GST Applicability & Treatment of ITC availed on sale of Fixed Assets/Capital Goods
Sale of Capital Goods is one such supply which is generally left out in monthly compliance and sometimes attract heavy GST liability at the time of annual audits. This write-up will help you to address this issue in your entity and may add value to your monthly GST compliance.
Applicability:
As per Section 2(19) of CGST Act, 2017, ‘Capital Goods’ means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
So, this process shall be applicable in case of disposal of Tangible Fixed Assets and not on Intangible Fixed Assets.
As per section 7(a) of CGST Act, 2017 supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
According to above provision, the sale/disposal of fixed assets may be termed as ‘Supply’. Hence, the same is chargeable to tax under GST Law.
Invoicing and Reporting in GSTR 1:
The invoice has to be prepared on disposal of assets against consideration. If the buyer is registered, then an E-invoice shall be issued or if the buyer is Un-registered (like employee) then tax invoice shall be raised as B2C.
The amount of Taxable value shall be considered and GST amount to be calculated as per applicable rate of tax on such transaction value.
Same has to be reported in GSTR-1.
As an example, if the sale value is Rs. 5,000/- and tax on transaction value is (Rs. 5000*18%) = Rs. 900 higher than ITC attributable to remaining useful life. In that case, the invoice will be prepared for (Rs. 5000+Rs. 900) = Rs. 5,900 /- and the same is to be reported in GSTR 1.
Applicability of GST on sale of Fixed Assets under different conditions discussed in the below table.
Cases |
ITC availed / Not availed at the time of purchase |
Cons-ideration received / not received on Disposal of Asset |
Amount of GST on consi-deration amount |
Amount of GST credit reversible on Asset to be disposed off (As per Rule 43) |
Amount of GST on the Tran-saction value at the app-licable GST Rate |
Amount of GST payable on Disposal of Assets (As per Section 18(6)*) |
Amount of Taxable Value to be rep-orted in GSTR 1 and GSTR 3B |
Amount of GST liability to be rep-orted in GSTR 1 and GSTR 3B |
|||||||||
1 |
No |
Yes |
10,000 |
NA |
1,800 |
1,800 |
10,000 |
1,800 |
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2 |
Yes |
Yes |
10,000 |
900 |
1,800 |
1,800 |
10,000 |
1,800 |
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3 |
Yes |
Yes |
10,000 |
2,700 |
1,800 |
2,700 |
10,000 |
1,800 + (900 in B2C tax amount in GSTR 3B) |
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4 |
Yes |
No |
– |
900 |
– |
900 |
– |
900 (Reversal of ITC) |
*Section 18(6): In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed# or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher:
#As per Rule 44 of CGST Rules, Sub rule (1) (b) for capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on prorate basis, taking the useful life as five years.
Sub rule (6) The amount of input tax credit for the purposes of sub-section (6) of section 18 relating to capital goods shall be determined in the same manner as specified in clause (b) of sub-rule (1) and the amount shall be determined separately for input tax credit of 2 [Central tax, State tax, Union territory tax and integrated tax]:
Provided that where the amount so determined is more than the tax determined on the transaction value of the capital goods, the amount determined shall form part of the output tax liability and the same shall be furnished in FORM GSTR-1.
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