GST on hiring of motor vehicles

Kusum Gandhi | Last updated: 09 September 2022

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This article clarifies the Goods and Services Tax (GST) implications when corporate bodies hire motor vehicles for passenger transport. It explains that if a company hires a vehicle for a period, where they control the schedule and routes, GST is payable by the company under the Reverse Charge Mechanism (RCM). However, if the service is for specific journeys on pre-determined routes, RCM does not apply. Additionally, hiring non-air-conditioned contract carriages for employee transport is generally exempt, unless hired for a period with the recipient controlling usage.

Clarifications regarding GST on renting of motor vehicles designed to carry passengers to be paid by corporate recipients /Firms

Govt. of India vide Circular No. 177/09/2022-TRU dated 03.08.2022 clarified whether RCM is applicable on service of transportation of passengers (Heading 9964) or on renting of motor vehicle designed to carry passengers (Heading 9966) by Body corporate.

RCM on Motor Vehicles was originally inserted vide NN-22/2019-Central tax (Rate) & then substituted vide NN-29/2019-Central tax (Rate) in which it was notified that services provided by a non-body corporate to a body corporate by way of renting of any motor vehicle for transport of passengers, tax is required to be paid by the body corporate under RCM.

SAC 9966

Renting of motor vehicle with operator for transport of passengers falls under Heading 9966. the service covered here is renting of motor vehicle for transport of passengers for a period of time where the renter defines, how and when the vehicles will be operated determining schedules, routes & other operational considerations.

As recommended by the GST Council, it is clarified that where the body corporate hires the motor vehicle (for transport of employees etc.) for a period of time, during which the motor vehicle shall be at the disposal of the body corporate, the service would fall under Heading 9966, & the body corporate shall be liable to pay GST on the same under RCM. Reverse charge thus would apply on act of renting of vehicles by body corporate and in such a case, it is for the body corporate to use in the manner as it likes subject to agreement with the person providing vehicle on rent.

GST on Hiring Motor Vehicles: Reverse Charge Explained

SAC 9964

'Passenger transport services' falling under Heading 9964.

Heading 9964 covers passenger transport services over pre-determined routes on pre- determined schedules.

As recommended by the GST Council, it is clarified that where the body corporate avails the passenger transport services for specific journeys or voyages & does not take vehicle on rent for any particular period of time, the service would fall under Heading 9964 & the body corporate shall not be liable to pay GST on the same under RCM.

Govt. of India vide Circular No. 177/09/2022-TRU dated 03.08.2022 clarified about hiring of vehicles by firms for transportation of their employees to & from work is exempt under Sr. No. 15(b) of NN. 12/2017-Central Tax (Rate) transport of passengers by non-air-conditioned contract carriage.

Sr. No. 15 (b) of notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 exempts "transport of passengers, with or without accompanied belongings, by non-air-conditioned contract carriage, other than radio taxi, for transport of passengers, excluding tourism, conducted tour, charter or hire."

It is clarified that 'charter or hire' excluded from the above exemption entry is charter or hire of a motor vehicle for a period of time, where the renter defines how and when the vehicles will be operated, determining schedules, routes & other operational considerations.

In other words, the said exemption would apply to passenger transportation services by non- air-conditioned contract carriages falling under Heading 9964.

The exemption shall not be applicable where contract carriage is hired for a period of time, during which the contract carriage is at the disposal of the service recipient & the recipient is thus free to decide the manner of usage (route and schedule) subject to conditions of agreement entered into with the service provider.

Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. No part of this article should be distributed or copied without express written permission of the author.

FAQ :

GST is payable by the corporate body under the Reverse Charge Mechanism (RCM) when they hire a motor vehicle for a period of time, and the vehicle is at their disposal to determine schedules, routes, and operational considerations.

GST does not apply under RCM when a corporate body avails passenger transport services for specific journeys or voyages, which fall under pre-determined routes and schedules, rather than hiring the vehicle for a period.

Yes, the transport of employees to and from work using non-air-conditioned contract carriages is generally exempt from GST, provided it doesn't fall under 'charter or hire' for a period where the recipient controls usage.

'Charter or hire' refers to hiring a motor vehicle for a period of time, where the renter dictates the usage, schedules, and routes, thus excluding it from certain exemptions.

Heading 9966 covers the renting of motor vehicles with operators for passenger transport where the renter controls usage, and Heading 9964 covers passenger transport services over pre-determined routes and schedules.

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