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How to Claim Input Tax Credit (ITC) on Capital Goods of CGST Act, 2017

The credit on capital goods shall be reduced by 5% 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 taxable person. [RuIe 40(1)(a)]

Further, the amount of credit in the event of supply of capital goods or plant and machinery, as provided in Section 18(6), shall be calculated by reducing the input tax on the said goods at the rate of 5% Points for every quarter or part thereof from the date of issue of invoice for such goods. [Rule 40(2)]

For capital goods, input tax credit involved shall be computed by taking the useful life as five years.

Example :

R was under a composition scheme from 1.7.2017. He plans to shift to regular scheme w.e.f. 10.1.2019.

R provides the following information:

Date of invoice in respect of purchase of plant and machinery

1.10.2017

(Rs.)

Value of Plant and Machinery excluding GST

10,00,000

GST charged in respect of Plant and Machinery @ 18%

1,80,000

Date when the registered person ceases to pay tax under section 10 i.e. composition Levy  and shifts to regular scheme — Section 18(1)(c)

10.1.2019

 

Determine how much input tax credit of capital goods i.e. plant and machinery R can take, when he has shifted from composition scheme to regular scheme.

Solution :

The amount of input tax credit which can be taken by R on shifting from composition scheme to regular scheme shall be computed as under:

A.

Tax paid on purchase of Plant and Machinery

Rs. 1,80,000

B.

Time gap between date of purchase under composition scheme and shifting to regular scheme

1 year 3 months and 10 days (i.e. 6 quarters including the part of the month which is rounded off)

C.

Rate of Reduction in tax paid

Five percentage points per quarter of a year or part thereof (as the total life is taken as 5 years amounting to 20 quarters)

D.

Total reduction in tax paid for five quarters or part thereof

Five percentage points x Six quarters

E.

Amount of Reduction in tax paid

30% of Rs. 1 .80,000 = Rs. 54,000

F.

Amount of input tax credit on capital goods allowed on shifting from composition scheme to regular scheme

Rs. 1.80,000 — Rs. 54,000 = Rs. 1,26.000

 
Conditions, Restriction and Manner of taking Input Tax Credit (ITC) by the Persons under Section 18(1) [Rule 40] of CGST Act, 2017 GST - Ready Reckoner in India Reversal of Input Tax Credit (ITC) if a Registered Person under Normal Scheme Opts for Composition Scheme [Section 18(4)]
 

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