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.
Meaning of ‘Renting a Cab’:
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].
Situation where ITC is available on hiring a cab:
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.
Author Bio
VERY properly inititated the topic but concluded with full confusion
What will be the situation where a vendor has to provide a team of service engineers along with provision of cab , as per the contract with its customer. Can vendor claim ITC for GST paid to cab service provider.
Inorder to own passenger transportation business he need motor vehicles ,vessels or aircrafts …so as per the first clause if a person pays input tax in purchasing those motor vehicles(assuming ineligible) ,vessels n aircrafts that will be allowed only if he do further taxable supply or transportation of passengers or training then he will be eligible for input tax paid on that purchase….
In this case ,we r not purchasing the motor vehicles,vessels or aircrafts….we r taking on lease( rental basis) , as per 17(5) all input tax paid on leasing or renting is ineligible but there are some exceptions …..if the input service of renting is used for further rent ( sublease ie.same business ) or it is obligatory under any law for example …if a company(employer) leasing 10 cars for transportation of their employees from house to office ( here the output service is transportation not same line of business) but it is obligatory so only for these two purposes we can claim itc…remaining all cases of renting itc is blocked moreover if we take example of ola we r not leasing or renting it …we r taking transportation service like tell me one thing will u say when u travel in bus u r leasing the bus from kphb to khairatabad ….it is just transportation…therefore all taxes of input paid on trasanportaion are eligible (ola bill with gst) is allowed…u need to check exemptions list where transportation is exempt in some cases
Thank you
In a conclusive comments, it is mentioned that, ‘Transportation of Passenger Service; shouldn’t be confused with ‘Rent a Cab’
According to me, if a person owns Passenger transportation business, in that case, ITC will be allowed, and not in the example provided by you for Passenger transportation.
Would like to know the difference between these two services from your angle.
VERY INCOMPLETE AND CONFUSE ARTICLE ON A VERY GOOD SUBJECT.