GST on Motorcycles, Scooters, and Electric Two-Wheelers in India: Tax Rates, ITC Eligibility, and Legal Analysis under GST and Motor Vehicles Act
Background: The rollout of GST on July 1, 2017, revolutionized India’s indirect tax regime, streamlining multiple levies into a single tax structure. For the two-wheeler industry—including conventional motorcycles, electric bikes, and scooters—this reform had significant implications. These vehicles, essential to daily commutes, gig economy services, and last-mile deliveries, also play a growing role in India’s green mobility push. While GST rates are fairly structured, the eligibility to claim Input Tax Credit (ITC) on such vehicles when used in business remains a grey area for many. Understanding the nuanced provisions, especially for electric two-wheelers, is crucial for businesses seeking operational and tax efficiency.
(1) GST Rates
| Chapter / Heading / Sub-heading / Tariff item |
Description of Goods | Rate | Compensation Cess |
| 8711 | Motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars; side-cars | 28% | – |
| 8711 | Motorcycles of engine capacity exceeding 350 cc. | – | 3% |
| 87 | Electrically operated vehicles, including two and three wheeled electric vehicles.
Explanation .- For the purposes of this entry, “Electrically operated vehicles” means vehicles which are run solely on electrical energy derived from an external source or from one or more electrical batteries fitted to such road vehicles and shall include E- bicycles. |
5% |
(2) Eligibility of Input Tax Credit (ITC) on Bikes
1.The provision of section 17(5)(a) of CGST Act 2017 :
Section 17(5)(a) of CGST Act 2017 → motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
2. Definition of Motor Vehicles under section 2(76) of CGST Act 2017 :
| “Motor vehicle” shall have the same meaning as assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988 |
| Section 2(28) of the Motor Vehicles Act, 1988 “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding [twenty-five cubic centimetres]; |
| Let’s carefully analyze Section 2(28) of the Motor Vehicles Act, 1988 and determine whether bikes (motorcycles and scooters) are included within the definition of “motor vehicle.”
“Motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads, whether the power of propulsion is transmitted thereto from an external or internal source, and includes:
Does this include bikes and scooters? Yes, motorcycles, scooters, and mopeds (including electric variants) are included within the definition of “motor vehicle” because:
Most importantly, they have engine capacity exceeding 25 cc (for fuel-based models) or are electric-powered (electric motors, which are also “mechanically propelled”). Exception clause: “…a vehicle having less than four wheels fitted with engine capacity not exceeding 25 cc” is excluded from the definition. This means very small-capacity two-wheelers (under 25cc)—which are extremely rare or virtually obsolete—are not treated as motor vehicles under this Act. |
Therefore, a company purchasing bikes for delivery, sales personnel, or routine business operations cannot claim ITC on such purchases, even though the bike is used in the course of business. This restriction aligns with the government’s intention to restrict ITC on items prone to personal use, even if used partly for business.
(3) ITC on Repairs, Insurance, and Maintenance
As per Section 17(5)(ab), ITC on insurance, servicing, repair, and maintenance of motor vehicles is also blocked, unless the vehicle itself qualifies for ITC under Section 17(5)(a). Therefore, if ITC is blocked on the purchase of the bike, then related expenses such as insurance, servicing, and maintenance will also not be eligible for ITC.
(4) Implications for Businesses
For delivery-centric businesses like logistics firms, courier companies, or food delivery services (e.g., Zomato, Swiggy), this restriction can result in increased effective cost of operations, as they cannot claim ITC on their capital investment in bikes, despite using them solely for business.
Some companies may consider leasing or renting bikes instead of purchasing. If the vehicle is leased, the lessor may be eligible for ITC (being in the business of providing such services), and this can reduce the cost passed on to the lessee. However, the lessee still cannot claim ITC unless covered under the exceptions.
GST on Motorcycles, Scooters, and Electric Two-Wheelers in India – Q&A
Q1. What is the GST rate on regular motorcycles and scooters in India?
A: The GST rate on motorcycles and scooters powered by petrol or diesel is:
- 28% GST for all two-wheelers (regardless of engine size), and
- Additional 3% Compensation Cess for bikes with engine capacity exceeding 350cc, making the effective rate 31%.
Q2. What is the GST rate on electric bikes and electric scooters (e-bikes/e-scooty)?
A: The GST rate on electric vehicles, including electric bikes and e-scooters, is:
- 5% GST (without any compensation cess).
Q3. Can a business claim Input Tax Credit (ITC) on motorcycles or scooters used in business operations?
A: Generally, No. Under Section 17(5)(a) of the CGST Act, ITC on motor vehicles used to transport persons with seating capacity of up to 13 (including driver) is blocked, unless:
1.The vehicle is used for further supply (i.e., sale or resale),
2. The vehicle is used for transportation of passengers (e.g., taxi),
3. The vehicle is used to impart training on driving.
So, if a business purchases bikes for field staff or delivery agents, ITC is not allowed.
Q4. Can ITC be claimed on electric bikes or e-scooters used in business?
A: Even though the GST rate is lower (5%), Section 17(5) applies equally to electric two-wheelers. So, ITC is blocked unless used for resale, passenger transport, or training.
Q5. Is ITC allowed on insurance, maintenance, and repair of such vehicles?
A: As per Section 17(5)(ab), ITC is also blocked on insurance, repair, and maintenance of motor vehicles unless the vehicle itself is eligible for ITC. Therefore, if ITC on the bike is blocked, ITC on its servicing or insurance is also not allowed.
Q6. Do motorcycles and scooters fall under the definition of ‘motor vehicles’ under Indian law?
A: Yes. As per Section 2(28) of the Motor Vehicles Act, 1988, motorcycles and scooters are considered “motor vehicles” since they are mechanically propelled vehicles adapted for use on roads, and usually have engine capacity greater than 25cc (or are electric).
Q7. Can a business leasing or renting bikes claim ITC?
A: A lessor (the company giving the vehicle on rent or lease) may claim ITC if it is in the business of leasing.
But the lessee (user business) still cannot claim ITC unless the vehicle is used in eligible activities under Section 17(5).
Q8. What is the practical implication for businesses using two-wheelers operationally?
A: Even if bikes or scooters are used wholly for business—such as for delivery or field visits—ITC remains disallowed, becoming an embedded cost to the business. Companies must plan for this while budgeting or pricing services.
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