ITC eligibility on motor vehicle purchased to provide Rental Services

[Mahesh]

Respected Experts,

I have purchased some motor vehicles (Car) and used it to provide renting services. Under this, I have made agreement with third party, where as per agreement, they are charged certain amount monthly and they can use it for whatever purpose they wish to.

My query is:

1.Can I take ITC on the purchased cards? or is it blocked under Section 17(5)

2. Under which SAC, should I report in returns

My friend who is in same business informed that he has received a notice from state GST saying it is a blocked credit as it not in the "further supply of such motor vehicle".

Experts please shed light on this

AI Summary

Input tax credit on rented motor vehicles hinges on whether the arrangement is passenger transport or a bare lease model.
Input tax credit on motor vehicles used for rental activity turns on whether the arrangement is treated as transportation of passengers or as a bare lease/right-to-use model. Section 17(5)(a) blocks credit on specified motor vehicles except for further supply, passenger transportation, or training, and the discussion notes that the further-supply exception does not usually cover a service transaction. Commercial deployment with operator control supports ITC, while fixed-rent unrestricted use may attract denial. Classification is stated as SAC 996601 with operator and SAC 9973 / 996602 without operator.