Quick Summary
The Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 262/08/2026-GST dated October 26, 2026, clarifying the availability of Input Tax Credit (ITC) on demo vehicles purchased by authorised agents appointed by vehicle manufacturers under the dealer-agency model. The clarification provides relief to authorised vehicle dealers who purchase and maintain demo vehicles for customer test drives but do not sell vehicles directly on their own account. CBIC has clarified that ITC
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FAQ :
The CBIC has clarified that Input Tax Credit (ITC) on demo vehicles is now allowed for authorised agents operating under the dealer-agency model, as it is not blocked under Section 17(5)(a) of the CGST Act.
Paragraph 4.6 of Circular No. 231/25/2024-GST, which had previously stated that ITC on demo vehicles would be blocked if the dealer acted merely as an agent, has been withdrawn.
The CBIC recognised that demo vehicles serve the same purpose of allowing customers to experience a vehicle before purchase in both traditional and dealer-agency models. Denying ITC in one model would create discriminatory treatment.
Section 17(5)(a) restricts ITC on motor vehicles, but the exception applies when such vehicles are used for further supply of similar motor vehicles. The CBIC interprets demo vehicles used for test drives as falling under this exception.
Authorised agents can now claim ITC on demo vehicles under the dealer-agency model. Dealers should review their ITC claims in light of this revised clarification, which harmonises treatment across different sales models.
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