Clarification On Availability Of Input Tax Credit In Respect Of Demo Vehicles

Last updated: 25 September 2024

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This circular provides clarification on the availability of input tax credit (ITC) for demo vehicles used by authorised motor vehicle dealers. Demo vehicles are maintained for test drives and demonstrations to potential buyers. Dealers purchase these vehicles against tax invoices and record them as capital assets. While dealers may be required to hold these vehicles for a mandatory period, they can be sold later at a written-down value, with applicable tax due at that point.

Circular No. 231/25/2024-GST

F. No. CBIC-20001/6/2024-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
***

New Delhi, dated the 10th September, 2024

To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)

Madam/Sir,

Subject: Clarification on availability of input tax credit in respect of demo vehicles-reg.

The demo vehicles are the vehicles which the authorised dealers for sale of motor vehicles are required to maintain at their sales outlet as per dealership norms and are used for providing trial run and for demonstrating features of the vehicle to the potential buyers. These vehicles are purchased by the authorised dealers from the vehicle manufacturers against tax invoices and are typically reflected as capital assets in books of account of the authorized dealers. As per dealership norms, these vehicles may be required to be held by the authorized dealers as demo vehicle for certain mandatory period and may, thereafter, be sold by the dealer at a written down value and applicable tax is payable at that point of time.

For full notification please refer to the attachment

FAQ :

Demo vehicles are vehicles that authorised motor vehicle dealers must keep at their sales outlets as per dealership norms. They are used to provide trial runs and demonstrate vehicle features to potential buyers.

Authorised dealers purchase demo vehicles from vehicle manufacturers against tax invoices.

Demo vehicles are typically reflected as capital assets in the books of account of the authorised dealers.

Yes, as per dealership norms, demo vehicles may be sold by the dealer at a written-down value after a mandatory holding period.

Applicable tax is payable at the point when the demo vehicle is sold by the dealer at a written-down value.