GST CHARGED 5% AND CLAIMED ITC

[Deepak D]

Dear Sir/Madam,

One of my client providing the Renting services of Motor vehicles for transport of passengers charged 5% of GST and claimed Input Tax Credit. SCN received on this to either reverse the ITC or to pay differential output Tax any remedy for this pls help

[KASTURI SETHI]

The departments stand is correct. Relevant notification/law is very much clear. No judgement or circulars can be useful at all in this context.

[YAGAY andSUN]

Under GST Notification 11/2017–CT(R) (as amended), renting of motor vehicles for transport of passengers at 5% GST is allowed only when the supplier does not take input tax credit, except ITC on same-category vehicles used for providing the service.

If full ITC has been availed, then the department treats this as wrong ITC, and the correct rate becomes 12%/18% depending on the service type and fuel cost conditions.

Possible remedies (based on settled practice):

1. Correct the classification and pay differential tax with interest

If the service conditions do not satisfy the “no ITC” restriction, you can opt to pay the higher output tax rate (12/18%) and retain the ITC.

Many taxpayers use this option because law allows you to charge the higher rate and avail full ITC.

2. Reverse only the ineligible ITC (if taken inadvertently)

If you want to remain in 5% category, you must reverse all ineligible ITC with interest under Section 50.

This is valid only if the service fits strictly within “renting of motor vehicle – 5% without ITC.”

3. Reply to SCN with justification (if applicable)

If the ITC taken relates only to same-category vehicles used in providing service (and allowed under the notification), attach:

• Vehicle usage details
• Input invoices
• Rule 42/43 workings
• Notification extracts showing credit is permissible for same-category inputs.

Practical approach followed in most assessments: Shift the service to full-rate (12/18%) and pay differential tax, as this is legally clean and avoids reversal of ITC and penalties, provided you disclose and settle voluntarily.

[Shilpi Jain]

Check whether ITC claimed is higher or the differential 7% is higher and accordingly do the needful.

[Shilpi Jain]

Though if your client has taken ITC of renting of vehicle or of another person providing the same service to him, that need not be reversed. That is allowed as per the rate notification.

AI Summary

Renting of motor vehicles: 5% GST requires forgoing ITC, or pay higher rate to retain input tax credit. The reduced 5% GST rate for renting motor vehicles is conditional on a no ITC restriction except for credit on same-category vehicles; if full ITC was taken, the supplier may either charge the higher output rate (12%/18%) and retain ITC or stay at 5% and reverse ineligible ITC with interest, supporting any same-category credit with vehicle usage records, input invoices, allocation workings and notification extracts.