GST Input Tax Credit on Employee Transportation Vehicles
You can claim GST input tax credit on hired buses with over thirteen seats, but not on cars or smaller vehicles.
- Ruling
- HAAR Order No. HAR/HAAR/R/2018-19/04 dated 11.07.2018 (modified by this Appellate Authority order)
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if they could claim GST credit on hired transport.
- Input tax credit is allowed for buses seating more than thirteen people.
- Input tax credit is blocked for cars and vehicles seating thirteen or fewer.
- The rule applies to services hired on or after August 30, 2018.
In short
The company asked the Appellate Authority for Advance Ruling if they could claim back the Goods and Services Tax (GST) paid to contractors for hiring buses and cars to transport their staff. The core issue was whether these hiring arrangements counted as 'rent-a-cab' services, which are generally blocked from claiming input tax credit.
What has changed
How it worked before
Many businesses were unsure if hiring a vehicle for staff transport was the same as renting a cab, leading to inconsistent claims for input tax credit.
What has changed
The authority clarified that the seating capacity of the vehicle is the deciding factor. Since an amendment in August 2018, vehicles with more than thirteen seats are exempt from the 'rent-a-cab' restriction, allowing businesses to claim the tax credit. For cars and smaller buses, the restriction remains, and no credit can be claimed.
Who this affects
Manufacturing or service businesses that hire buses or cars to transport their employees to and from the workplace.
An example
A software firm in Bangalore hires a 20-seater bus to pick up employees from the metro station. Because the bus has more than thirteen seats, the firm can claim the GST paid on this service as input tax credit. If they instead hired a fleet of 5-seater cars, they would not be allowed to claim that credit.
What you should do
Check the seating capacity of the vehicles you hire for staff. If you hire buses with more than thirteen seats, you may be eligible for input tax credit. Remember that an advance ruling only binds the company that asked for it; your local tax officer may still have a different view on your specific contract.
If you do nothing
If you claim credit on ineligible vehicles, you risk a tax demand notice during an audit. You would then have to pay back the wrongly claimed tax plus interest and potential penalties. Do not assume this ruling automatically grants you the right to claim credit without reviewing your specific service agreement.
The terms explained
- Input tax credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Rent-a-cab
- A category of service under GST law that generally prevents businesses from claiming back the tax paid on hiring passenger vehicles.
- Advance ruling
- A formal decision from tax authorities on how GST law applies to a specific business situation.
The ruling in detail
Appellate Authority for Advance Ruling
M/s YKK India Pvt Ltd.
HAAR Order No. HAR/HAAR/R/2018-19/04 dated 11.07.2018 (modified by this Appellate Authority order) · Haryana
Questions before the authority
- Whether the applicant (YKK) is eligible to take input tax credit on GST charged by the Contractor for hiring of buses for transportation of employees?
- Whether the applicant (YKK) is eligible to take input tax credit on GST charged by the Contractor for hiring of cars for transportation of employees?
- Whether the restriction on 'Rent a Cab' service specified in Section 17(5)(b)(iii) is applicable to input tax credit on GST charged by the Contractor for hiring of buses for transportation of employees?
- Whether the restriction on 'Rent a Cab' service specified in Section 17(5)(b)(iii) is applicable to input tax credit on GST charged by the Contractor for hiring of cars for transportation of employees?
Facts
The applicant is engaged in the manufacturing of slide fasteners and related products at a remote location in Haryana. To ensure employees reach the factory, the applicant contracts with service providers to supply buses and cars for employee transportation. The applicant sought an advance ruling on the eligibility of input tax credit (ITC) for the GST charged on these transportation services.
Ruling
| Question | What the authority ruled |
|---|---|
| ITC on hiring of buses | Eligible for buses with seating capacity > 13 persons from 30.08.2018 Prior to 30.08.2018, ITC was not admissible |
| ITC on hiring of cars | Not eligible Restriction on 'Rent-a-Cab' service applies |
| Section 17(5)(b)(iii) restriction on buses | Applicable at the relevant time No restriction after 30.08.2018 for vehicles with seating capacity > 13 |
| Section 17(5)(b)(iii) restriction on cars | Applicable ITC not available even after 30.08.2018 for vehicles with seating capacity <= 13 |
The Appellate Authority modified the original ruling, holding that ITC is admissible for buses with an approved seating capacity of more than thirteen persons following the amendment to the CGST Act effective from 30.08.2018. However, ITC remains inadmissible for cars and for buses with a seating capacity of thirteen or fewer persons. The restriction under Section 17(5)(b)(iii) regarding 'Rent-a-Cab' services was held to be applicable to the hiring of cars and smaller vehicles.
Reasoning
The authority determined that the hiring of vehicles for passenger transportation falls under the scope of 'rent-a-cab' services, which were restricted under Section 17(5)(b)(iii) of the CGST Act. It noted that the CGST (Amendment) Act, 2018, introduced a specific exception for motor vehicles with an approved seating capacity of more than thirteen persons. Consequently, the eligibility for ITC depends on the seating capacity of the vehicle and the date of the transaction relative to the 30.08.2018 amendment. The authority rejected the applicant's argument that 'hiring' is distinct from 'renting' for the purposes of the GST statute.
Provisions relied on
- Section 16 of the CGST Act, 2017
- Section 17(5)(b)(iii) of the CGST Act, 2017
- Section 101(1) of the CGST Act, 2017
- Central Goods and Services Tax (Amendment) Act, 2018
For the practitioner
This ruling clarifies that the **seating capacity** of the vehicle is the decisive factor for claiming ITC on transportation services post-30.08.2018. Practitioners can use this to advise clients that hiring buses with a capacity exceeding thirteen persons is eligible for ITC, while cars and smaller vehicles remain blocked under the 'rent-a-cab' restriction. It does not provide relief for hiring arrangements involving smaller vehicles regardless of the 'hiring' versus 'renting' distinction.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/haryana_aaar_ykk_2019_06.2019.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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