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ITC on Fixed assets query contd...

24 December 2019

sec 16 [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.

pls confirm the above

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7 Replies

Deepak Gupta (CA Student) (15922 Points)
Replied 24 December 2019

Cost of Asset 100 + Tax 10 = Total Cost 110

If depreciation charged on Rs. 100 = ITC Available

If depreciation charged on Rs. 110 = ITC Not Available

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Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 24 December 2019

Dear Deepak ji
Nice Explanation!! 👍

Shivam RC (Student) (23683 Points)
Replied 24 December 2019

The Provision tells that you can either claim ITC on the Tax component or Depreciation on the full Capitalised Amount ( including GST portion ). But both is not available.

Refer Deepak Sir's example. Very nicely explained.

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SOWJANYA M (840 Points)
Replied 24 December 2019

Sorry for disturbing again on the same @ shivam sir, from Deepak ji first example if Iam availing ITC then I can avail 10 from GST AND DEPRECIATION ON 100. THEN Iam availing both only.
pls correct me if Iam wrong

Shivam RC (Student) (23683 Points)
Replied 25 December 2019

Depreciation is done on the amount excluding the GST portion if you have availed ITC on the Tax component. The Provision does not tell that you cannot claim both ITC and Depreciation. ITC is claimed for the GST component whereas Depreciation is claimed for the Capitalised Value ( excluding GST ).

Let us take an example :

MACHINERY Purchased (PPE) : Rs. 1,00,000
CGST @ 9% = ₹ 9,000
SGST @ 9% = ₹ 9,000

Net Invoice Value ( inc GST ) = ₹ 1,18,000/-

Now you have "TWO OPTIONS".

1). Claim ITC on the Tax Component ( Rs. 18,000/- ) u/s 16(2) of the CGST Act 2017.

OR

2). Claim Depreciation on the Full Amount including GST ( Rs. 1,18,000/- ) under the Income Tax Act 1961.

Now if you want to claim ITC, then claim full Rs. 18,000/- ITC of GST paid and the balance amount i.e. Rs. 1,00,000 gets capitalised in your Balance Sheet.

Now on this Rs. 1,00,000 , you claim DEPRECIATION @ 15% on W.D.V. Method u/s 32 of the Income Tax Act 1961 every year.

But if you don't want to claim ITC, then you can capitalize the full Invoice Value of the Machinery i.e. Rs. 1,18,000/- and claim Depreciation @ 15% thereon.

But both availment of ITC @ Rs. 18,000 and Depreciation claim on Rs. 18,000 is not allowed. You can choose any one option.

Hope you understood.

EXTRACT from the CGST Act 2017 :

SECTION 16(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.

Warm Regards
Shivam Roy Chowdhury.