One of my client; a partnership firm, Say Firm A, of a husband and wife; had constructed a hotel building. Now another hotel group (a Company Say B Ltd) came with a proposal to run the business in a partnership Say Firm C. Since the partnership cannot enter into another partnership, the partners (Firm A) in their individual capacity had joined in a partnership with B Ltd. B ltd's Proposal is to take the Hotel on Lease by Firm C and pay Lease Rent @2 Lakhs per month to Firm A and equal sharing of profit from Firm C to the partners of Firm A. But B Ltd also proposed the Hotel should be fully furnished. And they want Firm A to take registration under GST now; So that Firm A can take Input Tax Credit of further purchases like Air Conditioners, Beds, Cots, Electrical Equipment and Lights, Generator and other such Plant and Machinery. And Firm A had got themselves registered under GST. And bills were issued for further purchases, but Lease Rent had not started. My doubt is on how to take IPT? Since the goods will form part of Fixed Assets of Firm A, whether IPT can be claimed as IPT on Capital Goods? But B Ltd is of the opinion that IPT can be claimed at a stretch, i.e monthly basis as a whole. I think it can be taken as 60 Months IPT (12*5 Years). Please help me to sort this out
26 July 2024
Under GST law in India, the treatment of Input Tax Credit (ITC) on capital goods and consumables has specific guidelines. Let’s break down your queries:
### 1. **ITC on Capital Goods**
Since Firm A has registered for GST and is buying assets like air conditioners, beds, cots, electrical equipment, lights, generators, etc., which are used to furnish the hotel building, it can claim ITC on these purchases under the category of "capital goods." Here's how it works:
- **Capital Goods ITC Claim:** Capital goods are defined under GST law as goods that are used in the course or furtherance of business and have a useful life of more than one year. The ITC on capital goods can generally be claimed in one go. This means Firm A can claim the entire ITC on the capital goods in the month of the purchase or the month in which the invoice is received.
- **Depreciation of ITC:** Under GST, ITC on capital goods is not required to be spread over the useful life of the asset. Firm A can claim the full ITC amount at once. The idea of spreading ITC over 60 months is not necessary under current GST regulations. There is no provision to claim ITC on a monthly basis for capital goods.
### 2. **ITC on Consumables**
For consumables such as bedsheets, stationery, etc., the treatment is as follows:
- **Consumables ITC Claim:** ITC on consumables can be claimed in the month of receipt of the invoice. These items are treated as inputs or input services rather than capital goods. There is no need to spread the ITC over a period. It can be claimed as and when the invoice is received and payment is made.
### Additional Points to Consider
- **Use of Capital Goods:** Ensure that the capital goods are used exclusively for taxable supplies. If there is a mixed use (both taxable and exempt), the ITC might need to be apportioned accordingly.
- **Lease Rental:** Since the lease rent has not started, the ITC on capital goods should not be impacted by the lease rental status. The credit is applicable as long as the goods are used for business purposes.
- **Maintenance of Records:** Firm A must maintain proper records and documentation of all ITC claims, including invoices and proofs of payment. This will be necessary for audit purposes and to ensure compliance.
In summary, Firm A can claim ITC on capital goods in full in the month of purchase and for consumables in the month of receipt of the invoice. There is no requirement to spread the ITC claim over several months for capital goods.
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