In a major move aimed at easing tax compliance and lowering operating costs for businesses, the GST Council is likely to consider relaxing Input Tax Credit (ITC) restrictions on the procurement, leasing, and operational costs of passenger motor vehicles with a seating capacity of up to 13 persons—including electric vehicles—at its upcoming meeting on October 7, according to government sources.
If approved, the proposed amendment to Section 17(5) of the CGST Act will expand the ITC availability beyond vehicle purchases to cover entire running expenses—such as insurance, servicing, repairs, and leasing—offering relief to corporate fleets, logistics providers, and professional firms, while establishing complete tax parity between conventional and electric vehicles, the sources note.
For passenger transport and vehicle rental, operators may choose between 5 percent GST levy with restricted ITC, and 18 percent levy with full ITC availability. This choice will be available for both conventional and electric vehicles, the sources note.
“A vehicle is treated as a business asset with a running cost, and the tax draws no distinction between the electric vehicle and the conventional one,” one official said.
“For passenger transportation and vehicle-rental operators, the proposed flexibility to choose between a 5 percent GST rate with restricted ITC and an 18 percent rate with full ITC could enable businesses to evaluate and adopt the tax structure that best aligns with their business model, cost structure and input-tax position,” an tax expert said.
Under current GST laws (Section 17 of the CGST Act), ITC is blocked for general businesses on passenger motor vehicles with a seating capacity of up to 13 persons (including the driver).
Because the statute strictly restricts ITC based on seating capacity and vehicle classification—and makes no exception for the engine type—electric vehicles (EVs) up to 13 seats are blocked in the exact same manner as conventional vehicles.
According to tax experts, the proposed alignment establishes a tax-neutral playing field, providing regulatory certainty for EV fleet operators by placing electric and internal combustion engine vehicles on identical terms.
“The broader outcome will force a trade-off between corporate tax relief and clean-mobility goals, alongside an immediate contraction in public tax revenues. The automotive sector currently accounts for roughly 15 percent of total tax receipts, meaning that broad input credit claims will create a noticeable short-term dent in government collections,” another tax expert said.
