Used car dealers can claim input tax credits
The Central Board of Indirect Taxes and Customs (CBIC) has clarified that used car dealers under the GST margin scheme can avail Input Tax Credit (ITC) on various inputs, including goods and services. This clarification was made through two circulars based on the recommendation of the GST Council.
The GST margin scheme is a special valuation method that prevents double taxation by levying GST only on the profit margin, rather than the full transaction value. The scheme allows used car dealers to calculate GST on the selling price minus the purchase price.
ITC Availment Conditions
According to the CBIC, the restriction on availment of ITC for availing benefit of concessional GST and Compensation Cess rate under the margin scheme notifications is not applicable in respect of ITC on inputs, other than old and used motor vehicles, and input services. This means that suppliers of old and used motor vehicles under the GST margin scheme notifications can avail ITC on various inputs, such as spares, repair and maintenance services, technology services, rent, marketing, and advertisement services.
The restriction on availment of ITC under the margin scheme notifications applies only on the tax paid on the procured second-hand vehicles. The CBIC’s clarification provides relief to used car dealers who can now claim ITC on various inputs and input services, except for the tax paid on the procured second-hand vehicles.
Taxability of Co-Lending Services
In another circular, the CBIC clarified the taxability of services provided by Non-Banking Financial Companies (NBFCs) to banks under co-lending arrangements. Under the co-lending model, banks and NBFCs jointly extend credit to borrowers in a pre-agreed proportion. The CBIC stated that the lending services provided by an NBFC to a bank under a co-lending arrangement are taxable under GST.
The value of such services shall be the value specified in the contractual agreement entered into between the NBFC and the bank.
These clarifications are expected to provide relief to used car dealers and NBFCs, and will help in reducing litigation and disputes related to GST. The CBIC’s clarifications are based on the recommendations of the GST Council, and are aimed at providing clarity and certainty to taxpayers. They will help used car dealers and NBFCs understand their tax obligations and comply with the GST regulations.
