ITC on Hiring a Cab:
Hiring a Cab has become essential these days for short distance travel specially among businessmen. Online service providers like Ola, Uber etc. made these services available to people on their fingertips.
After the introduction of block credit u/s 17(5) under Goods & Services Tax Act, 2017; where input tax credit (ITC) on ‘renting a cab’ has been blocked. This triggered confusion to many.
The confusion among the taxpayers is whether ITC on ‘Hiring a Cab’ can be claimed by the registered taxpayers or not. In this Article, we’ll be discussing the situations where a taxpayer can claim ITC and where they can’t.
The word ‘Cab’ is nowhere defined in GST Act. However, we’ll try to understand meaning of ‘renting a cab’ with the following definitions.
Are all motor vehicles ‘Cab’? your answer would be no.
Motor Vehicles Act defines many vehicles, however, according to my understanding the word ‘Cab’ should fall under the definition of ‘Motor-cab’.
Motor-cab: it means any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or reward. [Motor Vehicles Act, 1988 (59 of 1988)].
Rent: a fixed amount of money that you pay regularly for the use of a room, house, car, television, etc. that someone else owns (Cambridge Dictionary).
Hence, we conclude that ‘Renting a Cab’, means allowing the use of motor-cab for a certain period of time against a certain amount of consideration. Here, one must need to understand that the title of asset (car) will remain with the real owner of the asset.
ITC on renting a cab is specifically blocked u/s 17(5) of GST Act. Therefore, any taxpayer taking a cab on rent for specific period and paying GST on rental charges. In this scenario, GST paid on rental changes will not be an eligible ITC.
For example: ABC Pvt. Ltd. takes a Car from XYZ Pvt. Ltd. on rent for one month. Here, ABC Pvt. Ltd. can use the Car for many purposes, i.e. shifting staffs from one unit to another unit of the company, for picking-up the guest from Airport to Corporate office, taking staffs on vocation, etc.
* Further, in some scenario, a taxpayer may require to pay GST under reverse change mechanism. We’ll not be discussing RCM concept in this Article; however, one may read notifications issued on this subject i.e. ‘Renting a Cab’ [Notification no. 13/2017 (CTR); dtd: 28-Jun-17, further amended by Notification no 22/2019 (CTR); dtd: 30-Sep-19].
If a registered taxpayer, hires a cab for a certain distance i.e. from New Delhi to Gurugram. Here, cab is being hired for transportation of a passenger from one place to another place. ITC of GST paid on cab charges on transportation of a passenger is nowhere blocked under GST Act. So, in this situation, a taxpayer may claim ITC of GST paid on cab charges.
Section 12(9) of IGST Act, 2017 says, place of provision of passenger transportation service is
– Location of taxpayer; where taxpayer is registered and
– The place where the passenger embarks on the conveyance; where taxpayer is not registered.
Hence, ITC on passenger transportation service is available to registered taxpayer in all cases. whether registered taxpayer is travelling in the state, where he has taken registration or any other states.
Lastly, I would like to say, one should not confuse ‘transportation of passenger services’ with ‘renting a cab’. ITC on hiring a cab is available in the same line as it is available on air-travel fare, train fare etc. and subject to the condition as discussed above.