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Methods to show ITC reversal on sale of Capital Goods

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yashsr

2285 Points Posted on 03 October 2023

Hello,

In case of sale of capital goods, the life of capital goods is assumed to be 5 years for GST purpose and ITC reversal needs to be made for 5% for every quarter pending in the life of 5 years.

Now, as I understand, there are 3 methods to show this ITC reversal in the tax return:
a) Show this under ITC reversal
b) Reduce this from ITC
c) Add this to Sales and include the liability of GST thereof

Of course, the first method seems to be most apt. But are the other 2 methods also acceptable? Are there any notifications/circulars in this regard?

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Quick Summary

This discussion explores how to account for the reversal of Input Tax Credit (ITC) when capital goods are sold. Under GST, capital goods are assumed to have a 5-year life, requiring a 5% ITC reversal for each remaining quarter. Three methods are presented: showing it as ITC reversal, reducing it from ITC, or adding it to sales and accounting for the GST liability. While the first method appears most suitable, the thread seeks clarification on the acceptability of other methods and any relevant official guidance.