Demo-vehicle GST credit clarified for authorised dealer agents

CBIC Circular 262/08/2026-GST, dated 26 October 2026, changes the earlier clarification for authorised vehicle dealers operating under an agency arrangement.

The circular addresses demonstrators purchased by an authorised agent to help customers assess vehicles that the manufacturer ultimately sells directly. Under the described arrangement, the dealer purchases the demonstrator against a tax invoice, capitalises it, retains it for the contractual period and later sells it with applicable GST.

CBIC clarifies that the motor-vehicle credit restriction in section 17(5)(a) does not block this credit merely because the manufacturer makes the final customer sale. Demonstration facilitates further supply of similar vehicles.

Only paragraph 4.6 of Circular 231/25/2024-GST is withdrawn. The clarification is not a general approval for credit on staff cars or private vehicles, and ordinary credit conditions still need checking.

Dealers should retain the agency agreement, purchase invoice, evidence of demonstration use and eventual sale records. Review any earlier credit denial against the precise arrangement and applicable procedure before claiming an adjustment or refund.