Subject to the provision of sub-section (3) of Section 16 of CGST Act, where the registered person claimed depreciation on tax amount charges on the cost of capital goods under Income Tax Act, 1961, he is not allowed to take the input tax credit of that tax amount.

And, as per the provisions of sub-sections (1) and (2) of Section 17, where the capital goods used partly for business purpose and partly for non-business purpose or partly used to effect the taxable supplies including zero rated supplies and partly used to effect exempted supplies, the input tax credit shall be available only to the extent it is used for business purpose of effecting taxable supplies including zero rated supplies calculated as per below as per Rule 43:

A. Input tax credit in respect of capital goods shall not be credited to Electronic credit ledger under the following circumstances:

1. Input tax credit in respect of capital goods exclusively used or intended to be used for non-business purpose

2. Input tax credit in respect of capital goods exclusively used or intended to be used for effecting exempt supplies

B. Input tax credit in respect of capital goods used or intended to be used exclusively for effecting taxable supplies including zero rated supplies other than exempt supplies shall be credited to Electronic credit ledger:

Example:

Capital Goods Eligible/Ineligible
Machinery A – used for non-business purpose only Ineligible
Machinery B – used for effecting exempt supplies only Ineligible
Machinery C – used for effecting taxable supplies including zero rated supplies only Eligible

C. Input tax credit in respect of capital goods used for both business and non-business purpose or effecting taxable supplies including zero rated supplies and exempt supplies:

1. The capital goods which are used for both business and non-business purpose or effecting taxable supplies including zero rated supplies and exempt supplies shall be credited to electronic credit ledger

2. The useful life of such capital goods shall be taken as five years from the date of invoice

3. The amount of input tax credit for a particular tax period on common capital goods during their useful life of five years is calculated as below:

ITC for a tax period (Month) = Input tax credited to Electronic credit ledger
60 Months

Example:

Machinery ‘A’ was purchased for Rs.100000/- on 01/04/2018 and the input tax credit available to be utilised for the month of April 2018 is Rs.1667/- (100000 / 60 months)

4. When the capital goods were earlier covered under clause (A) as above and subsequently covered under this clause (C), the input tax amount credited to the electronic credit ledger of such capital goods shall be calculated by reducing the input tax at the rate of 5% for every quarter.

Example:

Machinery ‘A’ was purchased for Rs.100000/- on 01/04/2018 and used for exclusively for non-business purpose or effecting exempt supplies, later, from 01/11/2018, it is used for both business purpose and non-business purpose or for effecting taxable supplies including zero dated supplies and exempt supplies, then eligible ITC is Rs.85000/- shall be credited to electronic credit ledger and the eligible tax credit will be for a particular tax period shall be calculated as per Point No.3 above.

Total ITC        1,00,000
Less: 3 Quarters X 5% (100000*15%)           15,000
Eligible ITC           85,000

Note: 3 Quarters (Apr’18-Jun’18), (Jul’18-Sep’18), (Oct’18-Dec’18) the last quarter is taken as part of the quarter as on 01/11/2018.  Eligible input tax credit for the month of November 2018 is Rs.1417/- (85000/60 months)

5. When the capital goods were earlier covered under clause (B) as above and subsequently covered under this clause (C), the input tax amount to be reversed shall be calculated by reducing the input tax at the rate of 5% for every quarter.

Example:

Machinery ‘A’ was purchased for Rs.100000/- on 01/04/2018 and used exclusively for effecting taxable supplies, later, from 01/11/2018, it is used for both taxable supplies including zero dated supplies and exempt supplies, the input tax credit shall be calculated as below:

Total ITC on Machinery ‘A’         1,00,000 Already credited to E-Credit ledger
ITC already availed for effecting taxable supplies only (100000 x 15%) for 3 quarters             15,000 To be utilised any time
Balance ITC to be credited to E-Credit Ledger as common credit to be availed for effecting taxable and exempt supplies             85,000 To be utilised for the remaining life of useful life
Eligible ITC for particular tax period (month) (85000 / 60 months)               1,417 Calculated as per Point No.3

Note: If the credit of Rs.100000/- utilised wholly before it is used for common purpose, the above calculation is not possible.

6. The amount of common credit of capital goods whose useful life remains during the tax period, attributable to exempt supplies to be reversed, shall be calculated as below:

Total Common Credit of all capital goods for a tax period X Value of Exempt Supplies = Input tax credit attributable to exempt supplies
Total Turnover

Example:

Machinery 1 Machinery 2 Machinery 3
Purchased in the month Apr-18 May-18 Jun-18
Cost A          50,000          60,000          30,000
ITC for the tax period                        (A ÷ 60 months) B                833             1,000                500
ITC of Machinery 1 C                833                833
ITC of Machinery 2 D             1,000
Total ITC for the tax period (B+C+D) A1                833             1,833             2,333
Value of Exempt Supplies E 150000 170000 120000
Total Turnover T 500000 600000 450000
ITC to be reversed (E ÷ T x A1)                250                519                622
Eligible ITC for each tax period                583            1,314            1,711

The same to be calculated separately for each tax IGST, CGST, SGST and UTGST.

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Member Since: 07 Apr 2018 | Total Posts: 23
Post Graduate in Commerce having 14+ years of experience in Accounting & Taxation. Contact Email: uday.gstguide@gmail.com View Full Profile

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