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 Goods | 20/01/2018 |
Date from which Registered persons ceases to pay tax under Composition Scheme | 01/04/2019 |
Value of Capital Goods held on 31-Mar-2019 | 10,00,000 |
IGST Paid @ 18% on above capital Goods | 1,80,000 |
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 2018 | 1 |
April may June 2018 | 1 |
July Aug Sep 2018 | 1 |
Oct Nov Dec 2018 | 1 |
Jan Feb March 2019 | 1 |
Total Quarters | 5 |
% Point to be reduced ( 5% per quarter) | 25% |