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GST ON CAPITAL GOODS
Capital goods as defined in the act means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course of furtherance of business.
Based on the above definition, for goods to be capital goods following two conditions should be fulfilled –
- The value of such goods is capitalised in the books of account of the person claiming input tax credit
- Such goods are used or intended to be used in the course of furtherance of business
Where capital goods are lying at the job workers premises, principal can still claim input tax credit only if such capital good is capitalised in the books of account.
If depreciation is claimed on GST paid, then in such case input tax credit cannot be claimed.
Input tax credit on Capital Goods
Where capital goods is used ONLY for personal use or for exempted supply, input tax credit cannot be claimed on such capital goods.
And Where capital goods is used ONLY for Normal taxable sales (including zero rated sales i.e. for export), full input tax credit is allowed.
Also Where capital goods is used partly for personal/exempted goods and partly for normal sales, proportionate input tax credit is allowed.
Let us understand how to calculate the amount –
Useful life of such capital asset will be taken as 5 years from the date of purchase.
Amount shall be credited to Electronic credit ledger.
If GST paid on monthly basis –
- ITC for 1 month = ITC credited to Electronic credit ledger
60 ( 5 years* 12 months )
The amount of credit to be added to output tax liability attributable to exempt supplies
- = Value of exempt supplies*credit for period
Remaining amount after deducting credit attributable towards exempt supplies will be allowed as ITC.
Simple calculation is as under:
Monthly available ITC=(a)-(b)
To understand the provisions of GST on sale/transfer of capital asset, refer the article https://thetaxtalk.com/2018/05/14/transfer-of-capital-assets/.