CBIC Clarifies ITC on Demo Vehicles in New Circular
Admin | September 11, 2024
Categories: 54th GST Council
4 Min Read
On September 10, 2024, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 231/25/2024-GST. This circular provides important clarification about input tax credit (ITC) for demo vehicles, which is crucial for authorized motor vehicle dealers.
Key Takeaways:
Purpose of Demo Vehicles:
Dealers use demo vehicles to showcase features and allow potential buyers to test them. Typically, they record these vehicles as capital assets and sell them after a set period, applying taxes upon sale.
ITC Eligibility for Passenger Transport Vehicles:
According to Section 17(5)(a) of the CGST Act, ITC for passenger transport vehicles is usually restricted. However, dealers can claim ITC if the vehicles are used for:
- Selling motor vehicles
- Passenger transport
- Driving instruction
Criteria for ITC Claims:
Further Supply:
Although demo vehicles are not sold directly, they help promote the sale of similar models. Consequently, they qualify for ITC under the ‘further supply’ clause.
Other Uses:
Demo vehicles used for staff transport or marketing services do not qualify for ITC.
Treatment of Capitalized Demo Vehicles:
Dealers can still claim ITC on demo vehicles even if they are capitalized in their records, provided they use them for business operations. However, Section 16(3) stipulates that ITC is not available if the dealer has claimed depreciation on the tax component under the Income Tax Act, 1961.
In summary, this clarification by the CBIC ensures consistent application of ITC rules, enhancing transparency and fairness in the tax treatment of demo vehicles across the auto dealership industry.
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https://aaermlawassociates.com/cbic-clarification-itc-demo-vehicles-september-2024/
