Capital Goods ITC claim

[narendra patel]

Suppose a capital good (purely for business purpose) is purchased for 80,000. on 1.4.2018.

So CGST part will be 7200. We avail 1/5 part (1440) for current year and put reversal entry of 5760.

Now, in next year we claim next 1/5 part (1440).

My question:

1. Do we claim next year ITC on 1.4.2019 or 31.3.2020 (ie exactly 1 year after purchase or at the end of next FY) 2. Under which section of GST, do we claim ITC of next year.

3. Under which section of GST, do we enter reversal enter of current year.

Please advise.

[KASTURI SETHI]

Restriction of one year is for availment and not for utilization. Can be used at any time.

When you can take full credit in first year why do you want to follow such practice of reversal ? What is the purpose behind reversal ?

[DR.MARIAPPAN GOVINDARAJAN]

Kasthuri Sir, you mentioned that credit should be availed within one year but may be utilized indefinitely. This is the new concept I heard. Any support please.

[narendra patel]

Sir,

Till now I was taking full ITC for Capital Goods in a single year, but recently saw at many places on internet that we cant take full ITC credit in a single year.

We have to divide total ITC of Capital Goods by 5 ( as life of machinery is considered 5 years) and take 1/5 ITC credit each year. Hence I asked this question.

Please advise.

[KASTURI SETHI]

Dear Querist,

You can take full ITC on capital goods in one year. Reversal (you are talking) is required on account of usage of tax paid inputs/capital goods in the business or furtherance of business in respect of exempted as well as taxable supply of goods or services.

Are you engaged in exempted as well as taxable supply ?

[KASTURI SETHI]

Dr.Govindarajan Ji,

Sir, What I want to say is as under :-

During pre-GST era, Cenvat Credit on capital goods was allowed as 50% in first financial year and balance (50% ) in next financial year. In GST regime, ITC on capital goods can be taken in full in one year. (year of purchase). Earlier condition of taking credit in two installments has been dispensed with under GST.

Secondly, ITC taken within stipulated period, can be utilized in any year after taking credit. Bar of one year is on taking the credit within one year and not on using the credit.

Case laws can be easily traced out but pertaining to pre-GST era i.e.Central Excise.

[KASTURI SETHI]

Dear Querist,

Also read Section18 (6) of CGST Act, 2017.

[Alkesh Jani]

Sir, In addition to the views expressed by our experts, You are also requested to ensure the applicability of Rule 40, 42, 43 and 44 of CGST Rules, 2017,in your case.

Thanks,

With Regards,

[narendra patel]

Sir,

So from your views it seems I can take FULL ITC in the same year in which I buy machinery (Capital Goods).

Thank you very much.

If my conclusion from above discussion is wrong, please advise.

Respected kasturi Sethi & Govindrajan ji

I think that if we charge depreciation on capital goods at the end of financial year than we can't avail ITC .

I refer Sec 17 (5) of CGST Act about BLOCK CREDIT

If I am wrong than kindly guide us

Thank you

(waiting for reply)

#DR.MARIAPPAN GOVINDARAJAN

#KASTURI SETHI

[Ganeshan Kalyani]

In case of capital goods used for taxable goods then full credit can be taken in one year. And in case of capital goods used partially for business and partially for other purpose or partially for taxable goods and partially for exempted goods then Rule 43 of CGST Rules, will apply. In this case, the life of an asset is assumed to be 5 years. Hence, the common capital credit will be taken in five installment spread in five years.

AI Summary

Input tax credit on capital goods may be availed in full in purchase year; reversals required for exempt use.
ITC on capital goods used wholly for taxable supplies may be availed in full in the year of purchase; the one year restriction concerns only the period for taking credit, not its utilisation. If capital goods are partly used for exempt supplies or non business use, reversal or proportionate allocation applies, commonly spread over an assumed five year life, and specific GST allocation, reversal and blocked credit provisions govern the procedural mechanics.