Leasing explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Before 1 February 2019 the clause said "rent-a-cab". That phrase had a settled meaning under service tax, and businesses structured around it — a long-term operating lease of a car was not a rent-a-cab service, and the credit was arguable.
The CGST (Amendment) Act, 2018 replaced it.
Clause (b)(i) now blocks "leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein". Three words instead of one, covering every form of taking a vehicle for use. The exception tracks the clause (a) and (aa) permitted uses, so hire of a vehicle outside those clauses — a 20-seat bus, a goods carrier — is not blocked at all.
What changed
Old drafting: "rent-a-cab, life insurance and health insurance except where — (A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law...; or (B) such inward supply is used for making an outward taxable supply of the same category..."
Current drafting: "...leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance" — with the same-category proviso following, and the obligatory-under-law proviso at the end of clause (b).
Two substantive shifts:
"Rent-a-cab" became "leasing, renting or hiring". A financial or operating lease of a company car, a monthly vehicle hire arrangement, a short-term rental — all are now expressly within the clause.
The exception became asset-linked. The old clause had no link to clause (a). The new one blocks hire only of vehicles referred to in clause (a) or (aa), and unblocks it where the vehicle is used for the purposes specified in those clauses.
The two questions
Question 1 — is the vehicle within clause (a) or (aa)?
A motor vehicle for transportation of persons with 13 or fewer approved seats is. A vehicle with 14 or more is not. A goods carriage is not.
So hiring a 35-seat bus for staff transport is not blocked by this clause at all. Neither is hiring a truck. This is the single most valuable point in the clause and it is frequently missed — companies reverse credit on employee bus contracts that were never blocked.
Question 2 — if it is within clause (a) or (aa), is it used for a permitted purpose?
Further supply, transportation of passengers, or driving training for motor vehicles; the five clause (aa) uses for vessels and aircraft.
A taxi aggregator hiring cars to supply passenger transport is using them for transportation of passengers — credit available. A company hiring cars for executives is not — blocked.
The two provisos still apply
Same-category proviso. Where the hire is used for making an outward taxable supply of the same category, or as an element of a taxable composite or mixed supply. A tour operator hiring vehicles to supply a tour package; a car rental business hiring in vehicles to rent out.
Obligatory-under-law proviso. Where it is obligatory for an employer to provide the transport under a law in force. Several States require employers to provide transport for women employees working night shifts — for example under State Shops and Establishments rules or the Factories Act rules. Where such a rule applies, credit on that transport is available. The obligatory-under-law proviso →
That is a narrow and fact-specific route, and the credit extends only as far as the obligation.
Common arrangements
| Arrangement | Position |
|---|---|
| Employee cab service, cars ≤13 seats, not legally required | Blocked |
| Employee bus, 30+ seats | Not blocked — outside clause (a) |
| Night-shift transport for women employees, legally required | Credit available — obligatory proviso |
| Executive car on operating lease | Blocked |
| Cars hired by a taxi operator to supply transport | Credit available — permitted use |
| Vehicles hired by a tour operator for a package | Credit available — element of composite supply |
| Trucks hired for goods movement | Not blocked — outside clause (a) |
| Aircraft chartered for executive travel | Blocked |
| Aircraft chartered for cargo | Not blocked — clause (aa) limb (ii) |
Key takeaways
- "Rent-a-cab" became "leasing, renting or hiring" with effect from 01.02.2019.
- The block applies only to vehicles, vessels and aircraft referred to in clauses (a) and (aa).
- Hire of a 14-plus seat vehicle or a goods carrier is outside the clause.
- The exception tracks the permitted uses in clauses (a) and (aa).
- The same-category and obligatory-under-law provisos both apply.
- Night-shift transport mandated by State law is a real, narrow route to credit.
Read next
- Section 17(5)(a): Motor Vehicles and the Thirteen-Seat Test
- Food, Beverages and Outdoor Catering
- The "Obligatory Under Any Law" Proviso
- Section 17(5)(ab): Insurance, Servicing and Repair
Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Blocked Credit under GST (November 2025). State-law transport obligations vary; verify the rule that applies to your establishment.
Key Facts About Leasing
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
Is ITC available on employee cab services?
Not where the cars are motor vehicles referred to in clause (a) and the transport is not legally obligatory.
Is a company bus contract blocked?
Not where the bus has an approved seating capacity above thirteen including the driver. Such a vehicle is outside clause (a), so the hire is outside the block.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Leasing: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.