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RCM on Rent a cab

 

OCTOBER 14, 2019

By G Natarajan, Advocate, Swamy Associates

S.No. 10 of Notification 11/2017 Central Tax (Rate) Dt. 28.06.2017, as amended from time to time prescribes the rate of GST for "renting of motor vehicles".

As it stands today, the following are the applicable rates.

 

 

S.No.
Description
Rate of GST (CGST+SGST)
Conditions
(i)
Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient.
5%
Provided that credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business has not been taken.
12 %
-
(ii)
Time charter of vessels for transport of goods.
5%
Provided that credit of input tax charged on goods (other than on ships, vessels including bulk carriers and tankers) has not been taken.
(iii)
Rental services of transport vehicles with operators, other than (i) and (ii) above.
18 %
 

It may be noted that a person who is giving motor vehicles on hire has the following options.

-  If he is using his own vehicles, he can charge 5% GST without availing any ITC.

-  If he is obtaining vehicles from others, who charge GST, he can claim ITC only for such ITC and pay 5% on his customers. No other ITC can be availed.

-  All ITCs can be availed and 12% GST can be charged on his customers.

Now, Reverse Charge Mechanism has been introduced for this service, by amending Notification 13/2017-Central Tax (Rate) Dt. 28.06.2017, vide Notification 22/2019-Central Tax (Rate) Dt. 30.09.2019, w.e.f. 01.10.2019.

Sl.No.

Category of Supply of Services

Supplier of service

Recipient of Service

(1)

(2)

(3)

(4)

15

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

Any person other than a body corporate, paying central tax at the rate of 2.5% on renting of motor vehicles with input tax credit only of input service in the same line of business

Any body corporate located in the taxable territory.

The wording of the category of suppliers, who are excluded from the applicability of reverse charge mechanism is bit confusing. It may be noted when the supplier of Service is a body corporate and such body corporate has opted to pay 5 % GST by availing ITC of only the GST paid on same line of business, then reverse charge would not apply and in all other cases reverse charge would apply.

To tabulate,

Status of supplier (Person giving the cab on rent)

Status of recipient (Customer)

Whether RCM applicable?

Rate of GST

Remarks

Body Corporate – Not availing any ITC

Body Corporate

Yes

5 %

 

Body Corporate – Not availing any ITC

Non Body Corporate

NO

5 %

The person renting the motor vehicle has to pay under forward charge.

 

Body Corporate – Availing ITC of only same service

Not Relevant

NO

5 %

Other than body corporate

Body Corporate

Yes

5 %

 

It may be observed that 12% GST rate with full ITC has also been prescribed in Notification 11/2017, where all ITC can be availed, including the GST paid on purchase of vehicles, repair and maintenance of vehicles, etc. This rate has now been rendered redundant in view of reverse charge mechanism. The service providers no more have an option to avail all ITC and pay 12%.

What will happen to all those, who have availed all ITC and paying 12% GST so far, where reverse charge has become applicable now? As per Section 18 (5) of the CGST Act, 2017 the balance of any such credit shall lapse.

Further, the above provisions also lead to an anomaly where services provided by small players (other than body corporates) would become costlier as explained below.

Let us assume M/s A, a partnership firm is obtaining vehicles from various individuals on hire and those individuals are charging 5 % GST and in turn gives such vehicles on hire to body corporates. Now, as per the RCM provisions, M/s A is no more liable to pay GST as his services are notified for RCM. Hence, the GST borne by him in respect of the vehicles hired by him would become a cost in his hands.

Whereas, let us assume M/s ABC Pvt. Ltd. is also obtaining vehicles from various individuals on hire and those individuals are charging 5% GST. M/s ABC Pvt. Ltd. can avail ITC of such GST charged on them. Now, as per the RCM provisions, the activities M/s ABC Pvt. Ltd. is not covered under RCM as M/s ABC Pvt. Ltd. is a body corporate, paying 5% GST by availing ITC only for same line of business. As the GST borne by M/s ABC Pvt. Ltd. is not a cost, they can offer lesser rates to their customers, than the rates offered by M/s A, and thereby drive small players out of business.

(The views expressed are strictly personal.)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: RCM on rent a cab

Sir,
There is no confusion, if comma after body corporate is considered. Any person other than a body corporate, who is getting vehicles by paying 5% GST with ITC from supplier in the same line of business and further supplying cabs to body corporate is eligible for RCM scheme under Notification 13/2017-CTR as amended by 22/2019-CTR. Unless correction is made to the notification, it appears individual owners of cabs supplying cabs to body corporate are not covered. Please note that only cabs taken from those in the same line of business are covered for RCM purpose though the intention is to cover the individual owners also.
It also means whether body corporate supplier is paying 5% GST or 12% GST, he is not covered for RCM purpose.


Further, learned author says 12% GST is of no avail now. I am afraid, it is not correct interpretation. An individual can still pay 12% GST by availing inputs on all supplies of goods and services by him. However, such an individual paying 12% GST is not covered for RCM purpose.

I agree with learned author's view that an individual getting vehicle by paying 5% to further rent out to a body corporate, will be not in a position to use 5% ITC and it becomes a cost to him.


Posted by rrkothapally rrkothapally
 
Sub: RCM on renting of motor vehicle provided to body corporate

Sir, this Notification create more confusion, I would like to highlight some issue which need to be answered.

As per sr.no 15 of Not.22/2019-CTR, RCM shall be applicable to persons other than body corporate paying central tax at the rate of 2.5 percent on renting of motor vehicle with input tax credit only if input service in same line of business to any body corporate located in taxable category.

1) From above can it be concluded that non body corporate paying tax CTR 2.5 without availing ITC is excluded from RCM.
In my view certainly this may not be intension but need more clarity.

2) Does it mean RCM not applicable for unregistered person as 2.5 percent CTR slab is mandatory.

In my view answer is Yes, as persons paying tax in this slab is registered person.

3) Does it applicable to persons who voluntary take registration though total turnover does not exceed threshold limit and paying CT 2.5 percent.

In my view answer is Yes as it is applicable to those non body corporate who are paying CTR at the rate of 2.5 percent.

4) In case such unregistered person as mentioned above withdraw registration after 1oct but was paying tax 2.5 percent earlier to 1oct 19, would it mean they falls under RCM
In my view RCM not applicable to such persons but need more clarity


5) Does it applicable to persons who voluntary take registration though total turnover does not exceed threshold limit and paying CT 6 percent to take advantage of ITC.

In my view answer is No, as it is applicable to those non body corporate who are paying CTR at the rate of 2.5 percent only.

views expressed are personal only.

Pankaj Sharma


Posted by Pankaj Sharma
 
Sub: RCM- renting of motor vehicle

Sir, this Notfn. create more confusion, I would like to highlight some issue which need to be answered.

As per sr.no 15 of Not.22/2019-CTR, RCM shall be applicable to persons other than body corporate paying central tax at the rate of 2.5 percent on renting of motor vehicle with input tax credit only if input service in same line of business to any body corporate located in taxable category.

1) From above can it be concluded that non body corporate paying tax CTR 2.5 without availing ITC is excluded from RCM.
In my view certainly this may not be intension but need more clarity.

2) Does it mean RCM not applicable for unregistered person as 2.5 percent CTR slab is mandatory.

In my view answer is Yes, as persons paying tax in this slab is registered person.

3) Does it applicable to persons who voluntary take registration though total turnover does not exceed threshold limit and paying CT 2.5 percent.

In my view answer is Yes as it is applicable to those non body corporate who are paying CTR at the rate of 2.5 percent.

4) In case such unregistered person as mentioned above withdraw registration after 1oct but was paying tax 2.5 percent earlier to 1oct 19, would it mean they falls under RCM
In my view RCM not applicable to such persons but need more clarity


5) Does it applicable to persons who voluntary take registration though total turnover does not exceed threshold limit and paying CT 6 percent to take advantage of ITC.

In my view answer is No, as it is applicable to those non body corporate who are paying CTR at the rate of 2.5 percent only.

In my view board come up with clarification to facilitate the trade

views expressed are personal only.
Pankaj Sharma




Posted by Pankaj Sharma