23 May 2023
Where a firm closes its business there are certain Fixed Assets appearing in Balance Sheet like cars or weighing machine, AC etc. what will the position of Tax Liability on such Assets for Pre GST Period and Post GST Period?
10 July 2024
The tax liability on fixed assets, such as cars, weighing machines, ACs, etc., when a firm closes its business, depends on whether the assets were acquired before the implementation of GST (pre-GST period) or after GST was implemented (post-GST period). Here's how tax liability would typically be handled in each scenario:
### Pre-GST Period Assets:
Assets acquired before GST implementation (before July 1, 2017) would generally fall under the following considerations:
1. **Excise Duty and VAT Paid**: These assets would have had excise duty and VAT paid at the time of purchase. These taxes are already embedded in the cost of the assets and cannot be claimed back once paid.
2. **Depreciation Claim**: The firm would have claimed depreciation on these assets over their useful life as per the Income Tax Act. Upon closure of the business, there are no specific tax implications related to these assets other than finalizing their accounting treatment.
3. **No GST Component**: Since these assets were acquired before GST, there is no GST component associated with them. Therefore, there would be no GST liability arising upon closure of the business with respect to these assets.
### Post-GST Period Assets:
Assets acquired after GST implementation (on or after July 1, 2017) are treated differently:
1. **Input Tax Credit (ITC)**: The firm would have claimed input tax credit on the GST paid at the time of purchase of these assets. ITC allows businesses to offset the GST paid on purchases against the GST collected on sales.
2. **Depreciation and Accounting**: Similar to pre-GST assets, depreciation would have been claimed on these assets. Upon closure of the business, the accounting treatment would involve adjusting the book value of these assets.
3. **Reversal of ITC**: When a business closes, there are specific provisions for reversal of ITC. Generally, if any capital goods (like fixed assets) on which ITC was claimed are sold, transferred, or disposed of, the ITC claimed needs to be reversed partially based on the remaining useful life of the asset.
### Conclusion:
- **Pre-GST Period**: No GST liability arises upon closure of business. The assets are dealt with based on income tax and accounting principles.
- **Post-GST Period**: For assets acquired after GST, there could be implications related to the reversal of input tax credit if the assets are disposed of or transferred upon closure.
In both cases, it is crucial to ensure proper documentation and compliance with tax laws. Consulting with a tax advisor or chartered accountant would be beneficial to navigate the specific implications based on the firm's circumstances and asset disposition plans.
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