In a major move aimed at easing tax compliance and lowering operating costs for businesses, the GST Council is likely to consider relaxing Input Tax Credit (ITC) restrictions on the procurement, leasing, and operational costs of passenger motor vehicles with a seating capacity of up to 13 persons—including electric vehicles—at its upcoming meeting on October 7, according to governments sources.

If approved, the proposed amendment to Section 17(5) of the CGST Act will expand the ITC availability beyond vehicle purchases to cover entire running expenses—such as insurance, servicing, repairs, and leasing—offering relief to corporate fleets, logistics providers, and professional firms, while establishing complete tax parity between conventional and electric vehicles, the sources note.

For passenger transport and vehicle rental, operators may choose between 5 percent GST levy with restricted ITC, and 18 percent levy with full ITC availability. This choice will be available for both conventional and electric vehicles, the sources note.

“A vehicle is treated as a business asset with a running cost, and the tax draws no distinction between the electric vehicle and the conventional one,” one official said.

Under current GST laws (Section 17 of the CGST Act), ITC is blocked for general businesses on passenger motor vehicles with a seating capacity of up to 13 persons (including the driver).

Because the statute strictly restricts ITC based on seating capacity and vehicle classification—and makes no exception for the engine type—electric vehicles (EVs) up to 13 seats are blocked in the exact same manner as conventional vehicles.

Source: Money Control