Agent car dealers can now claim input tax credit on demo cars
Dealers who act only as agents for car makers can now claim input tax credit on demo cars, under CBIC Circular 262/08/2026-GST.
- Document
- Circulars CGST 262/08/2026-GST
- Dated
- 26 Oct 2026
- Effective
- Not stated. The Circular is dated 26.10.2026.
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
- Dealers acting only as agents for car makers can now claim ITC on demo cars.
- The circular withdraws the 2024 rule that blocked this claim.
- It covers demo cars kept for customer test drives.
- The circular sets no deadline, refund procedure or effective date.
In short
CBIC Circular No. 262/08/2026-GST, issued on 26 October 2026, says car dealers acting as agents for manufacturers can claim input tax credit (ITC, tax paid on business purchases) on demo cars. Trade bodies had asked for clarity because the earlier rule treated these dealers differently from dealers who sell cars on their own account.
What has changed
How it worked before
Under a 2024 CBIC circular (No. 231/25/2024-GST), dealers who acted only as agents for car makers could not claim ITC on demo cars. The rule did not stop dealers who sell cars on their own account.
What has changed
The 2024 clarification on this point is withdrawn. The CBIC now says section 17(5)(a) of the CGST Act, which blocks ITC on cars that carry up to 13 people including the driver, does not block ITC on demo cars for these agent dealers. The CBIC reads the words "such motor vehicles" to allow ITC on demo cars, because they help sell similar cars.
Who this affects
Authorised car dealers who sell a manufacturer's new cars as its agent, where the manufacturer makes the sale to the customer, and who hold demo cars for test drives.
An example
A car dealer in Pune acts as agent for a carmaker, which sells new cars directly to customers. The dealer keeps a demo car for test drives and was blocked from claiming ITC on it under the 2024 rule. Under this circular, that block no longer applies, so the dealer can review the demo car purchase and decide whether to claim the ITC.
What you should do
Review the demo car purchases your business made under this agent arrangement where ITC was blocked earlier. Decide whether to claim it. The circular sets no procedure for claiming, so ask your accountant how to proceed.
If you do nothing
The circular does not say what happens if you do not claim the credit, and it sets no deadline. It also does not describe any penalty or notice for dealers who take no action.
The terms explained
- input tax credit (ITC)
- The tax you paid on business purchases, which you can set off against the GST you collect. Blocked credits cannot be set off.
- demo vehicle
- A car a dealer buys and keeps so customers can test drive it before buying.
- dealer-agency model
- An arrangement where a dealer acts as the manufacturer's agent, and the manufacturer sells the new cars directly to customers.
- original equipment manufacturer (OEM)
- The car company that makes the vehicles.
- circular
- An official clarification issued by the tax department to explain how a law should be applied.
The original document
| Issued by | GST |
|---|---|
| Document | Circulars CGST 262/08/2026-GST |
| Full title | Clarification on Input Tax Credit admissibility to authorised agents appointed by manufacturers for sale of motor vehicles, pursuant to Circular No. 231/25/2024-GST dated 10.09.2024. |
| Issued on | 26 October 2026 |
| Effective | Not stated. The Circular is dated 26.10.2026. |
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