Looking for expert help with GST and income tax for self-drive car and bike rental businesses India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- A self-drive rental (no driver, customer pays for fuel) is taxed at the same rate as selling the vehicle (Notification 11/2017-CT(Rate), S. No. 17).
- From 22 September 2025: 18% for small cars and bikes up to 350cc, 40% for SUVs, long sedans and bikes above 350cc, 5% for EVs and bicycles. Compensation cess is nil (Notifications 9/2025-CT(Rate) and 2/2025-Compensation Cess (Rate)).
- Credit on the cars you buy is not settled: Section 17(5)(a) blocks it unless renting counts as "further supply of such motor vehicles", and CBIC hasn't said whether it does.
- Platforms collect TCS of 0.25% CGST plus the state share. If you only rent through a platform, you don't have to register until all-India turnover crosses Rs 20 lakh.
- For FY 2025-26, Section 44AD (6% of digital receipts, 8% of cash) is open to rental owners. Section 44AE isn't, because it covers goods vehicles only.
What is the GST rate on self-drive car rental? Renting a car or bike without a driver is taxed at the same GST rate as a sale of that vehicle, under S. No. 17 of Notification 11/2017-Central Tax (Rate). From 22 September 2025, small petrol and diesel cars and bikes up to 350cc are 18%, larger cars and bikes above 350cc are 40%, and electric vehicles are 5% (Notification 9/2025-CT(Rate)).
Self-drive rental looks simple until the GST return. A ten-car fleet can need three rates on one day: 5% on the electric hatchback, 18% on the petrol compact and 40% on the seven-seater SUV. Owners who copy a cab operator's 5% rate, or who claim credit on every car they buy, find out at assessment. This guide works through the CBIC notifications for car, bike and scooter rentals. It then covers platform listings, the credit question and how your income is taxed for FY 2025-26 (AY 2026-27), with the Income-tax Act 2025 sections that apply from 1 April 2026. If you supply drivers with your cars, read our cab and taxi GST guide instead, because a different entry applies.
Which GST rate applies to each vehicle in your fleet?
The rate depends on the vehicle, not on your business. S. No. 17 of Notification 11/2017-Central Tax (Rate) covers leasing and rental services under Heading 9973. Item (iii) covers "transfer of the right to use any goods" and item (viia), inserted by Notification 27/2018-CT(Rate), covers "leasing or renting of goods". Both are taxed at the "same rate of central tax as applicable on supply of like goods involving transfer of title in goods". So you look up the rate a car showroom would charge on the same vehicle.
Since 22 September 2025, those rates come from Notification 9/2025-CT(Rate):
- 5% (Schedule I): electrically operated vehicles, including two and three wheelers and e-bicycles (S. No. 441), and ordinary non-motorised bicycles (S. No. 456).
- 18% (Schedule II): petrol, LPG or CNG cars up to 1200cc and diesel cars up to 1500cc, in both cases no longer than 4000 mm (S. Nos. 534 and 535). Hybrids within the same limits are also 18% (S. Nos. 538 and 539). So are motorcycles and scooters up to 350cc (S. No. 546).
- 40% (Schedule III): every other motor car, such as SUVs, sedans longer than 4 metres and cars with bigger engines (S. No. 5), larger hybrids (S. Nos. 6 and 7), and motorcycles above 350cc (S. No. 8).
Engine size and length are taken from the vehicle's registration details under the Motor Vehicles Act, 1988, as the explanation to these entries says. Keep a fleet register listing each vehicle's cc, length and fuel, so every booking picks up the right rate.
No compensation cess. Rentals carry the cess rate of the vehicle (Notification 2/2017-Compensation Cess (Rate), S. Nos. 1 and 2). Notification 2/2025-Compensation Cess (Rate) cut cess on motor cars and on motorcycles above 350cc to nil from 22 September 2025. Bills from that date carry GST only.
Comparison
GST on a Self-Drive Booking (from 22 September 2025)
| Booking | Rent (Rs) | GST rate | GST (Rs) | Bill total (Rs) |
|---|---|---|---|---|
| Petrol hatchback, 1197cc, under 4 m, 3 days at Rs 2,000 | 6,000 | 18% | 1,080 | 7,080 |
| Diesel SUV, 2.2 litre, 4.6 m, 3 days at Rs 4,000 | 12,000 | 40% | 4,800 | 16,800 |
| Electric hatchback, 3 days at Rs 2,500 | 7,500 | 5% | 375 | 7,875 |
| 150cc scooter, 5 days at Rs 600 | 3,000 | 18% | 540 | 3,540 |
| 650cc motorcycle, 2 days at Rs 1,500 | 3,000 | 40% | 1,200 | 4,200 |
Source: Notification 11/2017-CT(Rate) S. No. 17 (iii), (viia); Notification 9/2025-CT(Rate) Schedules I, II and III. Prices are illustrative.
Self-drive vs rent-a-cab. Once you send a driver and include fuel in the price, the job moves to S. No. 10(i): renting a passenger vehicle with fuel. That entry gives 5% with limited credit or 18% with full credit. Don't apply the cab rate to a self-drive SUV. On a Rs 12,000 booking, billing 5% instead of 40% leaves Rs 4,200 of tax that you'll pay yourself later.
Deposits and extra charges. A refundable security deposit isn't payment for the rental unless you apply it as payment (proviso to Section 2(31), CGST Act). So don't add GST when you collect it. Extra-kilometre and late-return charges are part of what the customer pays for the rental, so bill them at the vehicle's rate. If you keep part of a deposit to cover damage, ask your CA how to treat that amount.
Can you claim input tax credit on your cars and bikes?
This is the biggest open question for rental owners, so look at the text before you claim.
The block. Section 17(5)(a) of the CGST Act denies credit on "motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver)". The exceptions are vehicles used for "(A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicles". Section 17(5)(ab) blocks credit on insurance, servicing and repairs of those vehicles unless they're used for one of the same purposes.
Why it's unsettled. A self-drive rental is a supply of the vehicle, but it isn't a sale. You aren't transporting passengers either, because the customer drives. CBIC hasn't clarified whether renting counts as "further supply of such motor vehicles". Circular 231/25/2024-GST deals with demo vehicles held by authorised dealers, and it doesn't cover rental fleets. Until CBIC clarifies, get a written opinion from your CA before you claim credit on a car or bike purchase.
What is clearly allowed. Credit on goods and services not covered by Section 17(5) follows the normal rules: your office rent, software and booking-app subscriptions, GPS trackers and marketing. If you hire cars from another rental company to meet a booking, the proviso to Section 17(5)(b) allows credit when you use that inward supply to make an outward taxable supply of the same category.
Your corporate customers. Section 17(5)(b)(i) blocks the customer's credit on "leasing, renting or hiring of motor vehicles" referred to in clause (a), except when used for those purposes. Most businesses renting a car for staff travel can't claim your GST back, so expect them to compare your price including GST.
Platforms, registration and place of supply
Registration. Rental is a service, so you register once your aggregate turnover crosses Rs 20 lakh in a financial year, or Rs 10 lakh in a special category state (Section 22(1), CGST Act).
Listing on a self-drive platform. Section 24(ix) requires registration for anyone supplying through an e-commerce operator that collects tax at source under Section 52. But Notification 65/2017-Central Tax exempts suppliers of services through such platforms whose all-India aggregate turnover is up to Rs 20 lakh (Rs 10 lakh in special category states). Once you're registered, the platform collects 0.25% CGST on your net taxable supplies (Notification 52/2018-Central Tax, as amended by Notification 15/2024-Central Tax from 10 July 2024), plus the state tax share. That TCS shows up in your electronic cash ledger. Our e-commerce TCS guide explains how to claim it.
The composition option. The services composition scheme under Section 10(2A) is for turnover up to Rs 50 lakh. It isn't open if you supply services through an e-commerce operator that collects TCS, or if you make any inter-state supplies. Platform-listed fleets are therefore out of it.
Outstation customers. Section 12 of the IGST Act has no special rule for renting vehicles, so the general rule in Section 12(2) applies. If the customer is registered, the place of supply is their location. If not, it is "the location of the recipient where the address on record exists", and your location in other cases. A Bengaluru traveller who rents in Hyderabad, and whose address you record on the booking, can therefore turn the bill into an inter-state supply charged with IGST. Agree a consistent approach with your CA, because it also decides whether composition is open to you. Our place of supply guide covers the rules in detail.
Step-by-Step Guide
Monthly GST Routine for a Self-Drive Rental Business
Keep a fleet register
For every car and bike, record registration number, fuel, engine cc and length. These decide 5%, 18% or 40%.
Rate-tag every booking
Map each vehicle to its rate in your booking software, so extra-kilometre and late fees follow the same rate.
Record customer addresses consistently
Note GSTIN for business customers and the address on record for others, since this decides CGST plus SGST or IGST.
Reconcile platform statements
Match platform payouts and TCS with your sales register before filing GSTR-1.
Claim only clear credit
Take credit on rent, software and sub-hired vehicles from GSTR-2B. Hold vehicle purchase credit until your CA confirms the Section 17(5)(a) position.
Source: Sections 2(31), 10(2A), 17(5), 22, 24(ix) and 52, CGST Act; Section 12(2), IGST Act; Notifications 11/2017-CT(Rate), 65/2017-CT and 52/2018-CT
Our GST registration service and GST return filing service cover the setup and the monthly returns.
How is a rental owner's income taxed for FY 2025-26?
Section 44AD is open; 44AE isn't. Section 44AD excludes only "the business of plying, hiring or leasing goods carriages referred to in section 44AE". Self-drive cars and bikes carry people, not goods, so the 44AE per-vehicle scheme doesn't apply to them. A resident individual, HUF or partnership firm (not an LLP) can declare 6% of receipts received through banking channels and 8% of the rest as profit. Total receipts must be within Rs 2 crore, or Rs 3 crore where cash receipts don't exceed 5% (Section 44AD, Income-tax Act 1961). Depreciation and running costs are treated as already allowed. If you leave 44AD within five years of opting in, you can't return to it for the next five years. From tax year 2026-27 the same rule is Section 58(2), Table S. No. 1, of the Income-tax Act 2025. See our Section 44AD guide.
A worked example. Ravi runs eight cars and ten scooters in Hyderabad. FY 2025-26 rental receipts are Rs 90,00,000: Rs 84,00,000 by UPI, card and bank transfer, and Rs 6,00,000 in cash. Cash is 6.7% of receipts, so the Rs 2 crore limit applies, and he's well within it.
| Item | Amount (Rs) |
|---|---|
| 6% of Rs 84,00,000 digital receipts | 5,04,000 |
| 8% of Rs 6,00,000 cash receipts | 48,000 |
| Deemed business income | 5,52,000 |
| Tax under the new regime (5% on Rs 1,52,000 above Rs 4 lakh) | 7,600 |
| Less Section 87A rebate (total income up to Rs 12 lakh) | 7,600 |
| Tax payable | Nil |
Ravi has no other income. Even at nil tax, he should file: the return records his 44AD choice and brings back any TDS that business customers deducted. If you missed the 31 July 2026 date, a belated return for AY 2026-27 can be filed until 31 December 2026 (Section 139(4)). The late fee is Rs 5,000, or up to Rs 1,000 if total income doesn't exceed Rs 5 lakh (Section 234F).
When books are better. A young fleet with large loan interest and heavy depreciation can earn well below 6% to 8% of receipts. To declare less than the 44AD figure when your income is above the basic exemption limit, you need books and a tax audit under Section 44AB(e). For FY 2025-26, audited returns follow the extended dates: audit report by 21 October 2026 and return by 21 November 2026 (CBDT Circular 07/2026).
Depreciation if you keep books. Appendix I to the Income-tax Rules 1962 gives 15% to "motor cars, other than those used in a business of running them on hire". It gives 30% to "motor buses, motor lorries and motor taxis used in a business of running them on hire". Your cars are run on hire, but the rules don't say whether a self-drive car is a "motor taxi". On a car costing Rs 10,00,000 first used in May, the first-year claim is Rs 1,50,000 at 15% or Rs 3,00,000 at 30%. If the car is first used in November, both halve because it's used for under 180 days (proviso to Section 32(1)). Settle the rate with your CA before filing. The Income-tax Rules 2026 carry the same two entries for tax year 2026-27. Our depreciation guide explains the block-of-assets method.
Common mistakes self-drive rental owners make
- Using one rate for the whole fleet. An EV, a compact and an SUV in the same fleet are 5%, 18% and 40%. Check each vehicle's cc and length, not its marketing segment.
- Billing a self-drive SUV at the cab rate. The 5% or 18% options apply only when you supply a driver and fuel. Self-drive follows the vehicle's own rate.
- Still adding compensation cess. Cess on cars and on bikes above 350cc has been nil since 22 September 2025.
- Claiming credit on car purchases without advice. Section 17(5)(a) may block it, and a wrong claim comes back with interest.
- Treating the deposit as income. A refundable deposit isn't taxable until you apply it as payment.
How Tax Garden helps self-drive rental businesses
We register you for GST, map every vehicle in your fleet to its correct rate, and reconcile platform payouts and TCS. We also file your monthly returns through our GST return filing service. At year end we file your return under Section 44AD, or on book profit with the right depreciation, through our ITR filing service. For larger fleets, our accounting and bookkeeping service keeps the fleet register and books ready for audit. If you also sell cars or bikes, see our guides for car showroom dealers and two-wheeler dealers.
