Input on capital goods

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Querist : Anonymous

Querist : Anonymous (Querist)

09 May 2017 what is the rule in GST for taking input tax on capital goods

Sharwan Baluni

Sharwan Baluni (Expert)
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09 May 2017 Section 2(19) defines “capital goods” as goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business;

Section 16 of CGST Act deals with Input Tax Credit

16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be
entitled to the credit of any input tax in respect of any supply of goods or services or both to
him unless,––

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:

(3) Where the registered person has claimed depreciation on the tax component of the
cost of capital goods and plant and machinery under the provisions of the Income-tax
Act, 1961, the input tax credit on the said tax component shall not be allowed.

You also have to follow the "Input Tax Credit Rule" before taking the credit on capital goods and the relevant rule is Rule 1 of the Input Tax Credit Rules.

The input tax credit shall be availed by a registered person on the basis of any of the following documents, namely:-

(a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;
(b) a debit note issued by a supplier in accordance with the provisions of section 34;
(c) a bill of entry;
(d) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31;
(e) a document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule invoice.7;
(f) a document issued by an Input Service Distributor, as prescribed in clause (g) of sub-rule (1) of rule 4.

(2) Input tax credit shall be availed by a registered person only if all the applicable particulars as prescribed in Invoice Rules are contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR-2 by such person.

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Under GST there is no provison in the Act or Rule which divide the availing of input tax on capital goods in to number of year like previously there in Excise and VAT. So, under GST you can take the credit of capital goods in one year itself.

If you want to know more about Input tax credit then check out my video on Youtube. I have cover in detail there.. Link of the video is here:

https://www.youtube.com/watch?v=cAe5kpExnA8&t=27s

Querist : Anonymous

Querist : Anonymous (Querist)

09 May 2017 who are the non-eligible person for input tax on capital goods

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Sharwan Baluni

Sharwan Baluni (Expert)
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09 May 2017 If you doesn't satisfy any conditions mentioned in my above answer then you are ineligible to take credit and also there are certain cases in which credit will not allowed even if you followed all the above conditions. That is given under Section 17(5).

Section 17(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection
(1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) motor vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—
(A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods;

(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as
an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except where––
(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and
(iv) travel benefits extended to employees on vacation such as leave or
home travel concession;
(c) works contract services when supplied for construction of an immovable
property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except
on goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.

Check out my video if you want to more about it.
Link is here: https://www.youtube.com/watch?v=cAe5kpExnA8&t=27s