Relating to capital asset

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This discussion clarifies the complex relationship between claiming depreciation on capital assets under the Income Tax Act and Input Tax Credit (ITC) under GST. It highlights that if depreciation is claimed on the full value of a capital asset (including GST), ITC on that asset is disallowed. Conversely, if ITC is availed, depreciation should only be claimed on the value excluding the GST amount. The consensus suggests it might be simpler to pay GST without claiming ITC to avoid potential departmental notices, especially when depreciation is a key consideration.

Abhishek Roy

Abhishek Roy (Querist)
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16 May 2020 Dear All,

Please kindly suggest your views relating to Input Tax credit in Asset Accounting:-

As per notification of the govt. After purchasing a Capital Asset, if we avail depreciation against it under Income Tax Act, ITC in GST is totally disallowed.
And then after certain year of use if we sale the asset we need to charge GST as a regular gst tax payer.

The resultant effect is that it is better to pay the GST without availing any credit just to avoid unnecessary notices & show cause orders from department. (Keeping in view of availing depreciation during certain year of use)

Soumitra Basu

Soumitra Basu (Expert)
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17 May 2020 If you avail ITC on Capital Goods (which are allowable), you should not claim depreciation on the ITC amount. You should claim depreciation on the amount other than ITC i.e. the amount before charging GST.

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Abhishek Roy

Abhishek Roy (Querist)
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17 May 2020 Thank you sir I got it.

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