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15 Things to know while claiming Input Credit of GST on Capital Goods
One of the most complex issues that have caused much uncertainty for a normal taxpayer is of claiming the refunds of IGST that has been incurred on the exports of the goods. Most of these IGST refunds are in relation with the period exceeding one year since the presentation of the GST regime in India.
In this context, the CBIC had passed the CGST (12th Amendment) Rules 2018 to make the process of the IGST refunds much easier. Accordingly, the CGST Rule 96(10) has now been amended to enable the exporters to claim the refund the IGST paid that they’ve paid on the exports of capital goods procured by them under the Export Promotion Capital Goods (EPCG) scheme.
However, everyone knows that claiming a refund of IGST by an exporter having a GST registration is not that simple. Especially, if that relates to the capital goods, one needs to take of certain parameters.
In this article, you will be able to know about 15 key aspects to be considered while claiming the input credit of the GST paid for capital goods.
What are the 15 factors to consider while claiming the input of the GST paid for capital goods?
- In GST, the input credit can be claimed on the capital goods are given that depreciation of tax component is not claimed. This means if the depreciation has been availed on an asset, then the input can’t be claimed at all.
- Input Tax Credit (ITC) on capital goods can be claimed completely if those capital goods were used further only for the supply of GST taxable goods or services. That means, if machinery is bought for processing milk, the input can’t be availed on it as milk is out of GST ambit.
- Input Credit of capital goods shall be restrained entirely if the capital goods were used only for manufacturing, selling or supply exempt goods or services. It shall be restricted also if the asset is bought for personal use.
- In case an asset is used partially for taxable supplies and rest for exempted supplies, then the input credit related to the particular month that relates to exempt supplies shall be reversed on a fair turnover basis.
Note: Here, the useful life of the asset is considered 5 years. Hence, the credit related to a particular month shall be ascertained by dividing the total ITC amount of the particular asset with 60 months (i.e. 5 years). So, the credit relating with exempt supplies shall be reversed in proportion with the exempt turnover of the month. This is explained as below-
Credit attributable to a month {Tm}= Total input availed on the asset/60
Credit attributable to exempt supplies {Te} = (Te X Exempt turnover in the month)/Aggregate turnover of the month
Therefore, the Te shall be reversed with interest.
- The input credit of the capital goods lost, stolen, damaged, written off or disposed of as a gift or free samples, or used for personal use shall not be claimed.
- ITC of the assets held in stock on the very day of or before getting new GST registration shall not be availed.
Now, we shall discuss the validity of input credit of particular assets under GST.
- Works contract services & construction works
If the goods & services are used for the construction of a building for business premises, which includes works contract services, the input is restricted if such a building is capitalized in the books of accounts (i.e. renting or leasing of buildings).
- Plant and machinery:
Plant & machinery are out of the category of construction & works contracts in case of eligibility for input credit. Plant & machinery is defined as an apparatus, equipment, and machinery attached to the earth by the foundation or structural hold-up and so, includes such foundation. However, it excludes land & building; telecom towers; and pipelines that are laid outside the factory. Thus, the input credit of plant and machinery shall be allowed.
Note:
a. Depreciation on tax component of the plant & machinery is not allowed in the Income Tax Act-1961; and
b. Such plant & machinery is used in respect of taxable goods for the furtherance of the business.
- Motor vehicles:
The input in case of cars & bikes is restricted under GST. However, ITC of motor vehicles can be availed by a person having GST registration in case the vehicle is used for the conveyance of the people with the seating capacity exceeding 13 people (including the driver). Here, the input of the buses or vans used for the conveyance of employees in a company for official purpose is allowed, as the seating capacity exceeds 13-seater.
- In case the seating capacity is less than 13 persons, the input credit would be available only if such vehicle is used for-
- Supply of other motor vehicles: A car dealer can avail the ITC of all the motor vehicles that he buys and sells for the furtherance of his business;
- Transportation of passengers: A person offering transportation services to passengers, e.g. auto rickshaws or a cab-driver can avail the input of the vehicle which he uses to provide such service.
- Driving training courses: A trainer giving driving course can avail input credit of such cars
- Goods carrier: In this case, the credit would be available even if such vehicles e.g. trucks, lorries or tempos are used to only transport goods from the factory to factory outlets. In this case, it is not essential that such vehicles should be used for supplying goods transportation services.
- Vessels & aircraft: Likewise, the ITC on ships & aircraft shall be available only if their purpose is:
- Supply of such vessels or aircraft;
- Transportation of passengers, e.g. Air travel;
- Training services, such as navigating or pilot training; or
- Goods Transport: That is if an exporter having a unique import export code wishes to export such goods.
- Eligibility of input in case of few common assets are as follows-
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Capital goods/ assets |
Eligibility |
Condition
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Air conditioner, electrical fittings, bulbs, CCTV etc.
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Yes
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If used in the business premises. |
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No |
If capitalized to buildings in the books of accounts, e.g. rent or lease etc. |
|
|
UPS, generator, transformer
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Yes |
If used in the business premises, like offices.
|
|
Furniture
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Yes |
If used in the business premises |
|
Computer & peripherals.
|
Yes |
If used in the business premises. |
|
Plant & machinery
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Yes |
If used in the taxable supplies.
|
|
Software
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Yes |
If used in official purpose.
|
|
Goods for construction |
No |
In case of capitalization to buildings in the books of accounts.
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Besides these, there are some miscellaneous assets, as discussed below-
- A dealer who has taken GST registration under composition scheme and the NRIs can’t avail input of assets. However, an NRI can avail the credit of the import duty of such capital goods, i.e. duty drawback.
- In case a dealer having GST registration under composition scheme migrating to the regular GST registration or when the exempted goods for which the capital goods are bought now become taxable, the input credit of such capital goods held on the day before the migration or change in GST rate can be availed. However, credit can be availed partially. The ITC shall be reduced @ 5% per quarter from the date of GST invoice till the date of conversion or change in rate.
To know more about GST invoicing, read the complete .
- If a person, who has GST registration under the regular scheme, migrates to composition scheme, or the goods or services become exempt, for which the capital goods are used, the capital goods are not eligible for ITC. In such case, the input credit shall be reversed.
If you need any sort of assistance related to the process of getting a GST registration procedure, feel free to contact our business advisor at 8881-069-069.
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