XYZ Ltd. (hereinafter referred as “company”) has been writing off some fixed assets from the books because the same are not traceable during physical verification of fixed assets. Thus, tax implications arising due to such write off is to be known.
GST
January, 2021
India
As per section 2(19) of CGST act, 2017 ‘capital goods’ means goods, the value of which is capitalised 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.
As per Para I of Schedule I of CGST Act, 2017, Permanent transfer or disposal of business assets on which input tax credit is availed, shall be treated as a supply even if made without consideration. This means that even writing off of capital goods will be treated as a taxable event.
Further, as per Section 18(6) of CGST Act, 2017, “In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.
Rule 44 of CGST Rules, 2017 prescribes the manner of calculation of such ITC reversal. It states that ITC taken on capital goods shall have to be reversed in case of sale on a pro rata basis where the useful life of any capital goods will be taken as 5 years.
Illustration:
Capital goods have been in use for 4 years, 6 month and 15 days and now disposed of.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= 30000 CGST and SGST each
CGST attributable to remaining useful life= 30000 X 5/60 = INR 2500
SGST attributable to remaining useful life= 30000 X 5/60 = INR 2500
Thus, as per Rule 44 read with Section 18(6), the assessee is required to reverse CGST/SGST each of INR 2500 in GSTR-3B.
Note: Similarly, the supply of assets to employee made without consideration shall also be covered by the aforesaid provisions and will require proportionate GST reversal related to remaining life of asset.
Hence, this provision will apply in the following way:
Date of Purchase: 1-04-2017
Useful life of asset: 4 years
Cost of Acquisition: 100000
IGST Input related to such capital goods: 18000
Date of writing off of capital goods: 31-03-2021
Therefore, by applying aforesaid provision the amount of reversal will be as mentioned below:
Period for which asset is used = 4 years *12 = 48 months
Remaining life as per GST law = 60-48 = 12 months
IGST reversal required as per Rule 44 = 18000*12/60 = 3600
Get personalized consultation from our experts to clear any confusion and discover the full potential of our features.
+91 70151 42881
+91 81306 86330
partner@cashastra.in
consult@cashastra.in
485/10 Second Floor, near Taneja Hospital, Krishna Colony, Sector 7, Gurugram, Haryana 122001
A centralised advanced solution hub for unlocking all of your financial potential and empowering you to achieve your goals with our expertise and dedication.
Stay informed with our exclusive newsletter about industry updates, expert insights, our offers and much more !
