ITC Rules for Capital Goods under GST

A. Credit of Input Tax will not be available on the following:

Capital Goods used exclusively for effecting exempt suppliesCapital Goods used exclusively for non-business (personal) activity

B. Credit of Input Tax will be available in totality where Capital Goods have been used for effecting taxable supplies and business activity without any restrictions C. Amount of input tax referred in above points A and B must be indicated in Form GSTR-2 and however only point B will be credited to electronic credit ledger. D. Where Capital Goods is used commonly for exempt and taxable supplies and/or business and non-business activity the credit of input tax shall be calculated in the following manner: Credit for tax period = input tax credited to electronic ledger / 60 months (5yrs*12mths) 4. The above amount shall be calculated for all such common capital goods for every tax period namely a month 5. The amount of credit to be added to output tax liability attributable to exempt supplies = Value of exempt supplies * credit for period / Total turnover 6. Remaining amount after deducting credit attributable towards exempt supplies will be allowed as ITC 7. All the above calculations must be done separately for:

Central taxState TaxUnion Territory TaxIntegrated Tax

E. Where a capital good which was earlier used or intended to be exclusively used for:

Non- business purposeEffecting exempt supplies

Later to be used commonly as under point D for: Input tax to be credited to electronic credit ledger would be:  = Input Tax – 5% of Input tax for every quarter or part thereof Let us understand the situation through an example Mr. XXX bought a Capital Good intended to be used for effecting exempt supplies only, for Rs 1,00,000/- paying Rs 28,000 as input tax on 01/04/2017 and now on 12/12/2018 he wishes to use the capital good commonly for taxable and exempt supplies. Now the eligible common input tax credit will be calculated as follows

= Input Tax – 5% of Input tax for every quarter or part thereof= 28,000 – 5% of 28000 * 3 quarters= 28,000 – 4200= 23800

Now Mr. Avinash will credit Rs 23,800 to Electronic Credit ledger and follow the steps shown in point D to calculate the input tax attributable to exempt supplies out of common credit F. Where a capital good which was earlier used, or intended to be exclusively used for effecting taxable supplies and business purpose Later to be used commonly for Input tax to be credited to electronic credit ledger would be: = Input Tax – 5% of Input tax for every quarter or part thereof Manner of reversal of credit under certain circumstances Under the following circumstances attributable credit of input tax will be added to output tax liability: Input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years. The amount determined must form part of output tax liability and furnished in:

  1. Where a normal taxpayer opts to pay tax under composition scheme or goods and/or services supplied by him become exempt- FORM GST ITC-03
  2. Registration is cancelled- FORM GSTR-10 Along with certification from a practicing chartered accountant or cost accountant. In case of sale of capital good, where the amount determined as above is greater than the tax on transaction value of such supply, the amount determined as above will be added to output tax liability and details to be furnished in FORM GSTR1 Capital goods send on job work Where a capital good including plant & machinery have been send to a job worker for job work, credit of input tax shall be allowed to the principal manufacturer. Such goods must be received back within a period of 3 years of being send out or else it shall be treated as supply on the date on which goods was earlier send and tax would be payable along with interest for late payment of taxes Where capital goods have been send directly to job worker after purchase of such capital goods, the period of three years would be calculated from the date of receipt of such goods by the job worker. Author – CA MAHESHWAR MAHESHBOBBILI.CA@GMAIL.COM Recommended Articles

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