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RCM on Renting of Vehicles Under GST

Updated on:  

08 min read

The applicability of RCM on renting vehicles has helped small service providers with improved liquidity by reducing their GST compliance. Paying GST on forward charge was not possible as they received payment for their services after several months.

It was decided in the 37th GST Council Meeting to put the supply of renting of motor vehicles under RCM for suppliers paying GST at 5% to corporate bodies. But, RCM was not made applicable for suppliers paying GST at 12% with full ITC because this would have blocked the ITC chain. 

Hence, the government’s reverse charge mechanism helped in faster tax collections and reduced payments and compliance on small service providers.

Definition and explanation of ‘Motor Vehicle’ and ‘Renting of Motor Vehicle’ under GST

The word motor vehicle or renting of a motor vehicle is not defined under GST law. But as per Motor Vehicles Act, 1988, a motor vehicle means “any mechanically propelled vehicle used on roads but does not include a vehicle running on fixed rails or a special vehicle used in a factory or an enclosed premises having less than four wheels with engine capacity not exceeding 25 cubic centimetres.”

Motor vehicle: Government vide Notification No.29/2019 dated 31.12.2019 replaced the word motor vehicle with “motor vehicle designed to carry passengers”. Earlier, the term “motor vehicle” covered all types of motor vehicles. But, the revised notification intends to cover only “vehicles that carry passengers”.  

Thus, as per the revised notification, RCM is applicable only on passenger vehicles. Renting of trucks, JCB, cranes etc., is not covered under RCM.

Renting of motor vehicle: Renting a motor vehicle means the right to use the vehicle for a specific duration. Here, the essence of service is renting a motor vehicle and not transportation of passengers.

Reverse charge mechanism on renting of motor vehicles

Under RCM, the receiver of service is liable to pay tax on supply. Usually, the supplier of goods is liable to GST, but under RCM, the chargeability gets reversed.

There are two GST rates used in renting motor vehicles:

With full ITC- 12%

With limited* ITC- 5%

*Limited ITC means input tax credit can be claimed only from the output liability in the same business line.

RCM is applicable on renting motor vehicles used for carrying passengers if the supplier fulfils the three conditions below:

  1. The supplier is other than a body corporate.
  2. He provides the service to a body corporate.
  3. The supplier does not charge 12% GST on the invoice from the service recipient.

Interpretation of Notification 29/2019

Government vide this notification substituted the below words:

Particulars

Earlier provision

Revised provision

Category of supply of services

Services provided by way of renting a motor vehicle to a body corporate.

The word motor vehicle got substituted by words renting a motor vehicle used to carry passengers. 

Also, the cost of fuel should be included in the consideration charged.

Supplier of service

This included any person other than a body corporate paying tax at 2.5% on renting motor vehicles with the use of ITC only in the same business line.

This includes any person other than a body corporate providing the service to a body corporate and does not issue an invoice charging central tax at 6% to the service recipient.

Persons liable to GST on renting of motor vehicles

RCM was made applicable on renting of motor vehicles vide Notification no. 29/2019 dated 31.12.2019. Further, a clarification was also issued in this regard vide Circular no. 130/2019 dated 31.12.2019.

As per the interpretation from this notification and circular, we can say that the persons mentioned below are liable to pay GST on renting motor vehicles:

  1. If the supplier is a body corporate: The supplier is liable to deduct GST.
  2. If the supplier is a person other than body corporate: The recipient is liable to pay GST only if he is a body corporate, and he has not received a GST invoice from his service provider charging GST at 12% If the recipient is a person other than a body corporate, then GST is not applicable.

Situations where RCM will be applicable on the renting of motor vehicles

RCM is applicable on renting motor vehicles only if the supplier is a person other than a body corporate.

The table below summarises the applicability of RCM:

Sr. No.

Supplier

Recipient

Rate

RCM applicability

1

ABC Travels

(GST registered entity)

XYZ Limited

(Body corporate)

5%

Yes

2

ABC Travels

(GST registered entity)

Other than a body corporate

With full ITC- 12%

With limited ITC- 5%

No

3

ABC Limited

(Corporate entity)

XYZ Limited

(Corporate entity)

With full ITC- 12%

With limited ITC- 5%

No, as the supplier is a corporate entity

4

ABC Limited

(Corporate entity)

ABC Travels

(GST registered entity)

With full ITC- 12%

With limited ITC- 5%

No, as the supplier is a corporate entity

5

ABC Travels

(not registered under GST)

XYZ Limited

(Corporate body)

Yes

6

ABC Travels

(not registered under GST)

Other than body corporate

No

7

ABC Travels- registered under GST

(cost of fuel is not included in the consideration)

XYZ Limited

(Body Corporate)

With full ITC- 12%

With limited ITC- 5%

No

Difference between passenger transportation service and renting of motor vehicles

Passenger transportation service: This service falls under SAC 9964. Here, supply is the transportation of passengers, and he pays consideration for his vehicle depending on the nature of the contract, travel time, and various other factors. The passenger has varying degrees of control over his carriage, like choosing the destination, travel time, etc.

Renting of motor vehicle: This service falls under SAC 9966. Here, the passenger is not enjoying the transportation service. He is enjoying the service of using a motor vehicle with or without a driver. Here, the consideration is paid for renting the cab and not transportation of the vehicle.

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