Introduction

Purchasing a car for business?

You may be asking yourself if you can claim GST Input Tax Credit (ITC) on it. Sadly, in most of the cases, the response is NO, but but but, there are few exceptions!

The Hidden Reason You Can’t Claim GST ITC on Cars

According to Section 17(5) of the CGST Act, 2017, GST ITC on motor vehicles is barred for most taxpayers. But there are some businesses that can claim it.

Let’s simplify it for you.

Who can claim GST ITC on the purchase of a car?

There are some exceptions where companies can claim ITC on motor cars. These are:

1. Car Dealers & Leasing Firms
Car buying and selling businesses can claim ITC.

Car rental and leasing firms can also claim ITC.

2. Transport Enterprises
If you run taxis, buses, or other transport businesses, you can claim ITC.

Cars for passenger transport qualify.

3. Driving Schools & Training Institutions
If a car is purchased solely for the purpose of driver training, ITC is provided.

4. Goods Transport Vehicles
If a vehicle is employed for goods transport, ITC can be availed.

CA Anshul Karwa from Jaipur says that: “Businesses that use cars for immediate supply, training, or transport can avail of ITC, but cars intended for personal or mixed use won’t be eligible.”

The Harsh Reality Behind ITC Restriction:

🔹 Personal Usage Concern: The government assumes that most car purchases involve personal use, making ITC claims unfair.
🔹 Prevention of Misuse: Businesses could use cars personally while claiming tax benefits, leading to revenue loss for the government.

CA Anshul Karwa says: “Blocking ITC on cars prevents businesses from misusing tax credits for personal assets. This ensures fair tax compliance.”

GST ITC on Other Car-Related Expenses
Even though you can’t deduct ITC on the purchase of the car, you can deduct ITC on:
✔ Insurance & repairs (if used for business)
✔ Fuel & maintenance (if used for taxable supplies)

But if the vehicle is used for private purposes, ITC will not be permitted.

Conclusion

Most companies are not eligible to claim GST ITC on vehicles because of Section 17(5) limitations. But if your company is in the transport, dealership, or leasing business, you can take advantage of ITC.

Important Takeaway: Always verify the vehicle’s purpose before assuming ITC eligibility!

Got questions? Leave them in the comments!

Post written by:

CA ANSHUL KARWA
CA, LLB, BCA, AICA, AUTHOR

Contact – caanshul@mail.ca.in

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