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.
|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)|
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
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
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 firstname.lastname@example.org
(Republished with Amendments)