In the press meet conducted post the 54th GST Council Meeting, chaired by Union Finance Minister Nirmala Sitharaman on September 9, 2024, hinted at a forthcoming clarification on the availability of Input Tax Credit (ITC) for demo cars used by vehicle dealers. The meeting was attended by state finance ministers, and key decisions were discussed, including the much-anticipated clarification on demo vehicles.
During the press conference that followed the meeting, Sitharaman announced that the GST Council would soon issue guidance regarding the ITC treatment of demo cars, which are commonly used by vehicle dealerships to demonstrate the features and performance of vehicles to potential buyers. The clarification comes in response to long-standing industry concerns over whether dealers can claim ITC for the purchase of these vehicles, which are an integral part of the sales and marketing process.
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A demo car, often used for test drives by prospective customers, serves as an essential tool for showcasing a vehicle’s capabilities and is usually driven by sales staff. It allows potential buyers to experience the car’s features before making a purchase decision. Despite its importance in the sales cycle, the tax treatment of demo cars has remained a grey area under the GST framework, leading to confusion among dealers and manufacturers alike.
Currently, the GST law allows businesses to claim ITC on goods used for business purposes, but it has been unclear whether demo cars fall under this provision. Vehicle dealers have argued that since demo cars are crucial for sales promotion and directly related to their business activities, they should be eligible for ITC. However, tax authorities have maintained varying interpretations, leading to disputes and legal challenges.
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The upcoming clarification is expected to provide much-needed certainty to the automotive industry, streamlining tax compliance for dealerships and potentially reducing costs associated with demo cars. Industry experts believe that a positive ruling in favor of ITC availability could boost the sector, encouraging dealerships to expand their demo fleets and improve customer experiences.
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