CBIC restores demo vehicle tax credit for auto dealers
CBIC clarified that authorised automobile dealers acting as agents can claim input tax credit on demonstration vehicles and withdrew para 4.6 of an earlier circular. The measure removes a tax disadvantage between dealership models, while derivatives positioning in M&M and Maruti remained cautious.
after close1 source ↓machine-written, see hownot a recommendation
- M&M close
- ₹2,853
- On the day
- -0.28%
- Futures OI, short build-up
- +3.4%
- Put-call ratio
- 0.54
- Max pain
- ₹2,850
The Central Board of Indirect Taxes and Customs clarified that authorised automobile dealers acting as agents for vehicle manufacturers can claim input tax credit on demonstration vehicles. Circular No. 262/08/2026-GST, issued on 26 Oct 2026, withdrew para 4.6 of Circular No. 231/25/2024-GST and implemented the recommendation of the 57th GST Council meeting. The clarification provides relief to dealers operating under the dealer-agency model 🚗.
The decision rests on the view that demo vehicles serve the same commercial purpose in both traditional dealership and dealer-agency arrangements: they help promote and facilitate the supply of similar vehicles. CBIC said denying credit under Section 17(5)(a) of the CGST Act to only one model created a discriminatory effect. The phrase “such motor vehicles” was interpreted to cover vehicles used for further supply of similar vehicles, supporting the admissibility of ITC in the specified circumstances.
ITC clarification can reduce a tax-cost mismatch between dealership structures and improve consistency across the automobile distribution chain. The immediate benefit is most relevant to authorised dealers and manufacturers that use agency arrangements, although the circular’s practical effect will depend on documentation, vehicle use and compliance with the stated conditions. The measure is sector-specific regulatory relief rather than a change to vehicle demand or financing conditions ⚖️.
OI Charts data showed a cautious derivatives setup in the large automobile names on 26 Oct 2026. M&M closed at ₹2,853, down 0.28%, while its futures open interest rose 3.4%, indicating short build-up. Its put-call ratio was 0.54, with the largest put open interest at ₹2,850 and the largest call open interest at ₹2,900; max pain stood at ₹2,850 for the 27 Oct expiry. The stock had declined 6.3% over 20 sessions and remained below its 52-week high of ₹3,840.
Maruti closed at ₹11,220, down 0.09%, with futures open interest up 3.8%, also indicating short build-up. Its put-call ratio was 0.45, with the largest put open interest at ₹11,200, the largest call open interest at ₹12,000 and max pain at ₹11,400. Traders will watch subsequent CBIC implementation guidance, dealer documentation requirements and whether the tax clarification changes channel economics or positioning around the ₹2,850 and ₹11,200 support zones.
Source: A2Z Taxcorp LLP, 27 Oct 2026
Not investment advice. For informational purposes only.