ITC and GST %

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This discussion clarifies the Goods and Services Tax (GST) implications for a new used car leasing company. The standard GST rate for leasing used cars is confirmed at 12%. Crucially, the leasing company can claim Input Tax Credit (ITC) on the purchase of second-hand cars, provided the seller issues an invoice that includes GST. This is permissible even if the first owner didn't claim ITC, as leasing is considered a 'further supply' of the vehicle, making ITC admissible under specific GST regulations.

Raghavendra b.n.

Raghavendra b.n. (Querist)

15 October 2020 We are building a used car leasing company.
We purchase cars from owners, register these cars in our company's name and further lease them to willing lessees (individual / corporates). I will be charging the customer GST on the monthly lease rent. My questions are:
1. What is the % GST for used car while leasing.
2. If the first owner has not taken ITC, can the leasing company which is the second and current owner take benefit of this ITC ? If Yes/No, how and why ?

Lekhraj sood

Lekhraj sood (Expert)

15 October 2020 1. GST rate on car leasing would be 12%.
2. ITC on cars is blocked under section 17(5)(a). However, the following exceptions are given-
ITC on Specified Motor Vehicles for transportation of persons admissible when used for
making following taxable supplies
➢ further supply of such motor vehicles; or
➢ transportation of passengers; or
➢ imparting training on driving such motor vehicles;

Since you are giving cars on lease it will be covered under 'further supply of such motor vehicles' because the leasing amounts to supply under section 7(1) and you are also charging GST on such leasing of vehicles.
So you can claim ITC of the GST paid on purchase of these second hand cars if charged on the invoice by the seller. If does not charge GST then you cannot claim irrespective of whether seller had claimed the ITC or not.

Raghavendra b.n.

Raghavendra b.n. (Querist)

15 October 2020 thank you Mr Lekhraj, is there a link or article on this tax law that can help me quote this 12% as GST ? Also if i ask the owner to provide an invoice with breakup for GST and value of vehicle, this GST shown on the invoice, does not have to be paid by owner to the govt because he has already paid GST while purchasing the vehicle. But for that then he would need GST registration. Is my understanding correct ?

Lekhraj sood

Lekhraj sood (Expert)

15 October 2020 https://www.cbic.gov.in/resources//htdocs-cbec/gst/circular-cgst-130.pdf
The question of first owner charging GST arises only if he is registered under GST. If he is someone not doing business then he will not be registered under GST and he cannot charge GST.

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