Renting of motor vehicle was covered under the ambit of reverse charge mechanism (RCM) from 01-10-2019 vide Notification No. 22/2019-State Tax (Rate) dated 30-09-2019, through which the Notification No. 13/2017-State Tax (Rate), dated 28-6-2017 (Reverse Charge Notification) was amended by inserting Sl. No 15 in said notification. However the insertion of renting of motor vehicle services for purposes of reverse charge mechanism was made in a confusing manner and many issues were emanating therefrom.
Considering the confusion amongst tax payers and in order to evaporate the doubts, amendment has now been made in the Sl. No 15 of Notification No. 13/2017-State Tax (Rate), dated 28-6-2017, regarding RCM on renting of motor vehicles vide Notification No. 29/2019- State Tax (Rate), dated 23-10-2020.
For ready reference the entries (Sl. No 15 of Notification No. 13/2017-State Tax (Rate), dated 30-6-2017) i.e. before amendment and after amendment are reproduced below:-
Earlier entry (Inserted vide Notification No. 22/2019-State Tax (Rate) dated 30-09-2019).
| Sl. No | Category of Supply of Services | Supplier of Service | Recipient of Service |
| 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 ITC only of input service in the same line of business | Any body corporate located in the taxable territory. |
Amended entry (vide Notification No. 29/2019- State Tax (Rate), dated 23-10-2020).
| Sl. No | Category of Supply of Services | Supplier of Service | Recipient of Service |
| 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 service 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. |
It may noted that in above Notification it has specifically been stated that it shall be deemed to have come into force with effect from 31-12-2019.
It may be noted here that the above amendment is based upon Notification No. 29/2019- Central Tax (Rate), dated 31-12-2019.
From above amendment following two issues have been set at rest:-
- Only renting of motor vehicles designed to carry passengers would be subject to RCM
With the amendment it can be appreciated that only renting of motor vehicles designed to carry passengers would be subject to RCM under this entry. Accordingly renting of motor vehicles like road rollers which are not meant to carry passengers will not be subject to reverse charge and will continue to be taxed under forward charge.
2. RCM will not apply where cost of fuel is not included in consideration.
Cases where cost of fuel is not included in consideration will not be subject to reverse charge. E.g Pure rental / finance lease of motor vehicle where cost of fuel is not included in consideration and same is arranged by recipient directly as per the terms of the contract.
For further details in regard to applicability of reverse charge mechanism on renting of motor vehicles Click Here.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
