As per section 17(5)(a), ITC on purchase of motor vehicles having seating capacity of less than 13 persons including the driver’s seat, is not available. But the section allows ITC on such motor vehicles if they are used for the following supplies:
- further supply of such motor vehicles (Eg, Car Dealers)
- transportation of passengers (Eg, Taxi Service)
- imparting training on driving such motor vehicles (Eg, Driving Schools)
Difference between renting/leasing of motor vehicles and transportation of passengers
Please refer to the Advance Ruling by AAR Tamil Nadu to New Pandian Travels Private Limited.
According to the ruling, there is a difference between the services of renting motor vehicles for a fixed amount and providing the services of staff/passenger transportation. Section 17(5)(a)(B) allows ITC on purchase of motor vehicles only for providing the services of transportation of passengers but not renting or leasing of motor vehicles.
Therefore the suppliers cannot avail ITC on purchase of motor vehicles when they rent/lease out the same, but they can take ITC if they use such motor vehicles for providing the services of transportation of passengers.
ITC on General Insurance, Service, Repairs & Maintenance on Motor Vehicles having seating capacity less than 13
The proviso to section 17(5)(ab) allows ITC on general insurance, services, repairs & maintenance of such motor vehicles having seating capacity of less than 13 as long as they are used for the taxable services mentioned under section 17(5)(a).
ITC on leasing, renting or hiring of motor vehicles having seating capacity of less than 13
When the motor vehicles having seating capacity of less than 13 are leased, rented or hired and used for the purpose as specified in the section 17(5)(a), there is no restriction on availing ITC on the receipt of such services by the recipient.
