VAT Input Credit

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Subrahmanyam

Subrahmanyam (Querist)
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10 December 2009 Is VAT Input Credit on Capital Asset purchased available for set-off with VAT payable on sales...

ADITYA

ADITYA (Expert)
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11 December 2009 You have to reduce the Cost of Capital Asset purchased to the tune of VAT SET-OFF

Subrahmanyam

Subrahmanyam (Querist)
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11 December 2009 I did not get your point...Lets say the cost of the asset is 1,00,000 & the VAT on the same is say 12500, the cost of the asset wil be shown as 1,00,000 in the books & can the VAT input of 12500 be set-off against the VAT payable on Sales..?

Subrahmanyam

Subrahmanyam (Querist)
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23 December 2009 Someone pls clarify

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Got it! Here’s a clear explanation for your question about VAT input credit on capital assets:

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### Your scenario:

* Cost of asset (excluding VAT): ₹1,00,000
* VAT paid on asset: ₹12,500
* Question: Can the ₹12,500 VAT paid be set off against VAT payable on sales?

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### Explanation:

1. **Accounting Treatment:**

* The **cost of the asset** in your books is **₹1,00,000 (excluding VAT)**.
* VAT paid (₹12,500) is **not added to the asset cost** in accounting; it's treated separately as input VAT.

2. **VAT Input Credit:**

* Yes, you **can claim input VAT credit** of ₹12,500 on the purchase of the capital asset.
* This input VAT credit can be **set off against your output VAT payable on sales**.

3. **Reduction of Asset Cost:**

* The statement “reduce the cost of capital asset purchased to the tune of VAT set-off” means you don’t capitalize VAT as part of the asset cost.
* The asset remains recorded at ₹1,00,000 (net of VAT), and VAT paid is adjusted in your VAT returns.

4. **Claiming the Credit:**

* Usually, VAT on capital goods can be claimed **either fully in the same VAT return or spread over a period (like 3 years)**, depending on the state VAT law.
* The credit reduces your VAT liability.

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### Summary:

* You **do not add VAT amount to the asset cost in books**.
* You **can set off VAT input credit (₹12,500) against VAT output payable**.
* Make sure to follow your **state’s specific rules on capital goods VAT credit**, as some states allow installment claims.

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If you want, I can help find the exact rule reference from your state VAT law for capital goods credit. Would you like that?

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