service by way of renting of motor vehicle designed to carry passengers where the cost of the fuel is included in the consideration charged
Any person other than body corporate and does not issue invoice charging 12% GST
Any body corporate located in a taxable territory.
Another widely debated and frequently amended entry is about taxation of renting of motor vehicle used for passengers. Before we discuss RCM on this service we need to discuss two important things- a. Rate of GST applicable on this service and b. Input tax credit admissibility of this service.
There are two categories of the business model to determine rate of GST Cost of fuel is not included in the charges collected from the recipient.
Here the arrangement with the service recipient is only for providing service of renting of motor vehicle and the cost of fuel shall be separately paid by the recipient. In this situation rate of GST shall be 18%.
Cost of fuel in included in the charges collected from the recipient
Here the consideration fixed for the services to be provided shall be inclusive of fuel cost. Here the service provider shall have two options. - either to charge GST at 12% and take full ITC of all inputs and input service or to charge GST at 5% and taking limited ITC only of the same line of service i.e. ITC of only service of renting of motor vehicle.
For service provider, admissibility of ITC depends on whether GST is charged at 12% or 5%. In case GST at 5% is charged there is only limited ITC that can be taken. He can take ITC only for same line of business. For example, Mr. A provides service of renting of motor vehicle. For this purpose, he receives motor vehicle from Mr. B on rent. Here Mr. A and B are in same line of business and hence GST charged by Mr. B from Mr. A is available as ITC to Mr. A. Suppose Mr. A charges GST at 12 % then he can take ITC of all inputs and input services.
For service recipient, ITC is blocked under section 17(5) if approved seating capacity of the motor vehicle is not more than 13 persons (including the driver) except for providing same category of service. For example, X ltd receives service of renting of motor vehicle for their employees which has seating capacity of 9 persons. In this situation, X ltd is not eligible for ITC of this service irrespective of whether the GST is charged at 12% or 5%.
Let us take some example to understand these two aspects
Mr. A provides service of renting of motor vehicle to Mr. B which has seating capacity of 5 persons. answer following questions
What will be the rate of GST if price quoted by Mr A does not include charges for fuel.
What will be the rate of GST if price quoted by Mr.A is inclusive of fuel and Mr A wants to take full ITC of all inputs and input service.
What will be the rate of GST if price quoted by Mr A is inclusive of fuel and Mr A does not want to take full ITC but only limited ITC of same line of business.
How much ITC can be taken by Mr B from the invoice issued by Mr A, if he is a businessman having a business of production of plastic items.
Will there be any change in the answer of d above if seating capacity of the vehicle is 15?
How much ITC can be taken by Mr. B from the invoice issued by Mr B if he is having business of renting of motor vehicle and he has taken service from Mr A for further supply of service of renting of motor vehicle.
If price quoted is exclusive of fuel cost then GST rate shall be 18 %
If price quoted by Mr A is inclusive of fuel and Mr A wants to avail full ITC of all inputs and input services then GST rate shall be 12 %.
If price quoted by Mr A is inclusive of fuel and Mr A does not want to avail full ITC of all inputs and input services but only limited ITC of same category of service then GST rate shall be 5 %.
As per section 17 (5), Mr. B cannot take ITC of the service received from Mr A as he is not in the same category of service.
If seating capacity of the motor vehicle is more than 13 persons then restrictions of section 17 (5) shall not apply, and Mr B is eligible for ITC of the tax charged by Mr A
Here Mr B is taking service of renting of motor vehicle for further supply of service of renting of motor vehicle, hence restriction under section 17 (5) shall not be applicable and Mr. B is eligible to ITC.
As readers are now well aware of the GST rate and ITC provisions for Renting of motor vehicle service, we can examine entry relating to RCM.
This entry is added with effect from 1/10/2019. Further the entry has been amended by another notification dated 31/12/2019. A circular has also been issued on same date to clarify the entry. Let us understand implication of all these notifications and circular.
RCM in case of renting of motor vehicle shall be applicable only if all of the following conditions are fulfilled.
Service is of renting of any motor vehicle designed to carry passengers.
Cost of fuel is included in the consideration charged from the recipient.
Supplier is a person other than a body corporate.
Supplier does not issue invoice charging GST at 12%.
Recipient is a body corporate.
If all of the above conditions are fulfilled then the recipient body corporate shall pay GST under RCM. He will pay GST at 5%. Further he cannot take ITC of the tax paid under RCM as the same is restricted under section 17 (5) if seating capacity of the motor vehicle is not more than 13 persons and he is not in the same line of business. If any of the above five conditions are not fulfilled then RCM shall not be applicable and tax will be paid by the supplier under forward charge.