The activity “Renting of a Motor Vehicle”has been brought under RCM during September 2019 with a limited compliance requirement under Section 9(3) of CGST Act, 2017. However, Government authorities felt that the compliance requirement under the above entry has been unclear in Trade & Industry, where by they have issued a Circular No.130/2019 dtd:31.12.2019.

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There is a scope for the Registered person to understand the compliance requirement in this regard and to augment cost reduction by way of tax planning at the Service provider end. We shall examine this in detail from the following paragraphs, only after if we perceive the intended meaning of the proposed entry in this regard:

Original Entry Notification 22/2019 dtd:30.09.2019:

Service category covered Service Provider Service Recipient
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.

New version for the activity of “Renting of a Motor Vehicle” under RCM w.e.f. 31.12.2019 vide Notification No.29/2019 CTR dtd:31.12.2019 inserted for the above entry as below:

Service category covered Service Provider Service Recipient
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 per cent. to the service recipient Any Body corporate located in the taxable territory

As per Circular No. 130/49/2019- GST dated 31st December 2019 suppliers of service 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 have an option to pay GST either –

I) at 5% with limited ITC (of input services in the same line of business), or
II) 12% with full ITC.

The supply of renting of motor vehicles under RCM recommended that the said supply when provided by suppliers paying GST @5% to corporate entities, may be placed under RCM.

RCM was not recommended for suppliers paying GST @12% with full ITC, so that they may have the option to continue to avail ITC.

There are only two rates applicable on the service of renting of vehicles, 5% with limited ITC of input services in the same line of business and 12% with full ITC.

Further (i) where the supplier of the service charges GST @ 12% from the service recipient, the service recipient shall not be liable to pay GST under RCM; and,

(ii) where the supplier of the service doesn’t charge GST @ 12% from the service recipient, the service recipient shall be liable to pay GST under RCM.

Thus ‘renting of motor vehicles’ designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient only if the supplier fulfills all the following conditions given below are satisfied:

a. Recipient of the service is a body corporate;

b. Service provider is any person other than body corporate; and

c. Service provider must have been paying tax @ 5% on the said services upto 30-09-2019.

The supplier providing the service to a body corporate under RCM may still, be paying GST @ 5% on the services supplied to other non-body corporate clients.

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