Input Tax Credit on Capital:
What is Capital Goods under GST?
As per provisions of section 2 (19) of the Act, “Capital goods” means goods, the value of which is capitalized 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 or furtherance of business.
Below are the Some rules for determination of Input Tax Credit (ITC) w.r.t. Capital Goods and reversal if any:
1. Credit of Input Tax will not be available on the following:
– Capital Goods used exclusively for effecting exempt supplies
– Capital Goods used exclusively for non-business (personal) activity
2. 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.
3. There is special provisions for capital goods which are used for both taxable as well as exempted supplies. And/or business and non-business activity.
(1) The ITC paid for the capital goods will be credited to electronic credit ledger
(2) Useful life of such capital asset will be taken as 5 years from the date of purchase
(3) Now the total amount of input tax credited to electronic credit ledger for the whole useful life will be distributed over the useful life
If you pay GST on a monthly basis then you will use the following formula,
If your turnover is less than 1.5 crore, then you will pay GST on a quarterly basis. ITC will be calculated using the following formula
Note: 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.
Note: All the above calculations must be done separately for:
- Central tax
- State Tax
- Union Territory Tax
- Integrated Tax
4. If a capital asset was earlier used exclusively used for:
(1) Personal purpose OR
(2) Selling exempted goods
And now it will used commonly for:
(1) Business and personal purpose OR
(2) Effecting taxable and exempt supplies THEN
Input tax to be credited to electronic credit ledger (A)
= Input Tax – 5% of Input tax for every quarter or part thereof from date of invoice
Now you will be required to calculate ITC attributable to exempted supplies as per the formula mentioned in Note (B) this amount is required to be reversed.
In short you will be able to take credit only,
|Amount of eligible input tax credit in (A) – Mount of reversal as per (B)|
In this way one can take Input Tax Credit on Capital goods depending upon the nature of use. And ensure that correct Input Tax credit is taken.