Automobile Dealers Gain Input Tax Credit Eligibility on Demo Vehicles

The Central Board of Indirect Taxes and Customs updated its guidelines to allow automobile dealers functioning under the dealer-agency model to claim input tax credit on vehicles used for demonstration purposes. To implement this change, paragraph 4.6 of Circular No. 231/25/2024-GST has been officially withdrawn.

Dealerships previously faced blocked input tax credits on demo cars, increasing operational overheads within the automotive retail sector. This reversal acknowledges the commercial necessity of demonstration assets in driving sales under contemporary agency distribution frameworks.

Auto dealers should evaluate their past and ongoing purchases of demonstration vehicles to claim eligible input tax credits in accordance with the revised circular. Accounting departments must update their ledger entries to reflect the withdrawal of the restrictive paragraph.