Most guides cover GST on taxi fares — but the bigger number is the GST you pay when buying the vehicle itself, and whether your business can claim it back as input tax credit (ITC). For fleet buyers, the ITC decision changes the real cost of a vehicle by lakhs. Here is how it works in 2026.
GST Rates on Vehicle Purchase
- New vehicles attract GST (rate depends on vehicle category and size) plus compensation cess on many categories — built into the ex-showroom price.
- Used vehicles from a GST-registered dealer: GST applies only on the dealer's margin (margin scheme), not the full price.
- Used vehicles bought from an individual (unregistered seller): no GST on the transaction at all — one reason person-to-person used purchases are cheaper.
When Can You Claim ITC on a Vehicle?
The default rule blocks ITC on passenger motor vehicles — but there is a critical exception: ITC IS allowed when the vehicle is used for making taxable supplies of passenger transportation, i.e., taxis and cabs. A registered taxi operator paying 12% GST on fares can claim the GST paid on the vehicle purchase. Operators under the 5% fare scheme cannot claim it.
What This Means in Practice
- Owner-driver under the 5% scheme: no ITC — buy used from an individual to minimise GST entirely.
- Registered fleet under the 12% scheme: ITC on new vehicle purchases is claimable — the effective vehicle cost drops significantly.
- Goods vehicles (delivery vans, trucks): ITC is generally allowed for business use without the passenger-vehicle restriction.
- Keep the tax invoice in the business's GSTIN name — ITC fails without a proper invoice.
Used Purchases: The Margin Scheme Advantage
Buying used through a registered dealer means GST only on the dealer's margin — often a small amount — while buying from an individual attracts none. Combined with the fact that a 3–5 year old commercial vehicle has already shed its steepest depreciation, the used route is highly tax-efficient for small operators. Consult a CA for your structure, and compare used prices across categories on Buy Sell Taxi.