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ambiguity in reversal of ITC of capital goods

Ankit Dodwani (ASSISTANT ARTICLE) (33 Points)

12 March 2018

Can anybody clearly explain me the procedure of calculating the reversal of ITC of capital goods because in every section whether it is 18 subsection 4 or 29 subsection 5 or 18 subsection 6 in each of these sections 5% reduction for every quarter is given.

but rule 44 says that for the purpose of subSection 4 of section 18 or subSection 5 of 29 or section 18 subsection 6, reversal of ITC is to be computed on prorata basis, taking the useful life as five years.

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1 Replies

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 12 March 2018

case 1.
CALCULATION of Input Tax Credit Reversal when Capital Goods Used In supply of both exempted supply & taxable supply

Te= Tm× exempted sale ÷ total turnover
Tm= ITC of capital goods ÷ 60
Revere value of Te in GSTr 2 , table 11

in case 2
Case where Capital Goods were used for exempted supply but later on in Taxable supply also

Mr Avinash bought a Capital Good intended to be used for effecting exempt supplies only, for Rs 1,00,000/- paying Rs 18,000 as input tax on 01/04/2017 and now on 15/11/2018, he wishes to use the capital good commonly for taxable and exempt supplies.

Now the eligible common input tax credit will be calculated as follows:

= Input Tax – 5% of Input tax for every quarter or part thereof
= 18,000 – 5% of 18000 * 3 quarters
Or 15% of 18000/- (5%each qtr x 3 qtrs used as Exempted)
= 18,000 – 2,700
= 15,300 , now it's TC, & further calculate as above same , to divide by 60 to get monthly TM