1. Introduction-
As per provisions of section 2 (19) of the Act, “Capital goods” 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 or furtherance of business. Capital goods are like Plant & Machinery, Furniture, Equipment’s & Vehicle etc. used for production of goods.
Every registered person engaged in the supply of goods or services or both can avail input credit of goods (Capital goods or non-capital goods) or services used in the course of furtherance of business.
2. ITC for Capital Goods-
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S. No.
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Particulars
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ITC Availed
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1.
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Capital Goods are used for personal use or for exempted sales
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No ITC Availed
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2.
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Capital Goods are used for normal business use
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Full ITC Availed
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3.
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Capital Goods are partially used for personal/exempted sales or partially for normal business use
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a). GST paid on monthly basis- ITC credited/ 60 (i.e. 5 years (Estimated life)*12 months in a year)
b). GST paid on quarterly basis- ITC credited/ 20 (i.e. 5 years (Estimated life)*4 quarters in a year)
c). Credit of ITC on Exempted supplies = Value of Exempted supplies * Credit of tax period (as calculated above a & b) /Total Turnover
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4.
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Capital Goods earlier used for Personal purpose/exempted supplies and now converted into common (mixed) use
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Input tax to be credited = Input tax – 5% of Input tax for every quarter or part thereof from date of invoice
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3. Consider the following illustrations on the basis of above chart-
Example 1. (Particulars as stated above at S. No. 1)-
Mr. X purchased color printer (Capital Assets for Rs. 35,400 (i.e. value of assets 30,000 + GST of Rs. 5,400) on 01.04.2018 for his personal use. What is the amount of eligible tax credit?
Answer-
No ITC Availed because capital assets is used for personal purpose.
Example 2. (Particulars as stated above at S. No. 2)-
Mr. X purchased color printer (Capital Assets for Rs. 35,400 (i.e. value of assets 30,000 + GST of Rs. 5,400) on 01.04.2018 for his official purpose. What is the amount of eligible tax credit?
Answer-
Full ITC of Rs. 5,400 can be availed because capital assets is used not for personal purpose.
Example 3. (Particulars as stated above at S. No. 4)-
Mr. X purchased capital assets for exempted supplies for Rs. 2, 36,000 (i.e. value of assets 2, 00,000 + GST of Rs. 36,000) on 01.04.2018, and he used such assets commonly for taxable supplies as well as exempted supplies from 01.10.2018. What is the amount of eligible tax credit?
Answer-
Common input tax credit = Input tax – 5% of Input tax for every quarter or part thereof from date of invoice.
= 36,000 – 5% of 36,000 * 2quarters
= 36000-3600 i.e. Rs. 32,400 is common input tax credit
Example 4. (Particulars as stated above at S.No.3)
Common input tax credit is Rs. 32,400/-
Total Turnover Rs. 100 crore
Exempted supplies is 25 crore
Common credit for 1 month = 32,400 /60 (12 months * 5 years
= Rs. 540
Credit of ITC on exempted supplies = Rs. 540 (Common credit of 1 month) * 25 (Exempted supplies) /100 (Total Turnover)
= Rs. 135 which will be reversed under GSTR-2
4. Reversal of Input Tax Credit on Capital Goods-
Reversal of input tax credit (as calculated below) on capital goods should be part of output tax liability and furnished in the said forms along with certificate from a practicing chartered accountant or cost accountant-
* FORM GST ITC-03 - Where a normal taxpayer opts to pay tax under composition scheme or goods and/or services supplied by him become exempt.
* FORM GSTR-10 – for cancellation of Registration.
These are the circumstances when input tax credit availed on the capital goods has to be reversed-
- When taxpayers opts to pay tax under composition scheme.
- When goods or services supplied by the taxpayer becomes exempted.
- When there is supply of capital goods, on which input tax credit has been availed.
- When the registration of registered tax payer has been cancelled.
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.
Example 5. (Reversal of Input tax credit on Capital Goods)-
Earlier Input Tax credit on such capital goods = 5, 00,000
Capital goods have been in use for 4 years, 7 month and 20 days.
What will be the amount of input tax credit which is to be reversed?
Answer-
Remaining useful life of such capital goods is = 4 months
Earlier Input tax credit taken on such capital goods= Rs.5, 00,000
Amount of Input tax credit which is to be reversed =
= 5, 00,000 (earlier Input tax credit) * 4 (remaining useful life) / 60 (Estimated useful life)
=33,333 ITC to be reversed
5. Capital goods send for job work-
* When capital goods may be plant & machinery have sent 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.
6. Sale of Capital Goods
Section 18 of CGST Act, contains provisions of sale of such capital goods and conditions and restrictions in case of supply of goods on which input tax credit has been taken below is payable:
- An amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage as per provisions of Rule 44(6); or
- The tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.
As per rule 44 (6) amounts of input tax credit involved in capital goods held in stock, the Input tax credit involved in the remaining useful life in months shall be computed on prorata basis, taking the useful life as five years.
Provision of Rule 44(6):
- Provided that where the amount so determined is more than the tax determined on the transaction value of the capital goods, the amount determined shall form part of the output tax liability and the same shall be furnished in FORM GSTR-1
Now two conditions may arise that are given below:-
- The transaction with consideration: If in a case amount of ITC calculated for balance useful life as described in Rule 44 (6) of CGST Act as compared to the tax calculated on the transaction value.
- If Amount of ITC is greater (>) than tax and the registered person is to be paid that much amount and same should be treated as Output tax liability. The similar amount to be furnished in return Form GSTR 1. That means for businesses, it is necessary to prepare tax invoice and the most interesting point is that taxable value has to be reverse calculated and that value may be different from actual consideration received.
Example 6. (ITC on sale of Capital Goods)
Purchase price of an Asset is Rs 1, 00,000 + 18% of GST is (18,000) = Total Value of an Asset is Rs 1, 18,000. The said asset has been sold at a price of Rs. 10,000 + 18% GST. What will be the output tax liability on sale of an asset, if assets have remaining useful life is 5 months?