Depreciation charged on itc ineligible
This query is : Resolved
04 April 2019
depreciation charged on gst amount paid on purchase of building materials and purchase of car and bike which comes under ineligible credit under section 17(5) for the year 2017-18. what should be the treatment of it in the return of march 2019
04 April 2019
As GST credit has not been claimed, we can provide depreciation in the same manner as did in FY 2017-18 on the wdv inclusive of GST.
05 April 2019
But sir shall we need to show it in ineligile itc under sec17(5) in the return if we had not taken credit of it.
05 April 2019
And my next question is if we dont show it in ineligible itc under sec 17(5) then everyone will do like this.... means will always capitalize the amount of ineligible it to the asset then why there is provision that either charge depreciation or claim itc.
21 July 2024
Let's address your questions regarding the treatment of GST paid on ineligible inputs (under Section 17(5)) and its impact on depreciation and Input Tax Credit (ITC):
### 1. Treatment in Return for March 2019
If you have paid GST on building materials and the purchase of a car and bike, and these fall under ineligible credits as per Section 17(5) for the financial year 2017-18, here's how you should handle it:
- **Ineligibility of ITC**: According to Section 17(5) of the CGST Act, certain goods and services are ineligible for claiming Input Tax Credit. This includes goods or services used for personal consumption, goods lost, stolen, or destroyed, and goods used for exempt supplies.
- **Depreciation Treatment**: Since you cannot claim Input Tax Credit on GST paid for these items, the GST component would typically be capitalized to the cost of the asset (building materials, car, bike) for the purpose of calculating depreciation.
- **Return Filing**: In your GST returns for March 2019 (FY 2018-19), you should reflect these transactions appropriately:
- The GST paid on ineligible inputs (under Section 17(5)) should not be claimed as Input Tax Credit.
- Instead, if these assets are eligible for depreciation under the Income Tax Act, the capitalized GST amount should be included in the cost of the asset for depreciation purposes.
### 2. Showing in Ineligible ITC under Section 17(5)
It is necessary to show the GST paid on ineligible inputs under Section 17(5) in your GST returns even if you have not claimed Input Tax Credit on them. This ensures proper compliance with GST regulations and transparency in reporting:
- **Compliance**: Even if you have not claimed ITC on GST paid for ineligible inputs, you should report these transactions correctly in your GST returns.
- **Auditing and Verification**: This helps in audit and verification processes to ensure that all GST liabilities and claims are accurately reported.
- **Avoiding Penalties**: Non-compliance or incorrect reporting could lead to penalties during audits or assessments.
### 3. Reason for Provision of Depreciation vs. ITC under Section 17(5)
The provision under Section 17(5) allows businesses to choose between claiming Input Tax Credit or capitalizing the GST amount to the cost of the asset for depreciation purposes. This is designed to provide flexibility to businesses:
- **Flexibility**: Businesses may have different financial strategies or preferences regarding the treatment of GST on ineligible inputs.
- **Capitalization**: Capitalizing the GST amount to the asset's cost for depreciation aligns with accounting principles, ensuring that the total cost of acquisition is reflected over the asset's useful life.
- **Avoiding Double Benefit**: Allowing depreciation ensures that the GST component is not benefiting the business twice (once as Input Tax Credit and again as a deduction through depreciation).
In summary, for assets where GST paid on inputs is ineligible under Section 17(5), you should capitalize the GST amount to the asset's cost for depreciation purposes and reflect these transactions accurately in your GST returns. This approach ensures compliance with GST regulations and proper accounting treatment under the Income Tax Act. Always consult with a tax advisor or accountant to ensure specific compliance with your business's circumstances and applicable laws.
### 1. Treatment in Return for March 2019
If you have paid GST on building materials and the purchase of a car and bike, and these fall under ineligible credits as per Section 17(5) for the financial year 2017-18, here's how you should handle it:
- **Ineligibility of ITC**: According to Section 17(5) of the CGST Act, certain goods and services are ineligible for claiming Input Tax Credit. This includes goods or services used for personal consumption, goods lost, stolen, or destroyed, and goods used for exempt supplies.
- **Depreciation Treatment**: Since you cannot claim Input Tax Credit on GST paid for these items, the GST component would typically be capitalized to the cost of the asset (building materials, car, bike) for the purpose of calculating depreciation.
- **Return Filing**: In your GST returns for March 2019 (FY 2018-19), you should reflect these transactions appropriately:
- The GST paid on ineligible inputs (under Section 17(5)) should not be claimed as Input Tax Credit.
- Instead, if these assets are eligible for depreciation under the Income Tax Act, the capitalized GST amount should be included in the cost of the asset for depreciation purposes.
### 2. Showing in Ineligible ITC under Section 17(5)
It is necessary to show the GST paid on ineligible inputs under Section 17(5) in your GST returns even if you have not claimed Input Tax Credit on them. This ensures proper compliance with GST regulations and transparency in reporting:
- **Compliance**: Even if you have not claimed ITC on GST paid for ineligible inputs, you should report these transactions correctly in your GST returns.
- **Auditing and Verification**: This helps in audit and verification processes to ensure that all GST liabilities and claims are accurately reported.
- **Avoiding Penalties**: Non-compliance or incorrect reporting could lead to penalties during audits or assessments.
### 3. Reason for Provision of Depreciation vs. ITC under Section 17(5)
The provision under Section 17(5) allows businesses to choose between claiming Input Tax Credit or capitalizing the GST amount to the cost of the asset for depreciation purposes. This is designed to provide flexibility to businesses:
- **Flexibility**: Businesses may have different financial strategies or preferences regarding the treatment of GST on ineligible inputs.
- **Capitalization**: Capitalizing the GST amount to the asset's cost for depreciation aligns with accounting principles, ensuring that the total cost of acquisition is reflected over the asset's useful life.
- **Avoiding Double Benefit**: Allowing depreciation ensures that the GST component is not benefiting the business twice (once as Input Tax Credit and again as a deduction through depreciation).
In summary, for assets where GST paid on inputs is ineligible under Section 17(5), you should capitalize the GST amount to the asset's cost for depreciation purposes and reflect these transactions accurately in your GST returns. This approach ensures compliance with GST regulations and proper accounting treatment under the Income Tax Act. Always consult with a tax advisor or accountant to ensure specific compliance with your business's circumstances and applicable laws.
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