Circular 262: ITC on Demonstration Vehicles Allowed for Dealer-Agency Model
CBIC Circular 262/08/2026-GST withdraws para 4.6 of Circular 231: ITC on demo vehicles is not blocked under section 17(5)(a) for dealers in the agency model.
Key takeaways: itc demonstration vehicles
- ITC demonstration vehicles are now allowed in both the traditional and the dealer-agency model.
- Circular 262 withdraws para 4.6 of Circular 231/25/2024-GST.
- The circular reads “such motor vehicles” in section 17(5)(a)(A) as covering vehicles used for further supply of similar vehicles.
Table of contents
CBIC’s Circular No. 262/08/2026-GST, dated 26 October 2026, clarifies input tax credit (ITC) on demonstration vehicles held by authorised agents of vehicle manufacturers. It withdraws para 4.6 of Circular No. 231/25/2024-GST dated 10 September 2024.
The earlier position
Para 4.6 of Circular 231/25/2024-GST held that, in the “dealer-agency model”, where the dealer acts only as an agent of the manufacturer, ITC on a demo vehicle is blocked under section 17(5)(a)(A). The reason given was that the dealer is not supplying vehicles on its own account.
What the new circular says
- Section 17(5)(a) blocks ITC on motor vehicles for transport of persons with a seating capacity of up to 13 persons, except when they are used for further supply of such vehicles, passenger transport or driving training.
- In both the traditional dealer model and the dealer-agency model, demo vehicles are bought against tax invoices, recorded as capital assets, and sold at written-down value after a mandatory period, with tax payable on that sale. The Board finds no practical difference between the models and says denying ITC in one model would be discriminatory.
- The phrase “such motor vehicles” in section 17(5)(a)(A) is read as allowing ITC on vehicles used to further supply similar vehicles. Since demo vehicles serve that purpose in both models, ITC should be allowed in both.
- Para 4.6 of Circular 231/25/2024-GST is withdrawn. ITC on demo vehicles is not blocked under section 17(5)(a) for dealers in the dealer-agency model.
What dealers should do
- Dealers in the dealer-agency model who reversed or did not claim ITC on demo vehicles should review those cases with their advisor, particularly any pending notices.
- Keep records showing that the vehicle is a demo vehicle, recorded as a capital asset, and the tax paid on its later sale.
- Check the circular text on whether and how it applies to earlier periods; the circular does not say so in terms.
Related: ITC conditions and blocked credits. For GST advice for dealerships, see our GST services.
What to do next about itc demonstration vehicles
Review how itc demonstration vehicles affects your business: note the effective date, check your records and software, brief your team and keep a copy of the official text on file. Where the position is unclear for your case, take professional advice before filing or changing your process.
Official sources for itc demonstration vehicles
Always read the original text. You can find notifications, circulars and rules on the CBIC Tax Information Portal and file returns and applications on the GST Portal. This guide on itc demonstration vehicles is a summary and is not a substitute for the official text.
Frequently asked questions
Is ITC allowed on demo vehicles now?
Yes, for dealers in the dealer-agency model as well, since para 4.6 of Circular 231/25/2024-GST is withdrawn.
What was the earlier circular’s position?
It said ITC on demo vehicles was blocked in the dealer-agency model under section 17(5)(a)(A).
Does the circular say it applies to past years?
The circular does not address past periods expressly, so check the position for your earlier claims with an advisor.
This article is for general information only and is not tax, legal or financial advice. It is based on the text of the notification or circular as published by CBIC. Rules, rates and criteria change, so confirm the latest position with the official source or a professional before acting.
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