18 January 2021
A car leasing company purchases a car and claims input tax credit for the GST included in the on-road price. The leasing company leases the car to an employee of a company with whom they have a tie-up. The lease rental includes a component of interest. This interest is calculated on the on-road value inclusive of GST, notwithstanding the fact that ITC has been claimed. Is this compliant with the provisions of the National Anti-Profiteering Authority, which states that "benefit of input tax credit must be passed on to the recipient by way of commensurate reduction in prices"? In other words, if ITC has been claimed, then can GST be included in the value financed for the purpose of calculating interest? OR, should the interest be calculated on the ex-Showroom price without GST?
06 July 2024
The issue revolves around whether the GST input tax credit (ITC) claimed by the car leasing company should result in a commensurate reduction in the value used to calculate interest for the leased car. Here’s the breakdown:
1. **Input Tax Credit (ITC) Claimed**: The car leasing company has claimed ITC on the GST paid for the purchase of the car. This ITC is based on the GST included in the on-road price of the car.
2. **Interest Calculation**: The lease rental includes a component of interest, which is calculated on the on-road price inclusive of GST.
3. **Compliance with Anti-Profiteering Provisions**: According to the National Anti-Profiteering Authority (NAA), businesses must pass on the benefit of ITC to consumers by reducing prices commensurately. This ensures that the tax savings from ITC are not retained by the business but are passed on to the end user.
### Analysis:
- **ITC and Interest Calculation**: Since the leasing company has already claimed ITC on the GST included in the on-road price, it implies that they have effectively reduced their cost base by the amount of GST paid. The interest calculation, therefore, should ideally reflect this reduced cost base.
- **Principle of Anti-Profiteering**: The principle behind anti-profiteering is to prevent businesses from benefiting from tax reductions or credits without passing on the benefits to consumers. In this case, if the interest is calculated on the full on-road price inclusive of GST, it could be seen as not passing on the benefit of ITC to the lessee.
### Conclusion:
To comply with the spirit of anti-profiteering regulations and to ensure transparency:
- **Interest Calculation Basis**: The interest should ideally be calculated on the ex-showroom price of the car, without including GST. This approach reflects the actual cost to the leasing company after claiming ITC.
- **Implementation**: The leasing company should review its lease agreement terms and possibly adjust the interest calculation basis if necessary. This ensures that the ITC benefit is properly passed on to the lessee through reduced lease costs.
It's advisable for the car leasing company to consult with a tax expert or legal advisor to ensure compliance with GST regulations and anti-profiteering guidelines specific to their jurisdiction. This will help in determining the correct approach and avoiding any non-compliance issues related to GST treatment and ITC utilization.
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