CBIC restores GST credit on demo vehicles for authorised dealers

A new CBIC circular withdraws the earlier restriction, allowing dealers operating under an agency model to claim input tax credit on demonstration vehicles, subject to normal GST conditions.

The Central Board of Indirect Taxes and Customs has clarified that input tax credit on demo vehicles is available to authorised dealers operating under a dealer-agency model, reversing an earlier restriction that had caused uncertainty across the motor trade. The circular, issued on 26 October 2026 under Section 168(1) of the Central Goods and Services Tax Act, withdraws paragraph 4.6 of Circular No. 231/25/2024-GST, which had said credit was blocked when the dealer acted only as an agent or service provider rather than as the seller of the vehicle. (gst.taxbykk.com)

According to the clarification, the earlier view had treated demo cars as falling within the blocked-credit rules in Section 17(5)(a) of the CGST Act because the supply of the motor vehicle was not made by the dealer in that arrangement. The new circular changes that position and says the restriction does not apply to demo vehicles held by dealers in the dealer-agency model, a move that GST advisers say should ease compliance for authorised sellers and remove a long-running point of contention for the auto industry. (gstindiaguide.com)

The practical effect is to bring some relief to authorised agents who keep demonstration vehicles for test drives, a common feature of showroom operations and an important sales tool in the passenger-vehicle market. Tax specialists who have reviewed the circular say the withdrawal of the earlier paragraph should allow dealers to claim the credit on these vehicles, subject to the ordinary GST conditions that continue to apply elsewhere in the law. (patronaccounting.com)