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GST Circular Update: Reverse charge mechanism on renting of motor vehicle

  • Jan 10, 2020 | Viren Shah

Recently, the Central Board of Indirect Taxes and Customs (‘CBIC’) has issued Notification and Circular, with the intention of eliminating the anomaly created after introduction of applicability of reverse charge mechanism (‘RCM’) on renting of motor vehicle w.e.f. 1 October 2019. The Notification1 has been issued for amending the entry in the RCM and Circular2 to clarify doubts thereon.

Further, the CBIC has issued a Notification3 to make effective some of the provisions relating to CGST Act, 2017, from 1 January 2020. These amendments were made vide Finance (No. 2) Act, 2019.

The gist of the Notifications and Circular are given below:

Notification and Circular on applicability of RCM on renting of motor vehicle

The CBIC has amended the earlier Notification No. 13/2017-Central Tax (Rate) dated 28 June 2017 to state that RCM shall be applicable on renting of motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged.

Further, the CBIC has issued a Circular to clarify the scope of substituted RCM entry on the renting of motor vehicle. It may be noted that the present amendment is merely clarificatory in nature and therefore it shall apply for the period 1 October 2019 to 31 December 2019.

A summary of the Notification and Circular is given below hereunder:

Sr. No. Supplier Recipient GST rate RCM applicability Comments
1 Corporate entity Any recipient 5% No Restricted ITC
2 Corporate entity Any recipient 12% No ITC available
3 Non-corporate entity Corporate entity 5% Yes Not Applicable
4 Non-corporate entity Corporate entity 12% No ITC available
5 Non-corporate entity Non-corporate entity 5% No Restricted ITC
6 Non-corporate entity Non-corporate entity 12% No ITC available

Notification issued for making certain provisions effective from 1 January 2020

Given below is summary of the relevant amendments:

Sr. No.

Section(s) under CGST Act

Description

1

10

Introduction of an alternative composition scheme for certain supplier (not eligible for the earlier composition scheme) having annual turnover upto INR 50 lakhs. The GST rate prescribed is 6% (i.e. CGST + SGST)

2

22

Enabling provision to grant power to the Government to enhance the GST registration threshold limit for particular state from INR 20 lakhs to maximum of INR 40 lakhs has been notified. It shall apply only when the supplier is exclusively engaged in supply of goods.

3

31A

New provision inserted to allow specified supplier to mandatorily provide the option of specified modes of electronic payment to their recipient.

4

44 and 52 r.w.s. 168

Power to extend due dates - New provisos inserted to grant power to the Commissioner to extend the due date of annual return and due date of furnishing periodic statement and annual statement for tax collected at source under Section 52 has been notified.

5

49

Transfer amount under electronic cash ledger (CGST, SGST, IGST, UTGST, Cess) - Facility to transfer the available cash balance between different tax heads has been notified

6

171

Penalty for anti-profiteering - Penalty of 10% of amount profiteered would be applicable. The penalty would not be payable if the profiteered amount is deposited within 30 days of passing of final order.


1 Notification No. 29/2019-Central Tax (Rate) dated 31 December 2019

2 Circular No. 354/189/2019-TRU dated 31 December 2019

3 Notification No. 01/2020-Central Tax dated 1 January 2020


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Avalara Author
Viren Shah
Avalara Author Viren Shah
Viren Shah, a member of the Institute of Chartered Accountants of India and a Bachelor of Commerce from Mumbai University, has experience of more than a decade in Corporate and International Taxation. He specializes in Domestic and International Taxation, with specific emphasis on cross border transactions and exchange control laws with respect to inbound and outbound investments. He has vast experience in advising companies across various industries.