{"id":14110,"date":"2024-10-29T15:30:40","date_gmt":"2024-10-29T10:00:40","guid":{"rendered":"https:\/\/razorpay.com\/learn\/?p=14110"},"modified":"2025-04-24T13:28:21","modified_gmt":"2025-04-24T07:58:21","slug":"capital-goods-in-gst","status":"publish","type":"post","link":"https:\/\/razorpay.com\/learn\/capital-goods-in-gst\/","title":{"rendered":"What Are Capital Goods In GST? Examples And ITC Rules Explained"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d6d025444f3\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d6d025444f3\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/learn\/capital-goods-in-gst\/#What-are-Capital-Goods-in-GST\" >What are Capital Goods in GST?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/learn\/capital-goods-in-gst\/#ITC-on-Capital-Goods\" >ITC on Capital Goods<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/learn\/capital-goods-in-gst\/#Conditions-and-Restrictions-for-Claiming-ITC-on-Capital-Goods\" >Conditions and Restrictions for Claiming ITC on Capital Goods:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/learn\/capital-goods-in-gst\/#Frequently-Asked-Questions-FAQs\" >Frequently Asked Questions (FAQs)<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What-are-Capital-Goods-in-GST\"><\/span><b>What are Capital Goods in GST?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In India, &#8216;capital goods&#8217; under GST are defined in Section 2(19) of the <a href=\"https:\/\/cbic-gst.gov.in\/pdf\/CGST-Act-Updated-30092020.pdf\" target=\"_blank\" rel=\"noopener\">Central Goods and Services Tax (CGST) Act<\/a>. According to this definition, capital goods refer to items utilized or intended for use in the course or furtherance of business, with their value recorded as a capital asset in the taxpayer&#8217;s financial accounts. These goods play a significant role in <a href=\"https:\/\/razorpay.com\/learn\/input-tax-credit-under-gst\/\">input tax credit (ITC)<\/a> eligibility, as they allow businesses to claim ITC based on their capital expenditure.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"ITC-on-Capital-Goods\"><\/span><b>ITC on Capital Goods<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Businesses can claim Input Tax Credits (ITC) on capital goods used in the course of or furtherance of business under the <a href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/\">Goods and Services Tax<\/a> (GST) framework. The eligibility criteria, conditions, and restrictions for capital goods ITC claims are briefly summarized below.<\/span><\/p>\n<p><strong><em>Related Read: <a href=\"https:\/\/razorpay.com\/learn\/itc-reversal-under-gst\/\">ITC Reversal under GST Explained<\/a><\/em><\/strong><\/p>\n<h3><b>Eligibility for ITC on capital goods:<\/b><\/h3>\n<p><strong>1. Registered GST Taxpayers:<\/strong> Only GST-registered taxpayers qualify for claiming Input Tax Credit (ITC) on capital goods.<\/p>\n<p><strong>2. Business Use Requirement:<\/strong> Capital goods must be employed strictly for business purposes, including manufacturing or providing taxable services.<\/p>\n<p><strong>3. Capitalization in Financial Records:<\/strong> The value of capital goods must be capitalized in the business&#8217;s financial accounts.<\/p>\n<p><strong>4. Taxable Goods or Services:<\/strong> Capital goods should contribute to the production of taxable goods or services, as ITC is not available for items used to supply exempted goods or services.&#8221;<\/p>\n<p><em><strong>Related Read: <a href=\"https:\/\/razorpay.com\/learn\/ineligible-itc-under-gst\/\">What are the Cases Where ITC Is Not Applicable?<\/a><\/strong><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Conditions-and-Restrictions-for-Claiming-ITC-on-Capital-Goods\"><\/span><b>Conditions and Restrictions for Claiming ITC on Capital Goods:<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3>1. Exclusive Use for Taxable Supplies<\/h3>\n<p>Input Tax Credit (ITC) is allowed if capital goods are used exclusively for taxable supplies. For mixed-use (both taxable and exempt), ITC must be claimed proportionately.<\/p>\n<h3>2. Depreciation on Tax Component<\/h3>\n<p>ITC is ineligible if the tax component is included in the depreciation claimed under the Income Tax Act, as double benefits are not permitted.<\/p>\n<h3>3. Blocked Credit Items<\/h3>\n<p>ITC cannot be claimed on capital goods intended for personal use or those used for constructing immovable property (except for plant and machinery).<\/p>\n<h3>4. Time Limit for ITC Claims<\/h3>\n<p>ITC must be claimed by the due date of the September return following the financial year or by the date of filing the annual return, whichever is earlier.<\/p>\n<h3>5. Reversal of ITC<\/h3>\n<p>If capital goods are subsequently used for exempt supplies or non-business activities, a proportionate <a href=\"https:\/\/razorpay.com\/learn\/itc-reversal-under-gst\/\">reversal of ITC<\/a> is required.<\/p>\n<h3>6. Invoice Documentation Requirement<\/h3>\n<p>Valid <a href=\"https:\/\/razorpay.com\/blog\/tax-invoice\/\">tax invoices<\/a> or appropriate documentation are essential to claim ITC on capital goods.<\/p>\n<h3><b style=\"font-family: Roboto, Arial, sans-serif; font-size: 1.6315em;\">Examples of Capital Goods in GST<\/b><\/h3>\n<p><b>Scenario:<\/b><span style=\"font-weight: 400;\"> For \u20b920,00,000, a textile production company invests in a state-of-the-art weaving machine to increase output. This machine is a vital business component and will only be used to produce taxable goods. \u20b93,60,000 (18%) is the GST that is applied to the purchase.<\/span><\/p>\n<p><strong>GST treatment:<\/strong><\/p>\n<h3>1. Capitalization in Accounts<\/h3>\n<p><span style=\"font-size: 19px;\">In the company\u2019s books, the machine\u2019s cost, including GST, is recorded as a capitalized asset rather than an expense due to its long-term use and value in business operations.<\/span><\/p>\n<h3>2. Eligibility for Input Tax Credit (ITC)<\/h3>\n<p>Since the machine is exclusively used for business activities to produce taxable supplies, the business can claim ITC on the \u20b93,60,000 GST paid. This credit helps reduce the company&#8217;s future GST liability on sales.<\/p>\n<h3>3. Process of Claiming ITC<\/h3>\n<p>To claim the Input Tax Credit, the company must hold a valid tax invoice from the supplier and submit its monthly GST return (Form GSTR-3B), claiming the \u20b93,60,000 ITC. This amount offsets GST liability on the company\u2019s outward supplies, optimizing tax obligations.<\/p>\n<p><em><b>Related Read: <\/b><a href=\"https:\/\/razorpay.com\/learn\/inverted-duty-structure-under-gst\/\"><b>Inverted Duty Structure with Example Explained<\/b><\/a><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Frequently-Asked-Questions-FAQs\"><\/span><b>Frequently Asked Questions (FAQs)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><strong>1. What qualifies as capital goods under GST?<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Capital goods under GST are defined as assets used or intended for use in business activities, which are capitalized in the taxpayer&#8217;s books of accounts. This includes machinery, equipment, and furniture used in the production of taxable goods or services.<\/span><\/p>\n<h3><strong>2. Who is eligible to claim an Input Tax Credit (ITC) on capital goods?<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Only GST-registered taxpayers can claim ITC on capital goods, provided these goods are utilized for taxable business activities and are capitalized in their accounts.<\/span><\/p>\n<h3><strong>3. Are there any restrictions on claiming ITC for capital goods?<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Yes, ITC cannot be claimed if capital goods are used for personal purposes, for exempt sales, or if the tax component is included in depreciation claimed under the Income Tax Act.<\/span><\/p>\n<h3><strong>4. What happens if capital goods are later used for non-business purposes?<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">If capital goods are subsequently used for exempt or non-business purposes, the ITC claim must be reversed proportionately, impacting the overall tax credit.<\/span><\/p>\n<h3><strong>5. Can depreciation affect the ability to claim ITC?<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Yes, if the tax component of the capital goods is included in the depreciation claimed under the Income Tax Act, ITC cannot be claimed on that portion.<\/span><\/p>\n<h3><strong>6. Can we claim 100% ITC on capital goods?<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Yes, if the capital goods are used exclusively for taxable supplies. The ITC claim should be in proportion to the business or non-business use of the capital goods. ITC cannot be claimed for goods used exclusively for non-business purposes.<\/span><\/p>\n<h3><strong>7. Is GST refunded on capital goods?<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">No, but you can claim an Input Tax Credit (ITC) to offset future GST liabilities.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What are Capital Goods in GST? In India, &#8216;capital goods&#8217; under GST are defined in Section 2(19) of the Central Goods and Services Tax (CGST) Act. According to this definition, capital goods refer to items utilized or intended for use in the course or furtherance of business, with their value recorded as a capital asset<\/p>\n","protected":false},"author":151156580,"featured_media":16993,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3913],"tags":[4019,2039],"class_list":{"0":"post-14110","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-gst-rates-goods-and-service-tax-rates-slabs","8":"tag-capital-goods-in-gst","9":"tag-gst"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/14110","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156580"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=14110"}],"version-history":[{"count":13,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/14110\/revisions"}],"predecessor-version":[{"id":16277,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/14110\/revisions\/16277"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/16993"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=14110"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=14110"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=14110"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}