Circular
26 Oct 2026
CBIC
Operative & In Force
262/08/2026-GST — Clarification on Input Tax Credit admissibility to authorised agents appointed by manufacturers for sale of motor vehicles, pursuant to Circular No. 231/25/2024-GST dated 10.09.2024.
Legal Citation
CBIC Circular No. 262/08/2026-GST, dt. 26-10-2026
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Executive Directive & Regulatory Background
This CBIC Circular No. 262/08/2026-GST, dated 26.10.2026, addresses the admissibility of Input Tax Credit (ITC) on demo vehicles for authorized agents in the motor vehicle sector.
Key Statutory Takeaways & Compliance Mandates
01
It specifically withdraws the earlier clarification in Circular No. 231/25/2024-GST (para 4.6) which had blocked ITC for dealers operating under the 'dealer-agency model'.
02
Input Tax Credit (ITC) Provisions
The Board, exercising powers under Section 168(1) of the CGST Act, 2017, now clarifies that ITC on demo vehicles is not blocked under Section 17(5)(a) of the CGST Act for dealers in the dealer-agency model.
03
This decision is based on the recognition that demo vehicles serve the same purpose of furthering the supply of similar vehicles, irrespective of the business model (traditional vs. dealer-agency), and denying ITC to one model created a discriminatory effect.
04
Applicability & Compliance Framework
The effective date for this clarification is immediate, from the date of the circular, rectifying a previous restrictive interpretation.
Key Procedural Changes & Industry Impact
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Withdrawal of para 4.6 of Circular No. 231/25/2024-GST dated 10.09.2024.The previous restriction on ITC for demo vehicles in the 'dealer-agency model' is removed, allowing these dealers to claim ITC.
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Clarification that ITC on demo vehicles is NOT blocked under Section 17(5)(a) of the CGST Act for dealers in the 'dealer-agency model'.Authorized agents/dealers operating under the dealer-agency model can now avail ITC on demo vehicles, aligning their tax treatment with traditional dealerships and reducing their cost of operations.
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Interpretation of 'such motor vehicles' in Section 17(5)(a)(A) to include vehicles used for further supply of similar motor vehicles, not just the specific vehicle sold.This broader interpretation supports the availability of ITC on demo vehicles across all dealership models, recognizing their role in facilitating future sales and promoting uniformity in tax application.