Example on Rule 5 of GST Input Tax Credit Rule – ITC on Capital Goods

By | February 25, 2018
(Last Updated On: February 25, 2018)

Rule 5 of GST Input Tax Credit Rule

Calculation of Input Tax Credit on Capital Goods

Where the Registered persons ceases to pay tax under Composition Scheme under section 10 of CGST Act 2017 , then he can avail Input Tax credit in respect of followings ,

  • Inputs
  • Semi Finished goods
  • Finished Goods
  • Capital Goods

on the day immediately preceding the date from which he becomes liable to pay tax

Example : Mr A registered person under GST , was paying the tax under composition scheme upto 31.03.2019. However w.e.f 01.04.2019 , Mr A become liable to pay tax under regular scheme . Mr A can claim Input Tax Credit on inputs  held in stock and on Capital Goods as on closure of business hours as on 31.03.2019

Similar is the situation where an exempt supply of goods or services or both by a registered person becomes a taxable supply with effect from a particular date.

But when there is change from Composition Scheme to Regular scheme or from Exempt Supply to taxable supply , then registered person will be entitled to Input tax credit on Capital Goods as per the formula given in Rule 5 of Input Tax Credit Rules. Relevant provisions of section 18 and Rule 5 are given below.

As per Clauses (c) and (d) of sub-section (1) of section 18 of CGST Act 2017

(c) where any registered person ceases to pay tax under section 10, he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9:

Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed;

(d) where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable:

Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.

As per Rule 5 (a) of Final Input Tax Credit Rules

The input tax credit on capital goods, in terms of clauses (c) and (d) of sub-section (1) of section 18, shall be claimed after reducing the tax paid on such capital goods by five percentage points per quarter of a year or part thereof from the date of invoice or such other documents on which the capital goods were received by the taxable person.

Example on Calculation of  Input Tax Credit on Capital Goods under Rule 5 of Input Tax Credit Rules

Date of Invoice of Capital Goods20/01/2018
Date from which Registered persons ceases to pay tax under Composition Scheme01/04/2019
Value of Capital Goods   held on 31-Mar-201910,00,000
IGST Paid @ 18% on above capital Goods1,80,000
IGST paid to be reduced by 25% (Refer Note-1) (45,000)
Credit of IGST available on Capital Goods 135,000

 

Note -1
No of Quarters from Date of Invoice till date from which Exempt goods become taxable
Jan Feb March 20181
April may June 20181
July Aug Sep 20181
Oct Nov Dec  20181
Jan Feb March 20191
Total Quarters5
% Point to be reduced ( 5% per quarter)25%

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