Can GST Paid on Car Purchased by Firm Name Eligible for Input Tax Credit?

In the context of GST (Goods and Services Tax) compliance, the eligibility of GST input credit (ITC) on a car purchased by a firm's name depends on several factors. Understanding these factors is crucial for businesses aiming to maximize their tax benefits while adhering to legal requirements.

Conditions for Claiming GST Input Credit on a Car

The GST input credit for a car can only be claimed if it is utilized exclusively for particular commercial operations such as:

Passenger Transport Business

For companies that transport passengers, such as taxi services (e.g., Ola, Uber), a firm can claim GST ITC. The use of the vehicle must be solely for the purpose of transporting passengers for business.

Car Rental or Leasing

If the car is rented or leased and used for business purposes, such as providing car rental services, the company can claim GST ITC.

Driving Schools

For vehicles used exclusively for training purposes, such as driving schools, GST ITC can be claimed.

Note: The car must be registered under the firm's name, and the company must maintain a valid GST invoice from the dealership. The car must also be utilized for legitimate business activities only.

When GST Input Credit Cannot Be Claimed

Section 175 of the CGST Act does not provide for input credit for cars used for personal reasons, or for vehicles that are not directly tied to fundamental business activities, such as a corporate director's private vehicle.

Legal Framework and Compliance

Section 16 of the CGST Act allows input credit for business-related products or services. However, Section 175 clearly prohibits credit for motor vehicles unless they are employed in passenger transportation, automobile rentals, or driving schools.

For example:

If a company purchases a vehicle to operate as a taxi, the firm can claim GST ITC. However, if the car is purchased for office use or personal use by the directors, GST ITC is not permitted.

Proportional Claim for Mixed Usage

If the vehicle is used for both business and personal purposes, the firm may only claim ITC on the portion of GST attributable to business use. Proper documentation, including a valid GST invoice, is necessary to support the claim.

Conclusion

Only in specific circumstances is GST input credit on a car purchased under a firm name eligible for ITC. These circumstances include passenger transportation, automobile rentals, or driving schools. It is advisable to consult a tax professional or accountant to ensure compliance with specific GST regulations and to assess eligibility for ITC accurately.