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Friday, January 24, 2020

GST Input Tax Credit on capital goods: How to claim, meaning, depreciation; all you need to know

The formula for finding Tax on Gst can be viewed here.

What Does GST Input credit mean?

Input decrease means credit of Input tax i.e. tax levied on input goods, input services or both. Any goods (including capital goods) and any input services used or intended to be employed by a provider of products or services of both within the course of or furtherance of business are eligible for input decrease. Section 2(62) of Central Goods and Services Tax Act (CGST Act) defines Input tax in reference to a registered person because the Goods and Services Tax (GST) charged on any supply of products or services or both made to him and includes:

Integrated GST (IGST) on import of products

Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST) paid on procurement within the state
Tax payable under the provisions of reverse charge of CGST, IGST, SGST, UTGST But doesn't include the tax paid under composition levy.

How to take input decrease (ITC)?

Every registered taxable person shall be entitled to require a credit of input tax charged on goods or services or both supplied to him. it's important to notice that ITC is out there as long as such goods or services or both are used or intended to be utilized in the course of or furtherance of business.

In the case of eligible ITC, the said amount shall be credited to the electronic credit ledger i.e. the input decrease ledger maintained on the GST portal for every registered taxable person. The recipient of products or services can avail ITC as long as the supplier has deposited GST with the govt.
Meaning of capital goods for the aim of claiming ITC.

Gst Calculator can be used for finding a particular Tax on an item, which can be found here.



As per section 2(19) of CGST Act, capital goods means goods, the worth of which is capitalized within the books of account of the person claiming the credit and which are utilized in the course of or furtherance of business. Capital goods shall include Plant and Machinery like apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for creating an outward supply of products or services or both and includes such foundation and structural supports but excludes

The land, building or the other civil structures
Telecommunication towers
Pipelines laid outside the factory premises
Input decrease of capital goods

Entire ITC of GST paid on capital goods is going to be available within the first year itself as capital goods fall within the category of “goods” as defined by the CGST Act.



Gst Calculator can be used for finding a particular Tax on an item, which can be found here.

Depreciation claimed on the value of capital goods

As per section 16(3) of the CGST Act, just in case the registered taxable person has claimed depreciation on the tax component of the worth of capital goods, ITC on the said tax component shall not be allowed.

Let’s explain this with the assistance of an example, Simran purchased capital goods worth Rs 10 lakh and paid a GST of 1.8 lakh. She claimed depreciation on the entire value of 11.8 lakh. during this case, ITC is going to be available only on Rs. 10 lakh and she or he should claim depreciation in tax only on Rs 10 lakh.
Subsequent sale of capital goods
Where a registered taxable person purchases capital goods and claims the ITC with reference to such purchase but subsequently sells such capital goods, special provisions of section 18 (6) of the CGST Act shall apply. consistent with this provision, the registered taxable person shall pay the subsequent amount:

Input decrease paid on said capital goods Less: decimal point as could also be laid out in the CGST and SGST Rules, 2017O r,
Tax on the transaction value of such capital goods determined under section 15 of CGST Act, Whichever is higher.

As per rule 40(2) of CGST and SGST Rules, 2017, ITC on credit within the case of supply of capital goods and plant and machinery shall be reduced by the ITC at five decimal point for each quarter or part thereof, from the date of issue of invoice for such capital goods or plant and machinery.

Where refractory bricks, molds, and dies, jigs and fixtures are supplied as scrap, the registered taxable person may pay tax on the transaction value of such goods determined under section 15.

Let’s explain this with the assistance of Simran’s example above, Simran features a company called DDLJ Private Limited and she or he purchased machinery on 1 st October 2018 for Rs 10 lakh on which GST was paid at the speed of 18%. She took ITC on the above purchase and used the machine for a few times. On 4th November 2019, she sold the machinery for Rs 8 lakh.

In this case, DDLJ Private Limited took ITC credit of Rs 1.8 lakh in October 2018 and used the machinery for the subsequent quarters: the Year 2018 – 1 quarter and Year 2019 – 4 quarters

Thus DDLJ Private Limited is eligible for ITC at 5% per quarter i.e. 25%, therefore, it can retain Rs 45,000 (25% of Rs 1.8 lakh) and pay an amount adequate to Rs 1.35 lakh (75% of Rs 1.8 lakh).

Now so as to calculate the transaction value as per section 15, take the sale value of machinery i.e. Rs 8 lakh and compute the GST paid on the transaction value at the speed of 18% i.e. Rs 1.44 lakh. Since the quantity which is higher of the above is to be paid, Rs 1.44 lakh is going to be payable in GST (IGST/ SGCT and CGST because the case may be).


Gst Calculator can be used for finding a particular Tax on an item, which can be found here.

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