RCM on Renting
of Motor Vehicles Under GST: An In-depth Analysis
By Yogesh Verma
(CS/LLB) / 2
min read / GST Article
Introduction: The Goods and Services Tax (GST) regime has brought a
paradigm shift in the way indirect taxes are levied in India. It has not only
unified multiple taxes but has also expanded the tax base, bringing various
services under its purview. One such service is the renting of motor vehicles,
which has significant implications for both suppliers and recipients. The
concept of renting, under GST, involves the supply of services, subject to
taxation based on specific criteria, such as the nature of the supplier, the
recipient, and the terms of the agreement.
This article provides a comprehensive analysis of the GST
implications on renting motor vehicles, covering definitions, rates,
exemptions, and valuation methods. We will delve into the key provisions under
the GST law related to renting, its impact on businesses, and the reverse
charge mechanism (RCM) applicable in specific scenarios.
What is Renting?
In common parlance, renting is an
agreement where a payment is made for the temporary use of a good, service, or
property owned by another. The renting of motor vehicles falls within this
broad definition and plays a vital role in various industries, especially
transportation and logistics.
Under the GST law, renting is covered within the definition
of "supply" as per Section 7 of the CGST Act, 2017. The supply of
services includes the transfer of the right to use goods for any purpose.
Renting motor vehicles, thus, is treated as a supply of services rather than
goods.
Analysis of Service:
According to paragraph 5(f) of Schedule II of the CGST Act,
2017, the transfer of the right to use any goods for any purpose constitutes a
supply of services. As motor vehicles are considered movable property, they
fall under the definition of "goods." Consequently, renting motor
vehicles is categorized as a supply of services, liable to GST. Notification
No. 12/2019-CT (Rate) dated 30.09.2019 brought the services by way of renting
motor vehicles by any person (other than a body corporate) to a body corporate
under the reverse charge mechanism (RCM), further specifying the conditions
under which tax liability arises.
Entry under GST Regime (w.e.f. 01st
October, 2019)
From October 1, 2019, renting motor vehicles became subject
to the GST regime under specific conditions. The following table summarizes the
tax applicability:
|
S. No.
|
Category of Supply of Services
|
Supplier of Service
|
Recipient
|
|
15
|
Services provided by way of renting of any motor vehicle designed
to carry passengers where the cost of fuel is included in the consideration
charged from the recipient, provided to a body corporate
|
Any person, other than a body corporate who supplies the
service to a body corporate and does not issue an invoice charging central
tax at the rate of 6% to the service recipient.
|
Any body corporate located in the taxable territory
|
Rate of Taxes Applicable for
Supplier:
The GST rate applicable on the renting of motor vehicles
depends on the nature of the supplier and the terms of the service agreement.
The following outlines the tax structure:
1.
If the
supplier is a body corporate
(registered under GST), they can choose to pay GST under forward charge, at
either 5% (with restrictions on Input Tax Credit or ITC) or 12% (without
restrictions on ITC).
2.
If the
supplier is a registered person other than a body corporate, they can also opt to pay GST under forward charge, either
at 5% or 12%.
3.
If the
supplier is a registered person other than a body corporate and provides services to a body corporate, they can choose
to pay GST at 12%. If they opt not to pay at 12%, the recipient (body
corporate) becomes liable to pay GST under RCM.
4.
If the
supplier is an unregistered body corporate,
no taxes are charged, and the recipient is not liable to pay taxes under RCM.
5.
If the
supplier is an unregistered person other than a body corporate, no taxes are charged. However, if the recipient is a body
corporate, they are required to pay taxes under RCM.
Exemptions:
Certain categories of renting motor vehicles are exempt from
GST, as per the exemptions provided under Notification No. 12/2017-Central Tax
(Rate). The following services enjoy exemptions:
|
S. No.
|
Heading/Subheading
|
Description of Services
|
Rate
|
|
22
|
Heading 9992 or 9963
|
Services by way of giving on hire: (a) To a State
transport undertaking, a motor vehicle carrying more than twelve passengers;
(aa) To a local authority, an electronically operated vehicle; (b) To a goods
transport agency for transportation of goods; (c) To an educational institution
for transport of students, faculty, and staff
|
Nil
|
Valuation:
The valuation of renting services is crucial for determining
the applicable tax. As per Section 15 of the CGST Act, 2017, the value of
supply is the transaction value, i.e., the price paid or payable for the supply
of goods or services where the supplier and recipient are not related, and the
price is the sole consideration.
Additional elements that must be included in the valuation
are:
1.
Taxes, duties, cesses, fees, etc.,
under any law other than GST.
2.
Amounts payable by the supplier but
incurred by the recipient.
3.
Incidental expenses charged by the
supplier.
4.
Interest or late fee for delayed
payment of consideration.
Place of Supply:
Determining the place of supply is essential for identifying
the type of tax to be applied (IGST, CGST, or SGST). For renting motor
vehicles, the place of supply can be understood using residual provisions, as
no specific provision is provided under GST law for such services:
- For
supplies within India
(Section 12(2)), the place of supply is the recipient's location if they
are registered. If the recipient is unregistered, the place of supply is
their address on record; otherwise, it defaults to the supplier’s
location.
- For
cross-border supplies
(Section 13(2)), the place of supply is the recipient's location. If the
recipient’s location is unavailable, the place of supply is the supplier’s
location.
Conclusion:
Renting motor vehicles under the GST regime is subject to
detailed provisions that vary based on the nature of the supplier, recipient,
and services provided. With the introduction of the reverse charge mechanism,
compliance has become crucial for businesses involved in renting services.
Understanding the applicable rates, exemptions, and valuation mechanisms is
essential for seamless GST compliance and avoiding penalties. Taxpayers must
also remain vigilant about changes in regulations to ensure proper adherence to
the GST laws regarding motor vehicle rentals.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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