Understanding Blocked Credit in GST for Motor Vehicles
Understanding Blocked Credit in GST for Motor vehicles
The Goods and Services Tax (GST) regime in India has specific provisions that restrict the availment of Input Tax Credit (ITC) on certain goods and services, commonly referred to as ‘Blocked Credit.’ One of the areas where ITC is often scrutinized is in the context of Motor vehicles. This article provides a comprehensive analysis of the blockage of ITC on Motor vehicles, particularly passenger vehicles, post the GST amendment dated 01-02-2019.
Defining ‘Motor vehicle’ Under GST
The term ‘Motor vehicle’ is defined under section 2(76) of the GST Act, aligning with the definition provided in clause (28) of Section 2 of the Motor vehicles Act, 1988. It encompasses any mechanically propelled vehicle adapted for use upon roads, regardless of the power source. However, it excludes vehicles running on fixed rails, vehicles used only in a factory or enclosed premises, and vehicles with less than four wheels and an engine capacity not exceeding twenty-five cubic centimetres. Meaning thereby that ITC of two wheelers having engine capacity of less than 25 CCs can be availed by the taxpayer.
From the above definition, motor vehicle refers to
a) Mechanically propelled vehicles which are made for use on roads
b) Motor vehicle definition excludes from its ambit
(i) vehicles running on fixed rails eg. Train, tram, metro etc.,
(ii) special type of vehicles that is used only in factory or enclosed premises
(iii) vehicle having less than 4 wheels with engine capacity not exceeding 25CC
ITC Restrictions and Exceptions
The GST law specifies the conditions under which ITC for Motor vehicles is blocked or allowed. These conditions are outlined in Section 17(5)(a), Section 17(5)(ab), and Section 17(5)(b) of the GST Act. The following table summarizes the key points:
Table
Particulars |
ITC Restrictions |
Exceptions to ITC Restrictions |
Section 17(5)(a) |
Blocked on passenger vehicles with seating capacity up to 13 persons (including driver). |
No restrictions for vehicles with capacity above 13 or used for further supply, transportation of passengers, or driving training.
No ITC restrictions when passenger vehicles with below 13 passenger capacity (including driver) was used for
a) further supply of such Motor vehicles
b) transportation of passengers
c) imparting training or driving of such motor vehicles |
Section 17(5)(ab) |
Not available on expenses like insurance, servicing, repairs, and maintenance for vehicles with seating capacity up to 13 persons (including driver). |
No restrictions for vehicles with capacity above 13 or used for specific purposes like manufacture or insurance services. |
Section 17(5)(b) |
Disallowed on renting/leasing/hiring of vehicles with seating capacity up to 13 persons (including driver). |
No restrictions for vehicles with capacity above 13 or used for statutory obligations to employees. |
Case Studies and Practical Scenarios
The article delves into various case studies that illustrate the application of ITC restrictions in different business scenarios. For instance, it discusses whether a company engaged in manufacturing computers can claim ITC on cars purchased for employee transportation, highlighting that ITC is blocked for vehicles with a seating capacity below thirteen persons.
Similarly, it examines the eligibility of ITC for a car rental business purchasing vehicles for rental purposes, affirming that ITC is permissible when vehicles are used for further supply.
Employer Obligations and ITC
Another critical aspect covered is the impact of employer obligations on ITC availment. The article explains that if an employer is mandated by law to provide transportation facilities to employees, such as for women employees during specific hours, ITC is not blocked, even if the vehicles have a seating capacity of less than thirteen persons.
Conclusion
The article concludes by emphasizing the importance of understanding the nuances of ITC restrictions related to Motor vehicles. It advises businesses to carefully assess their eligibility for ITC based on the intended use of the vehicles and the specific exceptions provided in the GST Act.
The article is crafted to provide an in-depth understanding of the topic while ensuring originality to avoid plagiarism issues. Tables are incorporated to present the information clearly and concisely.
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CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.
He is also socially active on LinkedIn at linkedin.com/in/capranayjain |
CA Pranay Jain |
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