Input tax credit on capital goods under GST – InstaFiling

The calculation of the GST input tax credit for capital, its availability and non-availability, and its reversal are all subject to specific regulations. 

Furthermore, there are rules that apply to capital goods that are used for both taxable and exempt supplies. 

This article will go into more detail about how the input tax credit for capital goods is applied under the GST.

Let’s dive into the topic. 

What is the ITC on capital goods?

According to Section 2 (19) of the Act, “capital goods” are defined as goods that are utilized or intended to be used in the operation or furtherance of business and whose worth is capitalized in the person claiming the input tax credit’s books of accounts.

• If capital goods are utilized for a business or profession, an input tax credit for input services is possible. For instance, if a computer is utilized in your company for five years, and you pay another entity some money during that time (regarded as an input service), that money is eligible for the input tax credit. Since the computer is a capital asset, input tax credits cannot be used to pay for it (the purchase of capital assets without payment of sales tax is not possible).

• Capital goods are not regarded as supplies and are not subject to taxation at the moment of disposal; only the sale price is considered. For example, if a computer is sold on the open market after five years of usage, the sale price is taxable, and any input tax credits that were given at the time of purchase but not at the time of sale cannot be utilized.

• Capital goods are only functional after an input service has been added to them through installation; they are not used directly in the production process. For instance, if English software is not installed on a computer before selling, only the sale price is taxed, and an input tax credit from an earlier period can be claimed.

• Additionally, capital goods cannot be used as supply on their own; they need to be combined with another input service. For instance, if a computer is sold without the power supply connected, only the sale price is subject to tax, and a previous period’s input tax credit that was earned for the machine’s purchase cannot be reclaimed.

• Capital goods are not regarded by the Law as either goods or services, hence they are also excluded from transactions that are taken into consideration while calculating ITC. ITC can only be obtained when capital goods are sold; it cannot be used to pay for them.

Can you input GST on capital goods?

Yes, the GST input tax credit is applicable when capital goods are used solely for business purposes.

Difference between Capital Goods and Other Inputs 

Goods utilized to create a finished product are known as input goods. In other words, input goods are many products combined to create a finished good. It may also be regarded as a component of the product’s manufacturing process. The cost of making these input items qualifies as a business expense.

Products used to produce finished goods and get them ready for shipping are referred to as capital goods. Many capital goods consume more than one year. As a result, the cost may not apply as a business expense for the current year, and the deduction happens at set product usage lifetimes. 

Capital assets help the business or sector by generating goods. Consider the scenario where a vendor runs a juice stall. The vendor purchases fruits, ice cubes, sugar, cups, straws, furniture, and other necessities to make the juice. But the vendor uses a blender to prepare the juice. The juice is the finished product, which the blender considers a capital good.

Who can claim ITC in GST?

A GST-registered individual may only claim ITC if they meet ALL the requirements.

• The dealer must have a tax invoice.

• Received the specified goods or services

• Returns were submitted.

• The supplier has paid the government the tax that was assessed.

• When items are delivered in lots, ITC can only be claimed after the last lot is delivered.

• If a capital good’s tax component has been depreciated, no ITC will be granted.

An individual registered under the GST composition scheme cannot submit an ITC claim.

How to file GST input credit?

Below are the steps to file GST input credit.

1. Log in and go to service > return > ITC form > ITC-01 page.
2. Input tax credit claim declaration pursuant to Section 18’s Subsection (1).

30 Examine GST ITC-01.

4. For data freezing, submit GST ITC-01.

5. File GST ITC-01 with DSC or EVC.

FAQs: Input tax credit on capital goods under GST

1. How much ITC can be claimed?

Up to 20% of the eligible ITC that the supplier reports in the automatically generated GSTR 2A return, the taxpayer may claim the input tax credit on a provisional basis in the GSTR 3B.

2. When can you claim ITC GST?

The deadline for filing ITC claims for invoices or debit notes from a financial year has been changed to the earlier of two dates. First, the 30th of November of the following year, or second, the deadline for submitting annual returns.

3. How many types of ITC are there?

There are four types of ITC, such as 

1. ITC for new GST Registration – ITC 01
2. Transfer of ITC in case of sale/merger – ITC 02 
3. Reversal of ITC – ITC 03  
4. ITC on goods sent to Job Worker – ITC 04

Conclusion

We hope you found all the details related to the input tax credit on capital goods under GST. For more such information, visit our website and comment with your queries. Also, feel free to reach out to our expert team to resolve all your queries.

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