Under the GST law, fixed assets are known as ‘Capital Goods.’

Capital goods means goods that are capitalized in the books of account of the person, and which are used or intended to be used for business purposes and the person is claiming input tax credit for those goods.

So now let us understand relevant points related to GST applicability and treatment of ITC on the sale of fixed assets -

Point 1-ITC is not claimed on capital goods

Case 1: Asset is disposed off free of cost i.e., without consideration If ITC has not been taken and asset is disposed off free of cost then it would not be treated as supply.

Case 2: Asset is disposed off for consideration The consideration charged would be treated as supply and tax has to be charged at applicable rate.

To conclude we can have a look on below table -

Point 2- ITC is claimed on capital goods

Case 1: Permanent transfer or disposal of business assets where input tax credit has been availed on such assets” then permanent disposal of assets even if made without consideration has to be treated as supply.

Case 2: Permanent transfer or disposal of business assets where input tax credit has been availed on such assets” then permanent disposal of assets even if made without consideration has to be treated as supply.

Point 3-Special Circumstances Which are also treated as Supply/sale of fixed assets

1. Business use to private use- If asset is used by the businessman for his private use or given by him to another person for private use then it is considered as supply of service.

2. Taxable to Non taxable – If a person surrenders his GSTIN means he is no more covered under GST act then the capital goods held with him on the date of surrender are considered as sold by him unless—

(i) the business is transferred as a going concern to another person or

(ii) the business is carried on by a personal representative who is deemed to be a taxable person.

To sum up we can conclude that in both the above cases GST will be applicable.

From the above discussion it is clear that in what cases GST is leviable in the case of fixed assets.

Now let us look at the calculation part of tax payable-

Supply (sale) of capital goods after use-

• In case of supply of capital goods or plant and machinery on which input tax credit has been taken the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage as may be prescribed (5% per quarter of a year or part thereof)
• The tax on the transaction value of such capital good or plant and machinery

Whichever is higher.

For more clarity let us take an example-

Date of purchase of capital goods 01.04.2023

Value of capital goods purchased 5,00,000

IGST paid on purchase of capital goods 60,000

Capital goods sold after use on 12.10.23 4,00,000

Solution-

Number of quarters from date of invoice 01.04.2023-3 quarters

Pay amount= Higher of 2

(i) 60000-5%*60000*3=51000

(ii) IGST on supply of capital goods 12% of 4,00,000=48000

Amount payable =51000

NOTE- Where Refractory Bricks, Moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods.

Example- If refractory Bricks, Moulds, and dies are sold as scrap at transaction value of Rs 1 lacs intrastate. Assume CGST-6%, SGST-6%. Calculate amount payable?

Taxable person may pay tax on transaction value- CGST=6000, SGST=6000Manner of reversal of credit under special circumstances-

Rule 44 states ITC reversal when person opts for composition or registration get cancelled.

Amount of credit to be reversed in respect of CAPITAL GOODS OR PLANT AND MACHINERY:

(i)ITC involved in the remaining useful life in months of the capital goods will be reversed on pro rata basis (taking the useful life as 5 years) or

(ii)Tax on the transaction value of such capital goods or plant and machinery.

Whichever is higher.

Example-

Suppose the ITC taken on an Asset of Rs 50000 is 50000*18% i.e., Rs 9000 and actual sale value is Rs

4000. Tax paid on actual sale value = 4000*18%= Rs 720. The ITC to be reversed will be as below:

Purchase cost of asset – 50000

Tax rate –18%

ITC claimed - 9000

Useful life of asset-5 years (60 months)

Asset in use- 4 years 7 months

Balance life – 5 months

ITC reversal – 9000*5/60=750

Actual tax paid = 720

Reversal= Higher of 720 or 750 i.e., 750

Points to remember-

• The amount shall be determined separately for input tax credit of central tax, State tax, Union territory tax and integrated tax.
• Where the tax invoices related to the inputs held in stock are not available then the prevailing market price will be taken as the value of goods.
• The amount calculated above will form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03.
• Where such amount relates to the cancellation of registration then details furnished shall be duly certified by a practicing-chartered accountant or cost accountant.

Related Sections and Rules