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CA Intermediate · Taxation · Input Tax Credit

Sharma Textiles, a registered regular taxpayer, purchased a motor car (seating capacity 5 persons) in April 2026 for use by its directors for personal commuting, paying IGST of Rs 1,20,000 on the purchase. The firm is not engaged in selling cars, giving them on hire or training driving. Which statement about ITC on this car is correct?

ITC on the car is blocked. A motor vehicle seating not more than thirteen persons is ineligible for credit unless used for supplying such vehicles, passenger transport or driving training. Since Sharma Textiles uses it for directors' commuting, none of the exceptions apply and the entire Rs 1,20,000 is denied.

  1. AITC of Rs 1,20,000 is allowed in full because the car is used in business
  2. BITC of Rs 60,000 is allowed, being 50% of the tax paid
  3. CITC is blocked because the car is a motor vehicle for transport of persons with seating capacity of not more than 13 persons and is not used for the permitted purposesCorrect
  4. DITC is allowed over 5 years in equal instalments

Explanation

Under the blocked credit provisions, ITC on motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including driver) is not available, except when used for further supply of such vehicles, transportation of passengers, or imparting training on driving. Sharma Textiles uses it for none of these. Hence the full Rs 1,20,000 is blocked. Option A ignores the block; options B and D invent partial or staggered credit.

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