The GST on Motor Vehicle Renting Services was brought into effect by the Central Government of India under the Central Tax. It is drawing out its interest over the user. This is due to its complicated form. Also the use of Renting Motor Vehicles has been increased in the recent time. The need to impose GST on Motor Vehicle was implemented in order to enhance the society into organised sector and cover the entities that are not under the GST Regime for the so services.

What is meant by Renting of Motor Vehicle?

Motor Vehicle is regarded as mechanically propelled vehicle which runs on road and not on rails or any other special vehicle. Thus the government gave it a wide clarity by adding into it as such Motor Vehicles which are used in order to carry away the passengers. Now through this it will cover the specific Vehicles only which carry away the passengers. As earlier it includes all types of vehicles.      

Thus, now RCM is applicable only on such motor vehicles which carry passengers. Under the service, the passenger is not availing the transportation service rather hiring the service of using motor vehicle that too with or without driver. It is upon the passenger. Thus the consideration paid is for renting the motor vehicle. On the other hand, renting a Motor Vehicle means to use the vehicle for a specific time period by the user. 

Reverse Charge Mechanism 

Reverse Charge Mechanism is acronym as RCM. RCM was introduced by the Government of India. It was introduced for the Renting business of Motor Vehicles throughout India. The Central Board of Indirect Taxes and Customs issued the circular to mandate the RCM for all assesses who are engaged in rental business of Motor Vehicles.

Reverse Charge Mechanism denotes the liability of payment of tax. In general terms, tax is paid by the Supplier of goods and services. But under the RCM, liability of payment of tax is revered on the receiver rather than the supplier of goods or services.  

The reason behind the issuance of CBITC circular was to enable assesses to an organised sector. As the individuals who are engaged in Renting Motor Vehicles could not engage in obtaining GST Registration, file returns, and other payments made under GST Scheme. Thus to add on such individuals under the GST the circular was introduced. An individual who pays the tax under RCM needs to register for GST mandatorily. And the limit of payment is not applicable to them.

RCM on Renting of Motor Vehicles

Under the RCM, the recipient is liable to pay off the tax for supply. There are two GST rates applicable for Renting of Motor Vehicles:

• 12% GST with full Input tax credit,
• 5% GST with limited Input tax credit.

Assesses Liable to pay GST on Motor Vehicle Renting Services

Following are the individuals who are liable to pay GST on Renting of Motor vehicles:

• When the supplier is a body corporate then he is liable to deduct GST.
• And when the supplier is other than the body corporate, in such case the recipient is liable to pay off the GST. But in this case the recipient is required to be a corporate body. 

If the person is other than the body corporate, then he/ she are not liable to pay for GST under the scheme.

• When the supplier doesn’t charge 12% of GST on invoice from service recipient.

RCM Applicability

Following are some of the conditions where RCM is applicable:

• The assessee should not be a company or LLP for RCM applicability.
• But the service can be provided to a company or Limited Liability Partnership.
• The individual shall provide commercial service for supply to Rent Motor Vehicles.
• The motor vehicle shall be used and designed mainly for passengers and not used as multi utility vehicle (MUV). For MUV category RCM will not be taken into consideration.
• The costing of fuel shall be payable by the recipient and thus the same shall be included in the rent of recipient.
• The recipient shall be located within the boundaries of India.
• When the GST is imposed on the recipient the same shall be mentioned in its invoices accordingly.
• The assessee is not liable to claim for ITC for invoices which do not fall under the Services Accounting Code. 

Effect of RCM on Assesses

Following are some effects of RCM on the Assesses:

• The assessee shall charge 5% GST Rate from the recipient on the rent charged.
• The recipient is liable to pay the GST fully.
• The assessee is not liable to claim ITC due to recipient remits the GST.
• And since the assessee doesn’t avail the benefit of ITC, so the prices of services would be comparatively higher. 

Impact of RCM for Regular Assesses

The Assesses who are not under the scope of RCM, can choose the option of GST rate i.e. 5% with Limited ITC or 12% with complete ITC. It is upon the Assesses to select the GST Rate. As in both the options, the assessee is liable to pay the tax on regular terms. Following mentioned is the impact of GST Rate^[1]:

5% GST Rate Effect

Following is the effect of 5% GST Rate upon the assessee:

• When the assessee goes for 5% GST Rate, then the claiming of Input Tax Credit is restricted.
• The assessee is only allowed to be compensated for the input items on which the ITC is not permitted.
• The individual is liable for ITC from the invoices that are issued by the individual for the same occupation.

12% GST Rate Effect

 Following is the effect of 12% GST Rate upon the assessee:

• When the assessee goes with 12% of GST Rate slab, then the assessee is liable for Input Tax Credit completely. He will be liable for availing the invoices for all the input items. 
• During the course of business some items are used indirectly. Such as packing items, electrical spares, etc. Thus the assessee is benefitted for claiming ITC for indirect item also.
• During the course of business ITC can be availed for all the input items. Thus the tax chain remains unbreakable. 

Conclusion – GST on Motor Vehicle Renting Services

The Renting services of Motor Vehicles has been boomed the Indian Market and thus needs to be codified for better implementation over the society. As of now the awareness is being increased regarding Motor Vehicle Rent Service. And people use this service frequently. The Bizadvisors Team will help you to guide for the GST and its compliances for Motor Vehicles Renting Services. The experts will also advise for any other query related to it. And deliver the assigned work on time.

Read our article:GST on Legal Services in India: Applicability & GST Rate