Query Regarding Reversal of ITC on Capital Goods if business is closed within 5 years of Purchase of Capital Goods.

[MANISH MATA]

Hello Dear Sir / Madam,

My query is I had recently purchased a machinery for business purpose and availed ITC worth ₹ 28000. But now after 11 months of purchase, I closed my business. So will there be any impact on ITC already availed ? Will i have to make any reversal of ITC already taken ?

Thanks in Advance.

[Rajagopalan Ranganathan]

Sir,

If you sell the machinery to a prospective buyer, you have to pay CGST and SGST or IGST on the transaction value of the machinery. For payment of tax you can utilize the credit available in your account. If still some amount of credit is available with you the same would lapse. But you have not mentioned about surrendering your registration certificate. Till you surrender your registration certificate you can keep the credit. It will lapse only on cancellation of your registration certificate by the Department.

[Rajendra Prasad]

Dear Mr Manish,

You have to reverse the PROPORTIONATE ITC ...

1. The provisions will apply only if you cancel the registration.

2. If you sell the Machinery before 5 years or cancel your registration before 5 years , you have to reverse the ITC by taking the life of the machinery as 5 years.

3. Please see Rule 44 for complete details.

[Ganeshan Kalyani]

I agree with the reply of Sri Rajagopalan Sir.

AI Summary

Reversal of input tax credit required on capital goods if registration cancelled or goods sold within five-year life. Closure or sale of business assets triggers ITC reversal where registration is cancelled or the asset is disposed of within its prescribed useful life. On sale, tax is payable on the transaction value and available input tax credit may be used against that liability; residual credit lapses on cancellation. If the asset is sold or registration cancelled before the end of the asset's useful life, a proportionate reversal of input tax credit is required, treating the useful life of the capital good as five years for the reversal computation.