In our experience assisting corporate finance teams with monthly purchase registers, cab rentals and staff transport bills create frequent compliance confusion. Accounts executives regularly receive invoices from individual cab owners, travel agencies, and fleet operators without knowing whether to pay GST to the vendor or deposit tax directly under the reverse charge mechanism. Misclassifying these bills leads to unpaid tax demands, 18% annual interest under Section 50(1), or improper input tax credit claims on vehicles blocked under Section 17(5).
The statutory rule: Entry 15 of Notification No. 13/2017-Central Tax (Rate)
Liability under reverse charge for renting of motor vehicles is governed by Section 9(3) of the CGST Act. The central government introduced this levy through Notification No. 22/2019-Central Tax (Rate) and subsequently substituted Entry 15 through Notification No. 29/2019-Central Tax (Rate) dated 31 December 2019.
Under Entry 15, reverse charge applies only when four statutory tests are met simultaneously:
- Nature of vehicle: Any motor vehicle designed to carry passengers. Goods transport vehicles such as trucks or tempo carriers are outside this specific entry.
- Inclusion of fuel: The cost of fuel must be included in the total consideration charged by the supplier to the service recipient.
- Supplier constitution: Any person other than a body corporate. This category covers sole proprietorships, partnership firms, Hindu Undivided Families (HUFs), and associations of persons.
- Recipient constitution: Any body corporate located in the taxable territory. Under Section 2(20) of the Companies Act, 2013, read with Section 2(11) of the CGST Act, a body corporate includes private limited companies, public limited companies, and limited liability partnerships.
“Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate: Provided that nothing contained in this entry shall apply where the supplier is a body corporate or where the supplier is a person other than a body corporate who has taken registration under the CGST Act and has issued an invoice to the service recipient charging central tax at the rate of 6% to the service recipient.” Entry 15, Notification No. 13/2017-Central Tax (Rate) as substituted by Notification No. 29/2019-Central Tax (Rate)
Further administrative clarity was issued in CBIC Circular No. 130/2019-GST dated 31 December 2019. The circular confirms that where the supplier does not charge 12% GST (6% CGST plus 6% SGST, or 12% IGST) with full input tax credit, the recipient body corporate is legally obligated to discharge tax at 5% (2.5% CGST plus 2.5% SGST, or 5% IGST) under reverse charge.
Supplier options: 5% RCM vs 12% forward charge
Under GST tariff notifications for passenger transport and vehicle rental (SAC 9966), suppliers have two distinct taxation options for renting motor vehicles designed to carry passengers with fuel included:
| Tax Rate Option | Supplier Eligibility | ITC Eligibility of Supplier | Billing Mechanism | Who Pays Tax to Government? |
|---|---|---|---|---|
| 12% Forward Charge | Any registered person (corporate or non-corporate) | Full ITC on goods and services used in supply | Supplier charges 12% GST on invoice | Supplier deposits 12% via GSTR-3B |
| 5% RCM (Fuel Included) | Non-body corporate supplier to body corporate | Supplier takes limited ITC (input services in same line) | Supplier bills base value with zero tax | Recipient company pays 5% in cash |
| 5% Forward Charge | Body corporate supplier, or supply to non-corporate | Supplier takes limited ITC (input services in same line) | Supplier charges 5% GST on invoice | Supplier deposits 5% via GSTR-3B |
Notice how this structure works in practice. When your company hires transport from an incorporated cab operator like a private limited fleet agency, reverse charge never applies. The corporate supplier charges either 5% GST (without input tax credit on vehicles) or 12% GST (with full input tax credit) on its tax invoice under forward charge. For an in-depth comparison of entity-based reverse charge rules, review our guide on RCM on security services: proprietorship vs company.
Common mistake: Assuming that all registered car rental agencies charge forward charge GST. If the travel agency is a partnership firm or sole proprietorship and issues an invoice with 5% GST or zero GST, that invoice cannot transfer forward tax to a corporate client. The corporate client must pay 5% GST under RCM through its cash ledger.
Distinction between passenger transport and renting of motor vehicles
Tax officers frequently examine whether a travel contract represents passenger transport under SAC 9964 or renting of a motor vehicle under SAC 9966. This distinction is critical because reverse charge under Entry 15 applies exclusively to renting of motor vehicles.
The distinction depends on operational custody and control over the vehicle:
- Passenger transport service (SAC 9964): The passenger or company purchases transport from point A to point B. The driver follows routes determined by the transport operator, the operator schedules the vehicle, and the client has no control over the asset. Examples include scheduled bus tickets, airport shuttle coaches, and flight tickets. Reverse charge does not apply to passenger transport services.
- Renting of motor vehicle service (SAC 9966): The client hires the vehicle for a designated duration (daily, weekly, monthly) or mileage band. The client directs where the car travels, when it departs, and how long it waits. The operational disposition of the vehicle rests with the client. Reverse charge under Entry 15 applies strictly to this category when fuel is included.
When drafting vendor contracts for employee pickups or executive travel, ensure the service agreement clearly documents whether the service is vehicle rental or point-to-point passenger transport. Similar legal tests govern corporate facilities, as outlined in our analysis of RCM on security services for commercial and corporate entities.
ITC eligibility for the corporate recipient under Section 17(5)
Can a corporate recipient claim input tax credit for the 5% reverse charge paid on cab rentals? In the vast majority of commercial cases, the answer is no.
Under Section 17(5)(a) of the CGST Act, input tax credit is blocked on motor vehicles for transportation of persons having an approved seating capacity of not more than 13 persons (including the driver). In addition, Section 17(5)(b)(i) blocks input tax credit on the leasing, renting, or hiring of motor vehicles referred to in clause (a).
Credit on renting passenger cars (sedans, hatchbacks, SUVs with seating capacity up to 13) is allowed only under two narrow statutory exceptions:
- Outward supply in the same category: Where the inward rental service is used by the recipient for making an outward taxable supply of the same category (such as a tour operator sub-contracting cabs from individual vehicle owners).
- Statutory employer obligation: Where it is mandatory for an employer to provide transport facilities to its employees under any active law in force. For example, specific state factories rules or shops and establishments acts mandate safe night transport for female employees working beyond 8:00 PM. Outside of an express statutory mandate, voluntary staff pickup and drop does not qualify for credit.
For vehicles designed with an approved seating capacity exceeding 13 persons (such as a 20-seater or 32-seater staff bus), the restrictions of Section 17(5)(a) do not apply. For a comprehensive breakdown of passenger seating thresholds, read our analysis on GST ITC on commercial vehicles: goods transport vs passenger vehicles.
Notice risk: Availing input tax credit in Table 4(A)(3) of Form GSTR-3B for executive car rentals without identifying them as blocked credits. Automated scrutiny checks compare inward RCM payments in Table 3.1(d) against ineligible ITC in Table 4(B)(1). Claiming credit on passenger cars leads to demand notices under Section 73 or Section 74 with 18% annual interest under Section 50(1).
Cash ledger payment rules under Section 49(4)
Under Section 49(4) of the CGST Act read with Section 2(82), input tax credit available in your electronic credit ledger can only be used to pay output tax. Section 2(82) explicitly defines output tax to exclude tax payable on a reverse charge basis.
Consequently, an entity cannot adjust accumulated ITC balances to pay the 5% RCM on car hire. The entire tax amount must be deposited in cash via Form GST PMT-06 and debited from the electronic cash ledger during monthly return filing.
Step-by-step reporting workflow in Form GSTR-3B
When your accounts team finalizes monthly GST filings, follow this five-step reporting workflow:
- Verify vendor legal constitution: Examine the supplier PAN on the invoice. If the fourth character is P (proprietorship) or F (partnership firm), and the supplier did not charge 12% forward tax, tag the transaction for reverse charge.
- Issue self-invoice if unregistered: If the cab driver or local vendor is unregistered, issue a self-invoice under Section 31(3)(f) within thirty days of receiving the service, and a payment voucher under Section 31(3)(g) upon disbursement.
- Report liability in Table 3.1(d): On the GST portal, enter the total invoice value and the computed 5% GST (2.5% CGST plus 2.5% SGST, or 5% IGST) in Table 3.1(d) of Form GSTR-3B. Review the official GSTN GSTR-3B user manual for table structure.
- Discharge tax through electronic cash ledger: In Table 6 of Form GSTR-3B, offset the reverse charge liability strictly by debiting electronic cash.
- Report ITC and reversal in Table 4: Inward supplies liable to RCM auto-populate into Table 4(A)(3). If the rental relates to passenger vehicles with seating capacity up to 13 persons and does not meet statutory exceptions, enter the same tax amount in Table 4(B)(1) under Ineligible ITC as per Section 17(5). This ensures your net ITC claim is zero.
Worked rupee example: corporate monthly cab rental
Consider Zenith Pharma Private Limited, a corporate enterprise in Pune, Maharashtra. During September 2026, the company engages Royal Travels, a partnership firm, to provide four executive sedans (5-seater passenger cars) for client visits and local operations. The contract includes fuel, and Royal Travels bills ₹2,00,000 for the month without charging 12% GST.
| Line Item | Statutory Provision | Rate | Rupee Amount | Accounting and Portal Action |
|---|---|---|---|---|
| Taxable Rental Fee | Base Consideration (Fuel Included) | Base Fee | ₹2,00,000 | Paid to Royal Travels via bank transfer |
| CGST Liability | Section 9(3) Reverse Charge | 2.5% | ₹5,000 | Declared in GSTR-3B Table 3.1(d) |
| SGST Liability | Section 9(3) Reverse Charge | 2.5% | ₹5,000 | Declared in GSTR-3B Table 3.1(d) |
| Total RCM Tax Payable | Entry 15, Notif 13/2017-CT(Rate) | 5% | ₹10,000 | Paid in cash through Table 6 |
| ITC Entry in Table 4(A)(3) | Inward supplies liable to RCM | 5% | ₹10,000 | Auto-populated or entered in Table 4(A)(3) |
| ITC Reversal in Table 4(B)(1) | Blocked under Section 17(5)(a) | 5% | ₹10,000 | Reported as ineligible reversal |
| Net Available ITC | Final Ledger Addition | 0% | ₹0 | Zero net credit claimed |
The exact rupee sequence unfolds as follows:
- Zenith Pharma pays the invoice base amount of ₹2,00,000 to Royal Travels. Royal Travels collects no tax.
- In its September 2026 Form GSTR-3B filed by 20 October 2026, Zenith Pharma reports ₹2,00,000 taxable value in Table 3.1(d) with ₹5,000 CGST and ₹5,000 SGST.
- The company deposits ₹10,000 into its electronic cash ledger and offsets the liability in Table 6.
- In Table 4, the ₹10,000 appears in Table 4(A)(3), but because executive passenger cars with up to 13 seats are blocked under Section 17(5)(b)(i), Zenith Pharma enters ₹10,000 in Table 4(B)(1) as ineligible credit.
- Net financial impact: the company incurs a cash tax cost of ₹10,000, which is expensed in the profit and loss statement as vehicle hire expenses.
Vendor verification template for corporate transport
Send this verification letter to transport vendors before clearing monthly hire charges:
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Frequently asked questions
When does reverse charge apply to renting of a motor vehicle?
Reverse charge applies under Entry 15 of Notification No. 13/2017-Central Tax (Rate) when four conditions are met together: the vehicle is designed to carry passengers, the cost of fuel is included in the total consideration, the supplier is any person other than a body corporate, and the recipient is a body corporate located in the taxable territory. In addition, the supplier must not have issued a tax invoice charging 12% GST under forward charge.
What is the GST rate under RCM for renting of passenger motor vehicles?
The rate under reverse charge is 5% total (2.5% CGST plus 2.5% SGST for intra-state supplies, or 5% IGST for inter-state supplies). The recipient body corporate pays this 5% directly through its electronic cash ledger.
Can a company claim input tax credit for 5% RCM paid on cab rentals for employee commuting?
No. Under Section 17(5)(b)(i) read with Section 17(5)(a) of the CGST Act, input tax credit on renting of motor vehicles designed to transport persons with approved seating capacity of up to 13 persons is blocked. The only exceptions are when the vehicle is used for making outward taxable supplies of the same category, or when an employer is statutorily obligated to provide transport under an active law.
What is the difference between passenger transport service and renting of motor vehicle?
In passenger transport service under SAC 9964, the passenger buys transport from point A to point B and the transport operator retains operational control over the vehicle. In renting of motor vehicle service under SAC 9966, the client hires the vehicle for a defined time period or operational disposition and directs the trips. Reverse charge under Entry 15 applies strictly to renting of motor vehicles under SAC 9966, not point-to-point passenger transport.
How should RCM on motor vehicle renting be reported in Form GSTR-3B?
Declare the taxable billing value and the 5% tax amount in Table 3.1(d) of Form GSTR-3B for inward supplies liable to reverse charge. Discharge the tax in cash through Table 6. If the credit is blocked under Section 17(5), report the tax amount in Table 4(A)(3) as inward RCM credit and simultaneously enter it in Table 4(B)(1) as ineligible credit under Section 17(5).
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Last checked: 19 October 2026. Sources: CBIC Notification No. 29/2019-Central Tax (Rate), CBIC Circular No. 130/2019-GST, CBIC CGST Act Section 9, CBIC CGST Act Section 17, GSTN GSTR-3B User Manual.