Claiming GST Input Tax Credit on Leased Motor Vehicles
Businesses that lease out motor vehicles as a taxable service can claim Input Tax Credit on the purchase of those vehicles.
- Ruling
- Order Number 02/2019 dated 18.02.19
- Dated
- 18 Feb 2018
- Authority
- 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
- Narsingh Transport asked if they could claim GST credit on purchased cars.
- The cars are leased to other companies for rent.
- The Authority ruled that leasing cars counts as a further supply.
- Input Tax Credit is allowed because the cars are used for taxable services.
In short
The company asked the Madhya Pradesh Authority for Advance Ruling (AAR) if they could claim Input Tax Credit (ITC) on cars bought to lease out to other businesses. Under the Central Goods and Services Tax (CGST) Act, there is a general rule that you cannot claim credit on motor vehicles. The company argued that because they are in the business of leasing these cars, they are essentially reselling or supplying the vehicles, which should be an exception to the rule.
What has changed
How it worked before
Many businesses were unsure if leasing vehicles qualified as a 'further supply' that would allow them to bypass the standard restriction on claiming tax credit for motor vehicles.
What has changed
The Authority confirmed that leasing vehicles is considered a 'further supply' of those vehicles. This means if your business model is to buy cars specifically to lease them out for a taxable fee, you can claim the GST paid on the purchase of those cars as credit. If you use the cars for your own internal business travel or personal use, you cannot claim this credit.
Who this affects
Businesses that operate as vehicle leasing agencies or transport companies that lease out passenger cars to other entities.
An example
A logistics firm buys a fleet of cars to lease to corporate clients for their employees. They want to know if they can claim the GST paid on these cars. Based on this ruling, they can claim the credit because the cars are used to provide a taxable leasing service. If the firm later decides to use one of those cars for their own office staff, they must reverse the credit for that specific vehicle.
What you should do
If you are in the vehicle leasing business, you may be eligible to claim ITC on your vehicle purchases. However, remember that an Advance Ruling only applies to the specific business that asked the question. Your local tax officer is not legally bound by this decision, so you should consult with your tax advisor before claiming credit based on this ruling.
If you do nothing
If you claim credit on vehicles that do not qualify, you risk a tax audit and potential penalties for incorrect filings. A tax officer may demand you pay back the credit with interest if they determine your use of the vehicle does not meet the 'further supply' criteria. Never assume a ruling applies to your specific situation without professional verification.
The terms explained
- Input Tax Credit
- This is the tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Further supply
- In this context, it means the act of leasing or renting out a vehicle to another party as part of your business operations.
- Advance Ruling
- A formal decision from tax authorities on how tax laws apply to a specific business question.
The ruling in detail
Authority for Advance Ruling
M/s. Narsingh Transport
Order Number 02/2019 dated 18.02.19 · Madhya Pradesh
Questions before the authority
- Whether the GST paid on cars provided to different customers on lease rent will be available to it as Input Tax Credit (ITC) in terms of Section 17(5) of Central Goods and Service Tax Act, 2017.
Facts
The applicant is a Goods Transport Agency providing services and has purchased cars to provide to various companies on a monthly lease rent basis. The applicant sought an advance ruling on whether they are eligible to claim Input Tax Credit on the GST paid for the purchase of these vehicles. The vehicles are used exclusively for the purpose of providing lease rent services to other entities.
Ruling
| Question | What the authority ruled |
|---|---|
| Input Tax Credit on leased cars | Allowed Subject to the condition that vehicles are used for further supply of lease rent services and registered for commercial use. |
The Authority ruled that the applicant is entitled to avail Input Tax Credit on the passenger vehicles provided to customers on lease rent. This entitlement is subject to the condition that the vehicles are used for making taxable supplies of lease rent services. The ruling specifies that if the vehicles are used for the applicant's own use, the ITC facility will not be available.
Reasoning
The Authority relied on Section 17(5) of the CGST Act, which restricts ITC on motor vehicles except when used for the further supply of such vehicles. It determined that the applicant's activity of leasing cars constitutes a 'further supply' of motor vehicles, thereby falling within the exception to the restriction. The ruling emphasizes that the vehicles must be registered for commercial use and not for the applicant's personal use to qualify for the credit. It also noted that the applicant must reverse the ITC if the vehicle is not further leased upon the termination of a contract.
Provisions relied on
- Section 17(5) of the CGST Act, 2017
- Section 97(2) of the CGST Act, 2017
- Section 7(1)(a) of the CGST Act, 2017
- Notification number 11/2017-Central Tax (Rate) dated 28.06.17
- Rule 42 of the CGST Rules
For the practitioner
This ruling confirms that businesses engaged in the **leasing of motor vehicles** as a taxable service are eligible to claim ITC on the purchase of such vehicles. It provides clarity that 'further supply' includes leasing arrangements, thus bypassing the general ITC restriction on motor vehicles. However, it does not apply to vehicles used for the applicant's own internal or personal purposes, which remain ineligible for credit.
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/AAR/mp-02-2019-narsingh_transport.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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