Input on cap goods

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Manoj Parashar (Querist)
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05 December 2015 can we take the whole input at the time of purchasing the asset instead of 1/3 method i had read the threee method of taking input of cap goods were income variant consumtion variant and gross product variant but now i havc seen the vat act there is only 1/3 concept of input.

Damodaran

Damodaran (Expert)
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05 December 2015 Dear Mr. Manoj,

please clarify, for which state you are looking?

Manoj Parashar

Manoj Parashar (Querist)
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07 December 2015 i am looking for dvat

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 Under the Delhi VAT Act, the input tax credit (ITC) on capital goods is typically allowed in a phased manner, as you have noted. Specifically, the credit is generally spread over a period of time. Here's a detailed explanation:

### Input Tax Credit on Capital Goods under DVAT

1. **Section 9(3) of the DVAT Act:**
- As per Section 9(3) of the Delhi VAT Act, 2004, the input tax credit for capital goods is generally allowed in three equal annual installments. This means you can claim one-third of the total ITC each year over a period of three years.

2. **Eligibility:**
- The capital goods should be used for the purpose of manufacturing, resale, or for use in the business.
- The capital goods should be purchased within Delhi.

### Methods of ITC Calculation

Although the methods you mentioned (income variant, consumption variant, and gross product variant) are theoretical concepts often discussed in economic literature, the practical application under the DVAT regime specifically follows the installment method for capital goods.

#### **The Three Installment Method:**

1. **First Year:**
- One-third of the total ITC on the capital goods can be claimed in the year of purchase.

2. **Second Year:**
- Another one-third of the ITC can be claimed in the second year.

3. **Third Year:**
- The remaining one-third of the ITC can be claimed in the third year.

### Example:

Let's assume you purchased a machinery for ₹3,00,000 with a VAT of ₹30,000.

1. **Total ITC on Capital Goods:**
- ₹30,000 (VAT paid)

2. **Claiming ITC in Installments:**
- **First Year:** ₹10,000
- **Second Year:** ₹10,000
- **Third Year:** ₹10,000

### How to Claim ITC in Returns:

When filing your DVAT returns, you will need to:

1. **Include the Capital Goods in Returns:**
- Report the purchase of capital goods in the VAT returns for the relevant period.

2. **Claim ITC:**
- Claim the ITC in the prescribed proportion (one-third) for each of the three years in your VAT returns.

### Note:

- **Carry Forward of Unutilized ITC:** If the ITC is not fully utilized in any year, it can be carried forward to the subsequent year.
- **Documentation:** Maintain proper documentation of the purchase invoices and ensure that the capital goods are recorded correctly in your books of accounts.

### Practical Steps:

1. **Record Purchase:**
- Record the purchase of capital goods in your accounting system.

2. **Calculate ITC:**
- Calculate the one-third portion of ITC for each year.

3. **File Returns:**
- Report and claim the ITC in the respective annual returns.

### Reference:

- The specific sections of the DVAT Act and rules can be found in the official legislation documents available on the Delhi VAT website or through legal databases.

For more detailed and case-specific advice, consulting with a tax professional or legal advisor who specializes in DVAT is recommended. They can provide guidance based on the latest amendments and practical applications of the law.