RCM on Renting of Motor Vehicle Under GST: All you need to know

Under the Goods and Services Tax (GST) regime, renting of motor vehicles has been categorized as a taxable service. However, the question arises as to who is liable to pay the tax – is it the service provider or the service recipient?

The answer lies in the concept of Reverse Charge Mechanism (RCM) that has been introduced under GST. As per this mechanism, the liability to pay GST shifts from the service provider to the service recipient. In simpler terms, the service recipient becomes liable to pay the tax instead of the service provider.

RCM on Renting of Motor Vehicle

As per the GST Act, renting of motor vehicles is a taxable service and attracts GST. However, the rate of GST applicable on this service depends on whether the vehicle is used for personal or commercial purposes.

For vehicles used for personal purposes, the rate of GST applicable is 18%. On the other hand, for vehicles used for commercial purposes, the rate of GST applicable is 5%. However, it is important to note that this rate is applicable only if the service provider has not availed any input tax credit on the vehicle.

Now, when it comes to the liability of payment of GST on renting of motor vehicles, there are two scenarios:

Scenario 1: Service Provider is Unregistered

If the service provider renting the motor vehicle is unregistered under GST, then the liability to pay GST falls on the service recipient. In such a case, the service recipient has to pay GST under the RCM.

For instance, if a startup founder rents a motor vehicle for business purposes from an unregistered service provider, then the startup founder becomes liable to pay GST under the RCM. The rate of GST applicable in this case would be 5%.

Scenario 2: Service Provider is Registered

If the service provider renting the motor vehicle is registered under GST, then the liability to pay GST falls on the service provider. In such a case, the service provider has to charge GST on the rental amount and pay it to the government.

For instance, if a small business owner rents a motor vehicle for business purposes from a registered service provider, then the service provider has to charge GST on the rental amount and pay it to the government. The rate of GST applicable in this case would be 5%.

Conclusion

In conclusion, renting of motor vehicles is a taxable service under GST and attracts GST at a rate of 18% or 5%, depending on whether the vehicle is used for personal or commercial purposes. The liability to pay GST falls on the service recipient if the service provider is unregistered under GST, and on the service provider if the service provider is registered under GST.