Depreciation on the unclaimed ITC portion - NBFC

[Bhavesh Suthar]

We are an NBFC. Every month, we reverse 50% of the eligible ITC as per Rule 38. So for 50% ITC which is reversed, can it be added back to the fixed asset and can depreciation be claimed on that portion (on 50% of the GST amount), taking into account Section 16(3) of the CGST Act, 2017? Or can it be said that since it has first been availed and the reversed, the right to claim depreciation is lost.

[Raam Srinivasan Swaminathan Kalpathi]

Yes, you can claim depreciation under the Income Tax Act on the reversed (or lapsed) portion of the ITC on capital goods..

[Bhavesh Suthar]

Is it a clear and safe stand or is it litigative?

[Raam Srinivasan Swaminathan Kalpathi]

The choice is either you write off the expunged ITC on capital goods or capitalise the same. Where is the room for litigation in this? IT department may litigate if you write-off the lapsed ITC and therefore it would better to capitalise and claim depreciation.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Under Section 17(4) of the CGST Act read with Rule 38, a Non-Banking Financial Company (NBFC) can opt to claim 50% of eligible ITC monthly, while the remaining 50% will lapse permanently. Since the reversed, or lapsed, portion of ITC cannot be reclaimed, it is a cost borne by the NBFC and forms part of the actual purchase cost of the capital goods. Under the IT Act, depreciation can be claimed subject to Sec. 16(3) of the CGST Act.

AI Summary

Depreciation on reversed input tax credit remains available for capital goods when an NBFC reverses eligible credit.
For an NBFC, the reversed or lapsed portion of input tax credit attributable to capital goods may be included for depreciation purposes under the Income-tax Act. The stated view is that prior availment of eligible credit followed by its monthly reversal under Rule 38 does not preclude depreciation on the reversed portion, subject to the restriction relating to depreciation and input tax credit.