Capital goods sold before 5 years in GST

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When capital goods are sold within five years of purchase, GST input tax credit (ITC) usually needs to be reversed. The reversal amount is calculated as the higher of the original ITC reduced by 5% for each quarter (or part thereof) since purchase, or the GST payable on the sale value of the goods. This amount is then treated as output tax on the sale.

Daya

Daya (Querist)

31 May 2022 if capital goods sold on or before 5 years then , whether GST input availed should be reversed in proportionate rate. if
capital Goods purchased on 1st April 2020
Capital Goods A/c Dr 10,00,000
CGST Input A/c Dr. 90,000
SGST Input A/c Dr. 90,000
To creditors 11,80,000
if capital Goods sold on 1st May 2022 then what entry should be passed.

CA Rashmi Gandhi

CA Rashmi Gandhi (Expert)

01 June 2022 DEBTORS. DR LOSS ON SALE OF CG. DR TO CAPITAL GOODS TO CGST TO SGST TO PROFIT IN SALE OF CG.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

28 October 2026 Under Sec 18(6), pay the higher of (a) ITC reduced by 5% per quarter or part — 9 quarters from 1-4-20 to 1-5-22, so ₹1.80L × 55% = ₹99K — or (b) GST on the sale value; account for it as output tax on the sale.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

28 October 2026 Under Sec 18(6) and Rule 40(2)/44(6), on selling capital goods you pay the higher of ITC taken less 5 percentage points per quarter (or part) since the invoice date, or GST on the sale value; e.g., bought 1.4.20, sold 1.5.22 = 9 quarters, 45% off, so at least Rs 99K of the Rs 1.80L ITC, charged as output tax on your sale invoice.

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