GST on Renting of Motor Vehicle
The indirect tax implication on renting of motor vehicles service has always driven the attraction because of its complicated abatement/ exemption treatment in the erstwhile law. In recent years, renting of motor vehicle service (also more popularly known as rent-a-cab service) has increased in leaps and bounds. Now, even a common man is aware and are frequently using the cab service.
Under the current article, we would understand the GST provisions as applicable to renting of motor vehicle service.
Understanding GST on renting of motor vehicle services
GST rates on renting of motor vehicle services have been prescribed under notification no.11/2017-Central Tax (Rate) dated 28.06.2017, the same is explained hereinbelow:
|
Description of Service |
GST rates |
Conditions |
| Renting of a motor vehicle which is designed to carry passengers (wherein the cost of fuel is included from the service receiver) |
CGST–2.5% SGST–2.5% Total–5% |
Provided that credit of the input tax charged on goods and services used in supplying the services has not been taken.
However, an input tax credit of input services in the same line of business can be availed. |
| Or | ||
|
CGST–6% SGST–6% Total–12% |
NIL | |
| Rental services of transport vehicle (with or without operators) |
CGST–9% SGST–9% Total–18% |
NIL |
According to the above-referred notification, the motorcar service provider has the following two options, in terms of GST rates:
- To pay GST @5%, wherein, the input tax credit shall not be available (an input tax credit of only input service of the same business line can be availed); or
- To pay GST @12%, wherein, the input tax credit is available.
Reverse Charge Mechanism
Renting of motor vehicle services has been brought within the ambit of ‘Reverse Charge Mechanism’ vide notification no. 22/2019 – Central Tax (Rate) dated 30th September 2019. The reverse charge mechanism under renting of motor vehicle service is effective from 1st October 2019.
S.No.15 to notification no. 22/2019–Central Tax (Rate) contains the provisions relating to reverse charge mechanism as applicable to renting of motor vehicle service, which is explained hereunder:
|
Description of service |
Service Provider |
Service Receiver |
| Service provided by way of ‘renting of a motor vehicle’ | Any person other than body corporate paying CGST, i.e. central tax at the rate of 2.5% and availing input tax credit of only input service in the same line of business. | Any body corporate (located in the taxable territory) |
Reverse charge mechanism in case of renting of a motor vehicle applies to fulfilling the following criteria:
- Service provided relates to ‘renting of a motor vehicle’;
- Service is provided by any person other than body corporate;
- Service provider has not availed any input tax credit other than input tax credit on input service in the same line of business; and
- Service is received by a body corporate.
If all the above criteria are satisfied, the service receiver is liable to pay GST under reverse charge mechanism.
Similar reverse charge provisions are also covered under the state tax, i.e. SGST. Further, it should be noted that the word ‘Body Corporate’ has the same meaning as assigned to in section 2 (11) of the Companies Act, 2013.
Synopsis
The GST provisions as applicable to renting of a motor vehicle are summarised hereunder:
|
Service provider |
Service Receiver | Reverse charge mechanism |
GST rates |
| Any person other than body corporate | Body Corporate | Applicable | 5% |
| Body corporate (not availing any input tax credit) | Body corporate | Applicable | 5% |
| Body corporate (not availing any input tax credit) | Non-Body corporate | Not Applicable | 5% |
| Body corporate (availing input tax credit of input service of same business line) | Any | Not applicable | 5% |
It is interesting to note here that the service provider, as seen above, has the option to pay GST @12% by availing full input tax credit. However, practically, with the introduction of the reverse charge mechanism on renting of the motor vehicle, the service provider will no longer have the option to pay GST @12% by availing full input tax credit. The service provider, after reverse charge introduction, is left with only one option, i.e. to pay GST @5% without availing input tax credit.
The post GST on Renting of Motor Vehicle appeared first on IndiaFilings - Learning Centre.