Fixed assets are the assets or things purchased for a long-term purpose. In GST law, the term ‘Capital Goods’ is used for such fixed assets. As per section 2(19) of CGST Act, Capital goods mean goods, the value of which is capitalized 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.

This article covers following relevant points related to GST Applicability & Treatment of ITC availed on sale of Fixed Assets:- GST Applicability on Sale of Capital Goods purchased in Pre GST era, Treatment on Sale of Capital Goods purchased after implementation of GST, Liability on sale of Capital Assets on which Input Tax Credit (ITC) is not availed, How to deal with loss/damage of assets where no consideration is received? and Tax treatment on sale/disposal of capital goods in case when ITC is availed.

Fixed Assets

Chart on Applicability of GST on sale of Fixed Assets under different condition

Sl Assets purchased in Pre GST / Post GST Era ITC availed / Not availed at the time of purchase Assets disposed of intentionally/ Unintentionally (Refer Note 1)

 

Consideration received / not received on sale of Asset GST Applicable / Not Applicable
(a) Pre GST Not Availed Unintentionally No Not Applicable
(b) Post GST Not Availed Unintentionally No Not Applicable
(c) Post GST Not Availed Intentionally No (Refer Note 2) Not Applicable
(d) Post GST Availed Unintentionally No Applicable (Refer Note 3)
(e) Pre GST Availed Unintentionally No Applicable (Refer Note 3)
(f) Post GST Availed Unintentionally No Applicable (Refer Note 3)
(g) Post GST Availed Intentionally Yes Applicable

Note 1:- Unintentional disposal means loss or damage of assets due to reasons such as accident, fire, natural calamity, theft etc, whereas sale or transfer of assets are considered as intentional disposal of Fixed Assets

Note 2:- The case where no consideration is involved must be discussed in the light of the amendment to the definition of Supply (Section 7 of the Act) made by the CGST Amendment Act, 2018. Before the amendment, if any transfer of capital assets was made under the direction of the person,(intentional transfer) the transaction was a supply under the provision of the Act, whether or not consideration was involved.

However, after the amendment, the requirement of consideration is a must. Therefore, it would be right to conclude that where no ITC has been availed, the transfer of capital goods without consideration shall not be a supply and hence no GST should be chargeable.

Note 3 In case of unintentional disposal such as Damage/Lost Assets, Theft, ITC availed need to be reversed and will have to be paid as output tax liability.

Valuation & determination of Tax payable:- As per sec 18(6) of CGST Act, the taxable amount will be:- an amount equal to Input tax credit attributable to remaining useful life OR the tax on the transaction value of such capital goods determined under section 15, whichever is higher

Example

Mr. X purchased Fixed Asset on 1st June 2015 (Pre GST), Even if he purchased the same Asset in Post GST Era, the methodology to calculate the taxable amount will remain the same.

(a) Purchase value Rs 50000/-
(b) Taxes Paid (VAT/ GST) Rs. 9000/-
(c) ITC availed Rs 9000/-
(d) Date of Goods Sold 1st Jan 2020
(e) Date of Goods Sold 1st Jan 2020
(f) Goods used for 55 months
(g) Remaining useful life 5 months (As per CGST Rule 44(6), useful life of the asset will be taken as 5 years to calculate ITC reversal on fixed Assets)
(h) Sale consideration Rs. 4000
(i) GST @ 18% on Sale Rs. 720

Calculation of taxable amount:-

Input tax credit attributable to the remaining useful life:-

(c*f/ 60) = 9000*5/60 = Rs 750

OR

Tax on the transaction value of such Fixed Asset

4000*18% = Rs 720/-

Rs 750/- being higher of the two will be added as taxable value.

Invoicing and reporting in GSTR 1 when ITC attributable to remaining useful life is higher:-

ITC availed for remaining useful life of Fixed Assets amounting to Rs 750 /- need to be added as tax liability and reported in GSTR 1. However taxable value to be reported in invoice and GSTR 1 will be Rs. 4167. (750/18%=4167)

Invoice No……… Dt……..

Taxable Value (Outward Taxable supply) Rs 4167.00
GST @ 18% on Rs 4167 Rs. 750.00

Invoicing and reporting in GSTR 1 when Tax on transaction value is higher

In such cases tax invoice has to be prepared and actual consideration will be the taxable value. Same has to be reported in GSTR 1. In the example given above, if sale value is Rs 5000/- and tax on transaction value is (5000*18%=900) higher than ITC attributable to remaining useful life ie Rs 750/-, Invoice will be prepared for (5000+900) 5900 /- and same is to be reported in GSTR 1

Outward Liability in case of Damage /Loss of those assets for which ITC has been availed

In case of unintentional transactions, such as Damage/Lost Assets, Theft, etc. tax on transactional value cannot be determined as there will not be any transaction value of damaged, lost capital goods Therefore amount towards ITC attributable on remaining useful life ie Rs 750 /- will have to be added as output tax liability.

The amount shall be determined separately for an input tax credit of central tax, State tax, Union territory tax, and integrated tax

Margin Scheme for valuation of capital goods

the margin scheme is applicable for a dealer other than a person dealing in second-hand goods, only in the case of motor vehicles, that too only if input tax credit has not been claimed.

The scheme is made applicable to all taxpayers on the sale of the motor vehicle held as a capital asset. Vide Notification No. 8/2018 – Central Tax (Rate) dated 25 Jan 2018. In this regard, GST has to be paid on the excess of selling price over the written down value as per the Income Tax Act, 1961, where depreciation has been claimed by the taxpayer. Where no depreciation has been claimed, GST shall be paid on the difference in the selling price and the purchase price.

The author can be accessed at caanitabhadra@gmail.com

(Republished with Amendments)

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35 Comments

  1. Anjali patel says:

    There is head office who receives services for audit,consultancy services etc.HO transfers all ITC on the above services through cross charge. Is it proper route to transfer ITC through cross charge mechanism.
    When to take registration for ISD?

  2. Gagandeep Singh says:

    If Pvt Ltd is selling FA like refrigerators,coffee machines for 8 Lakh and purchases were made in 2016 & Itc has not Availed.
    Is GST applicable?

  3. Sheetal Narang says:

    Thanks for your Reponse Mam.
    I would like to clarify one more thing. If someone is dealing in Service Industry n lets suppose
    Purchase price of the asset is RS 100
    GST charged is RS @ 5% RS 5
    n ITC reversal is let suppose Rs 80
    Now while reversing itc then Taxable value would be ITC reversed divided by 18% or ITC reversed divided by 5%?

    1. ANITA BHADRA says:

      ITC reversal on FIXED ASSET will be the highest of the two:-
      Applicable GST rate on transaction value OR ITC attributable to the remaining useful life of the Assets.
      In the first case, the transaction value will be the sale value at the time of disposal
      In a second case only, the transaction value needs to find out by this way – ITC attributable / GST rate at the time of disposal of Assets ( which is unlikely to be 5% ).

  4. sheetal narang says:

    In case Capital Goods is disposed off as scrap and the Transaction value is nil, the itc reversal which is added in output tax liability how it is to be reported in gstr1? Whether the Taxable value of asset( amount of itc reversal divided by itc reversal amt and multiplied by 100) plus itc reversal or only itc reversal is to be reported in gstr1?.

  5. Sheetal Narang says:

    I case disposal of Capital goods where ITC is availed has been disposed off as scrap and there is no transaction value ie Nil. So if ITC is reversed as per sec 18(6), Then how such reversal is to be reported in GSTR1 whether taxable value of asset according to gst reversed plus gst which is added to output liab or only gst amt?

    1. Anita Bhadra says:

      It will be taxable value according to GST reversed.

      As explained in the example above ( Invoicing & Reporting in GSTR 1 – 750/18% )
      Transaction value = ITC to be reversed / GST Rate

      1. Sheetal Narang says:

        Hi Mam, Thanks for your reponse.
        I would like to clarify one more thing. We are dealing in Service Industry n lets suppose
        Purchase price of the asset is RS 100
        GST charged is RS @ 5% RS 5
        n ITC reversal is let suppose Rs 80
        Now while reversing itc then Taxable value would be ITC reversed divided by 18% or ITC reversed divided by 5%?

  6. Prem Aggarwal says:

    I purchased chemical plant in 1994-95 which now has become scrap and needs to be disposed off. Will it attract any GST?? @ what rate??

  7. Dilip says:

    Hi everyone,

    As export of goods is zero-rated, will i need to reverse ITC (Sec 18(6)) on fixed asset if it is to be exported / discarded to foreign buyer under LUT.

    ITC on original asset had been taken in GST regime.

    Thanks in advance.

  8. krishna sai says:

    if Capital goods are purchased after GST
    ITC is not taken on above
    Sale is made and consideration is received
    In this case am I required to levy GST?

  9. ASHISH says:

    As per your table of different situation.

    gst is applicable when credit taken
    gst is not applicable when credit not taken.

    in this table you have not taken a situation where asset purchased pre gst, credit not taken, and intentional sale in post gst.

    clarify it.

  10. CA SARBAN JHA says:

    Respected Maam,
    If the person to whom sales is being made is registered person, then how to Report in GSTR 1 the Reversal amount, does we need to issue Tax Invoice to the buyer or we need to issue normal invoice? Or Only reversal in 3B is required and nothing to be reported in GSTR 1, Kindly advise, Contact No: 8101987237

    1. Manoj Jain says:

      If i sale old furniture of the factory, which is of pre gst period and no benefit of cenvat has been taken on it , please let me know whether GST will be payable ?
      if yes , please intimate whether on transaction value or there is some formula for it ?

  11. Preeti Bhardwaj says:

    HI Mam,

    What entry should we book in accounting as in GSTR1 it will always show extra sale amount as per your example in actual sale is Rs. 4000 and in GSTR1 it need to show as Rs. 4167 and tax amount is also going to vary.

  12. Sunny Khanna says:

    Dear Maam,

    As per your article, CGST Amendment act 2018, consideration is must for charging GST. But as per my view, there is no such amendments in law. As per Schedule 1, Permanent transfer, disposal of fixed asset made without consideration will be considered as supply and leviable to GST.

    Please clear the issue, i shall be thankful to you.
    Regards
    Sunny Khanna
    casunnykhanna@yahoo.com

    1. ANITA BHADRA says:

      Dear Sir
      As per schedule 1 , permanent transfer of Asset is subject to GST if ITC availed .
      In case , taxpayer has not availed ITC , para 4(a) of schedule II is relevant :-‘where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person’
      CGST Amendment Act, 2018 made a retrospective amendment clarifying that the purpose of Schedule II was only classification of a supply into a supply of good or service.
      Thus, where no consideration is involved, and the activity is neither specified in Schedule I nor in the nature of import of services, the activity shall not be a supply under the provisions of the Act.

  13. CA Rishabh Aggarwal says:

    Hi,

    Your post is very good.

    can you explain the meaning of below line writing as ” will be added as taxable value ” :-

    Rs 750/- being higher of the two will be added as taxable value.

    1. Anita Bhadra says:

      Dear Sir

      I will explain this with an example: You purchased an Asset and Govt allowed you to availed ITC, provided that you will be using the asset for 5 years.

      You sold the asset after use of 4.5 years. ITC for 6 months to be reversed now. In case the tax amount on sale consideration is higher than ITC to be reversed. Then you need to pay the tax amount. That’s why it says ” whichever is higher ”

      In the example given above, ITC to be reversed ( Rs 750/- )is higher than the tax on consideration( Rs 720/-).

      If sale consideration is NIL ( damage etc ) Rs 750/- is the higher and need to be added as the taxable value

    1. Anita Bhadra says:

      Dear Sir
      In case FA used for more than 5 years, you need not to reversed ITC and pay tax on sales consideration ( Rs 720/- in the example above )

      The concept of ITC reversal is – At the time of purchase, ITC was allowed for a useful life of 5 years. If you sale the Asset before completion of 5 years, the proportionate amount needs to be reversed ( Rule 42/43 of CGST Rules)

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