Summary of Restriction on ITC for Passenger Transportation

GST Notification No 12/2023-CTR has been issued for Restriction on ITC for Passenger Transportation and Motor Vehicle Renting Service. In case of Transportation of Passenger and rental service of Transport vehicle with operators covered under the Heading No 9964 and 9966, supplier of Input service in the same line of business can not claim the ITC in excess of the rate charged at the time of Sales. This is effective from 20-10-2023.

Before issuance of this Notification, if the person provides passenger Transport service using vehicle or rental services of any motor vehicle including cost of fuel in the fare charging from customer, he can claim a tax credit of ITC related to service receive from another passenger transportation service providers or renting vehicles for this purpose. Hence the person can get benefit of tax by by buying from the other companies in the same line of business.

But after the Notification issued, Government has inserted one more proviso in Heading No 9964 and Heading 9966 with following words “Provided further that where the supplier of input service in the same line of business charges central tax at a rate higher than 2.5%, credit of input tax charged on the input service in the same line of business in excess of the tax paid or payable at the rate of 2.5%,shall not be taken” Which is effective from 20-10-2023.

In short, Business offering passenger transport service under the heading of 9964 @ 2.5% or Renting Motor Vehicles under the heading of 9966 @ 2.5% rate  having ITC with same type of business can only claim the ITC for the amount of GST Paid when buying goods or services. They can not claim more than that amount credit when they sell the services. So they can not get back more GST than they original paid on their expenses.

Lets understand with Examples:

Illustration: ‘A’ engages ‘B’ for transport from New Delhi to Jaipur in a motor cab for Rs. ‘B’, for supplying the said service, hires a motor cab with operator from ‘C’ for Rs. ‘C’ charges ‘B’ central tax at the rate of 6% (Rs. 48). If ‘B’ charges ‘A’ central tax at The rate of 2.5%, he shall be entitled to take input tax credit on the input service in the same Line of business supplied by ‘C’ only to the extent of Rs. 20 (2.5% of Rs. 800) and not Rs. 48.”

Changes in Heading No 9996:

Before this Notification issued in heading 9996 of serial No 34 for race club offers services related to either totalisor (a system for betting on horse racing) or provides licences to bookmakers who operate with in club charged @14%.

This services includes two main aspects :

1. Totalisator Services: This refer’s to the race club ‘s involvement in betting services. A totalisator is system where people can places bets on horse race and race club manages this system.
2. Licence to Bookmaker: The race club also grants licenses to bookmakers. Bookmaker are individuals or entities that accept bets on races. So the race club allows  these bookmakers to operate withnin club for fee under certain conditions.

After issuance of notification Government has omitted words “Totalisator or a licence to”. Which means this changes narrows the focus to just the act of licencing bookmakers within the race club wih effect from 20-10-2023. As a result of above changes, government has omitted following entries in Notification No 11/2017 dated 28-06-2017.

Annexure: Scheme of classification of Services

Download -Notification No 12/2023-CTR

Download – Notification No 15/2023-IGST Rate