buses or cabs, can claim ITC on vehicles used for this purpose
Training on Vehicles/ Vehicles for Training Purposes:
- Driving schools claiming ITC on cars used for training lessons fall under this exception.
- Driving schools or institutions offering training on operating vehicles can claim ITC on cars used for such training.
- If your business provides training on driving or operating vehicles, such as a driving school, then ITC on the car used for training is allowed
Vehicles for Transporting Goods/ Goods Transportation:
- If your business deals in transporting goods, you can claim ITC on the vehicle used for deliveries. This includes trucks, tempos, and other goods carriers
- If your business primarily deals with transporting goods, and you purchase a car for this purpose (like a delivery van), then you can claim ITC.
- Businesses that primarily transport goods can claim ITC on trucks and other commercial vehicles.
- Claiming ITC on car/motor vehicle purchases cannot be combined with depreciation benefits under the Income Tax Act. You have to choose one option.
- For eligible scenarios, you must have a valid GST registration and tax invoice for the car purchase to claim ITC.
It’s crucial to understand your eligibility for ITC before purchasing a car/ motor vehicle for your business. Consulting a tax professional can help you navigate the complexities of GST and ensure you claim all the credits you’re entitled to.
If you have any questions or need assistance with GST compliance, you should consult with a tax Expert.
- Government of India GST website: https://www.gst.gov.in/
- GST Council website: https://www.gstcouncil.gov.in/
- GST helpline: 1800 425 6666
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