RCM on renting of motor vehicles

Last updated: 16 March 2021

Save Share

Quick Summary

Suppliers renting motor vehicles with fuel included have a choice for GST: 5% with limited Input Tax Credit (ITC) or 12% with full ITC. Reverse Charge Mechanism (RCM) applies to these rentals only if the supplier charges 5% GST and the recipient is a body corporate, provided the service provider is not a body corporate and was paying 5% tax on these services up to 30-09-2019. If the supplier charges 12% GST, the service recipient is not liable under RCM.

As per Circular No. 130/49/2019- GST dated 31st December 2019 suppliers of service by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient have an option to pay GST either –

RCM on Motor Vehicle Rentals: GST Explained

I) at 5% with limited ITC (of input services in the same line of business), or
II) 12% with full ITC.

The supply of renting of motor vehicles under RCM recommended that the said supply when provided by suppliers paying GST @5% to corporate entities, may be placed under RCM.

RCM was not recommended for suppliers paying GST @12% with full ITC, so that they may have the option to continue to avail ITC.

There are only two rates applicable on the service of renting of vehicles, 5% with limited ITC of input services in the same line of business and 12% with full ITC.

Further (i) where the supplier of the service charges GST @ 12% from the service recipient, the service recipient shall not be liable to pay GST under RCM; and,

(ii) where the supplier of the service doesn't charge GST @ 12% from the service recipient, the service recipient shall be liable to pay GST under RCM.

Thus 'renting of motor vehicles' designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient only if the supplier fulfills all the following conditions given below are satisfied:

a. Recipient of the service is a body corporate;

b. Service provider is any person other than body corporate; and

c. Service provider must have been paying tax @ 5% on the said services upto 30-09-2019.

The supplier providing the service to a body corporate under RCM may still, be paying GST @ 5% on the services supplied to other non-body corporate clients.

The author is a member of the CPA Institute, Australia and Associate member of Institute of Chartered Accountants of India and can also be reached at casusmitadutta@gmail.com.

Disclaimer: The facts and opinions written in this column are those of the author and have been prepared on the basis of relevant provisions and information available at the time of preparation. The article does not constitute any professional advice or a formal recommendation. The author has undertaken the utmost care to disseminate true and correct views and does not accept liability of any errors or omissions.