Business purchases many goods and Assets for its use and GST will be paid on this. We all generally think GST will be refunded. However there is restrictions to claim such ITC under GST ACT for capital goods. This blog is about such restrictions on capital goods.
Capital goods are assets such as buildings, machinery, equipment, vehicles and tools that an organization uses to produce goods or services. For example, comuter used in office is a capital goods.
The raw material used in the manufacturing process is not capital goods.
These capital goods will be kept by the business organisation for more than one year. Eg. Machinery, Furniture, Buildings, UPS, Laptops, etc
Since it is used for more than one year, depreciation is accounted. That is, only a part of its cost is taken as expenses for each year of use. It is computed by a percentage basis as per Income tax Act, 1961 to file your IT Return.
Once this depreciation on capital assets value (including GST) is claimed in income tax returns, you can not claim GST input tax on it. These GST expenses becomes ineligible ITC and recorded as rates and tax expense in profit and loss account.
However, the taxable value (assessible value/ amount excluding tax) of the assets can be taken for depreciation(means excluding tax value) so that you can claim the input tax under GST.