Automobile dealers using demonstration vehicles or demo cars for promoting sales can claim input tax credit (ITC) under the GST law.
However, no ITC would be available if demo cars are used by dealers for their own purpose during the course of the business.
The Central Board of Indirect Taxes and Customs (CBIC) said authorised dealers are required to maintain demo vehicles at their sales outlet as per dealership norms which are used for providing trial runs and for demonstrating features of the vehicle to the potential buyers.
These vehicles are purchased by the authorised dealers from the vehicle manufacturers against tax invoices and are typically reflected as capital assets in books of account of the authorized dealers.
As per dealership norms, these vehicles may be required to be held by the authorized dealers as demo vehicles for certain mandatory period and may, thereafter, be sold by the dealer at a written down value and applicable tax is payable at that point of time.
Well…..
The demo vehicles are actually used by the authorized dealers to promote further sale of motor vehicles of the similar type and therefore, such vehicles appear to be used in the course or furtherance of business of the authorized dealers.
Obviously these vehicles should not be used for transportation of its employees or other passengers or for personal use.
Where such vehicles are capitalized in the books of accounts by the authorized dealer, the said vehicle falls in the definition of ‘capital goods. ITC is available when no depreciation is claimed under Income Tax.
R.SRIVATSAN, IRS
NACIN, Chennai
PS:- Refer to Circular No.231/25/2024-GST dated 10-09-2024
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