India’s automobile industry is a massive industry that produces a lot of automobiles and motorcycles every year, largely due to the enormous population of the nation. Most of the indirect taxes were replaced with GST. This article delves into the nuances of Input Tax Credit (ITC) on cars, exploring rates, conditions, and the broader impact on the industry.
In India, the (GST) presently applies to the majority of products and services, including motor vehicles. There are four different rates at which autos are subject to GST: 5%, 12%, 18%, and 28%. For both personal and business motor vehicles, the highest applicable GST rate is 28%.
But there are other taxes that come with buying a car besides just the 28% GST; autos may also have to pay a compensatory cess of up to 22%. As a result, after the GST was implemented, the highest tax rate on automobiles is as high as 50%.
IMPACT OF GST ON THE AUTOMOBILE INDUSTRY
The two taxes charged to the end consumer on cars and bikes previously were excise and VAT, with an average combined rate of 26.50% to 44% which is higher than the GST rates of 18% and 28%. Therefore, there has been less burden of tax on the end consumer under GST.
Importers/dealers can cheer as they would be able to claim the GST paid on goods imported/sold whereas previously, they were ineligible to claim the excise duty and VAT paid.
Advance received for supply of goods will also be taxed under GST. GST would help the manufacturers in procuring auto parts at a cheaper cost due to an improved supply chain mechanism under GST.
GST on cars and bikes are kept under the 28% bracket and a list of cess to be levied on a different kind of automobile has also been declared by the Indian government.
Cess has been levied on different kinds of automobiles ranging from 1 to 15%.
SECTION INVOLVED FOR TAKING INPUT TAX CREDIT
Section 16 to Section 18 of the CGST Act
Section 16 of the Central Goods and Services Act, 2017 (CGST Act)
Eligibility and Conditions For Taking Input Tax Credit
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both. Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39: Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed: Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
For Example: A CAR (XYZ) cost Rs 47,53,741/- on road
Breakup of the amount:
- Ex showroom – 39,28,000/-
- Compensation Cess – 5,72,440/-
- GST @28% – 7,28,560/-
- All other expenses- Logistics, registration, Fast tag, green cess, TCS, Insurance and Extended warranty
Now the question arises is can the person who is buying a car can avail the benefit of Input Tax Credit i.e,. GST @28% – 7,28,560/- and Compnsation Cess – 5,72,440/-
Yes, the taxpayer can avail the benefit of ITC only in certain specified cases which are declared in the CGST Act.
From the above mentioned example it is clear that Input tax Credit shall only be available when the motor vehicles are used for making the following taxable supplies mentioned in Section 17(5)(a) and (aa) only and is liable to avail ITC of Rs 7,28,560/- . Taxpayer can reduce their tax liability at the time of sale by utilising tax paid at the time of Purchase of Vehicle.
The GST rate and Cess for different type of vehicle is re-produced in the table below:
|
CATEGORY |
MODEL | HSN CODE | GST RATE | COMPE-NSATION CESS |
| LPG or CNG vehicles with engine capacity not exceeding 1200cc and length not exceeding 4000mm | Volkswagen Polo, Hyundai Grand i10, Maruti Suzuki Swift, etc | 8703 | 18% | 1% |
| Diesel vehicles with engine capacity not exceeding 1500cc and length not exceeding 4000mm | Honda Amaze, Nissan Kicks, Maruti Baleno | 8703 | 18% | 3% |
| Engine capacity greater than 1500cc | Lamborghini Aventador, Bugatti Chiron, Toyota Land Cruiser | 8703 | 28% | 17% |
| SUVs (Engine capacity greater than 1500cc) | Renault Duster, Mahindra TUV, Jeep Compass, Maruti Vitara | 8703 | 28% | 22% |
| Electric vehicles | Mahindra eVerito and Mahindra e20. Electric vehicles owners receive a direct deduction of 7.5% | 8703 | 5% | NIL |
It is pertinent to note that ITC on Cess – 5,72,440/-is not allowed
Section 2(62)
(62) “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act
but does not include the tax paid under the composition levy;
ITC on Cess cannot be availed and utilized even on the specified Services under section 17(5)(a) & (aa) as it is clear from the definition of the Input Tax under section 2(62). The definition itself does not cover Cess. Accordingly, the taxpayer is not allowed to take ITC of the Cess.
Following are the Situation where a taxpayer is allowed to take ITC:
> Where there is Further supply of such motor vehicles or;
> Where there is Transportation of passengers and;
> Where there is Imparting training on driving such motor vehicles
| S. No | CATEGORY | ITC |
| ITC on cars purchased by a MANUFACTURE COMPANY for official use of its employees | Blocked | |
| ITC on cars purchased by a CAR DEALER for sale to customers | Allowed | |
| ITC on cars purchased by A CAR DRIVING SCHOOL | Allowed | |
| ITC on BUSES (seating capacity for 24 persons) purchased by a company for transportation of its employees from their residence to office and back. | Allowed | |
| ITC on TRUCKS purchased by a Company for transportation of its finished goods | Allowed | |
| ITC on AIRCRAFT purchased by a manufacturing company for official use of its CEO | Blocked | |
| ITC on AIRCRAFT purchased by a Aviation School providing training on flying aircrafts | Allowed | |
| ITC on general insurance taken on a car used by employees of a manufacturing company for official purposes | Blocked | |
| ITC on MAINTENANCE AND REPAIR SERVICES availed by a company for a truck used for transporting its finished goods | Allowed | |
| ITC on GENERAL INSURANCE services taken on cars manufactured by a car manufacturing company | Allowed |
Conclusion: In conclusion, the article demystifies the complexities surrounding Input Tax Credit on cars under GST in India. Understanding the applicable sections, conditions, and limitations is crucial for taxpayers, dealers, and manufacturers to navigate the evolving landscape of taxation in the automobile sector. Claiming ITC can be a strategic move, contributing to reduced tax liabilities and enhanced compliance for eligible entities.
Author Bio
Can a Car leasing company claim ITC and cess on purchase of first hand Cars for its leasing business?