Credit of Renovation expenses done in a shop

[Pradeep Singhi]

Whether credit can be taken for renovation expenses done in a shop ?

[KASTURI SETHI]

Yes, if not capitalized. Show such expenses as revenue expenditure in your books of account.

[Atul Rathod]

1.Eligible as 17(5) restricts only credit to the extent of the capitalization to the said immovable property. In case of rented shop, there would not be capitalization of such expenses to any immovable property. (However this is aggressive view & could be litigated by department).

2. If it is not rented shop & its own, than eligible criteria would depend directly on capitalization or charging off to P&L.

If capitalized-Ineligible, & If charged to P&L-Eligible

[Ganeshan Kalyani]

I agree with the views of Sri Kasturi Sir .

[Alkesh Jani]

Dear Experts,

For sake of my knowledge, If expenses are made for capital goods, it should go into the capital expenses and only those relating to revenue will go to revenue account. (this is my understanding). Can we make such entries in book of account? is it permissible as per Accounting standards?

Thanks in advance

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

In a layman's language, short period of time expenditure are revenue expenditure and long-term expenditure are capital expenditure. Examples of both are easily available on various sites. In pre-GST era, Govt. allowed small expenses incurred up to 10,000/- in a purchase bill to be treated inputs for the purpose of cenvat credit (duty paid) instead of capital goods though the goods were classified as capital goods.We cannot treat revenue expenditure as capital expenditure and vice versa.

[Ganeshan Kalyani]

Well explained by Sri Kasturi Sir. The expense from which If the benefit is going to accrue for a longer period then it is capital expenditure. And if the benefit is for a shorter period then it is revenue expenditure. The depreciation benefit is not taking on the same. As the expenses are not capitalised in the block of asset.

AI Summary

Input tax credit for renovation expenses depends on whether costs are revenue expenditure or capitalised to property.
Input tax credit for renovation expenses depends on accounting classification: if renovation costs are treated as revenue expenditure and charged to profit and loss they are generally eligible for credit; if capitalised to the immovable property they fall within the restriction on credit for immovable property and are not eligible. Accounting treatment must follow accepted principles and cannot be manipulated to change GST eligibility.