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Businesses could get wider input tax credit (ITC) on motor vehicles and expenses such as insurance, servicing and repairs, while transporters could face fewer checks on goods moving across states, under a set of transport and logistics proposals likely to come up before the GST Council this week, according to two sources close to the development.
Other proposals under consideration cover vehicle leasing and rentals, electric vehicles (EVs), demonstration and second-hand vehicles, and delivery of goods ordered through e-commerce platforms.
One of the key proposals seeks to allow ITC on motor vehicles with a seating capacity of up to 13 people, including the driver. Credit could also be available on insurance, servicing, repairs and maintenance of such vehicles.
At present, businesses generally cannot claim ITC on passenger vehicles with up to 13 seats, including the driver, unless the vehicles are used for specified activities such as resale, passenger transport or driving training. Credit on insurance, servicing, repairs and maintenance is also restricted in such cases. The proposed change would therefore widen the circumstances in which businesses can claim credit not only on vehicles but also on their running costs.
The proposals are expected to be discussed at the GST Council meeting later this week. They are not final and would require the Council’s approval.
Fewer checks on goods in transit
A separate proposal seeks to reduce repeated physical checks on vehicles carrying goods as consignments move from one state to another.
Under the proposed system, a vehicle could be stopped where there is specific information requiring a check, with prior authorisation from a senior officer.
For a transporter carrying the required documents, the proposal seeks to avoid multiple checks during the journey. The document gives the example of a consignment crossing five states being verified at one point rather than being subjected to checks in several states.
There would be exceptions. The destination state could intervene in cases where the buyer is liable to pay the tax, while authorities could also act where goods are being transported without the prescribed documents.
The changes could reduce delays for trucks travelling across several states and make transit times more predictable.
EVs, rentals and e-commerce deliveries
For passenger transportation and renting of vehicles, operators currently have the option of a lower GST rate with restricted ITC or an 18 per cent rate with full ITC. The proposal seeks to extend the same treatment to electric vehicles, putting EVs and conventional vehicles on the same footing for these services. The existing GST framework provides for passenger transport and renting of passenger vehicles at 5 per cent with limited credit on specified input services, with an option for 18 per cent with full ITC.
Delivery of goods ordered through e-commerce platforms is proposed to attract a uniform 5 per cent GST without ITC, irrespective of how the delivery is arranged. At present, local delivery services attract GST of 18 per cent.
The proposals also seek to clarify the treatment of demonstration vehicles. Manufacturers selling vehicles through agents would get the same ITC treatment on demonstration vehicles as dealers, removing a distinction based on the route through which vehicles are sold.
For the second-hand vehicle business, GST would continue to apply on the margin between the purchase and sale price where credit has not been taken on the vehicle. The proposal would clarify that the ITC condition applies only to the particular vehicle being sold and not to other vehicles in the dealer’s inventory. This could remove uncertainty over the tax treatment of used vehicles where a dealer handles both new and pre-owned vehicles.
The Council could also clarify what constitutes the value of a vehicle lease. Registration charges, road tax and insurance recovered by a lessor from the customer would be treated as part of the lease and taxed at the same rate as the leasing service. This would bring these associated charges under a single tax treatment rather than treating them separately.
The package contains some changes beyond road transport as well. Metro rail is proposed to be brought within transport-document requirements, while warehousing of seeds meant for sowing could be exempted from GST. An existing exemption for air travel in specified regions could also be extended to seat-sharing helicopter services operating to and from helipads, bringing such services within the concessional treatment available to eligible regional air travel.
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