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GST on sale of fixed assets

GST on sale of fixed assets

Fixed assets are assets or items purchased for long-term use. Immovable properties such as buildings and land, as well as equipment such as machinery, computers, and so on, may be included. In this post, we will discuss GST on Sale of Fixed Assets. Continue reading…

Prior to GST

Fixed Assets were subject to a variety of taxes prior to the implementation of GST (Goods and Services Tax) in India, including excise and service tax. There were also numerous and complex restrictions on Cenvat credit availability, as well as the sale and disposal of fixed assets.

Following GST

India implemented the goods and services tax regime on July 1, 2017. It has provided numerous benefits to the supply of fixed assets.

Meaning of 'capital goods' for purpose of Input Tax Credit under GST -

For purpose of Chapter V of CGST Act (Input Tax Credit) and Chapter VI of CGST Act (Registration), the expression ‘plant and machinery are defined as follows [Explanation to section 17 of CGST Act].

 “Plant and machinery” mean apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes –

  • land, building, or any other civil structures
  • telecommunication towers; and
  • pipelines laid outside the factory premises.

In comparison to the previous regime, the GST on Sale of Fixed Assets is subject to more liberal provisions. The availability of input tax credit (ITC) on such supplies comes with fewer restrictions, and GST simplifies provisions for sales and disposal of fixed assets.

GST ITC for Fixed Assets

If an input tax was paid on the purchase of specific goods or services (fixed supply), the buying party is entitled to claim credit for such tax, provided that the purchased capital goods are intended to be used by the buyer to further his/her business. The credit amount will be added to the person’s e-credit ledger.

Furthermore, credit can be claimed for tax paid on Capital Goods sent to the Job Worker and intended to be used in job work processes.

Capital Goods ITC cannot be claimed in the following circumstances:

  1. If depreciation on the tax portion of the supply has already been taken,
  2. If the goods purchased are solely for personal use or other exempt supplies
  3. If the purchased goods are only used for personal or exempt supply, the credit can only be claimed for tax paid on business supplies.
  4. ITC cannot be claimed on the purchase of motor vehicles, aircraft, or vessels unless they are used to transport passengers or goods or for the purpose of further supply.
  5. ITC cannot be claimed on works contract services or goods, or services purchased for the purpose of constructing an immovable property (building)
  6. Fixtures that have been written off, stolen, lost, or destroyed.

ITC Reversal of GST on Sale of Fixed Asset -

Capital goods for which ITC is claimed are ineligible to be supplied in their current form.

If such Capital Goods on which ITC was claimed are supplied in their current state, the following amount (whichever is higher) is payable:

  • ITC on input tax (reduced by 5% per quarter from the invoice date) 
  • Tax on transaction amount (as per Section 15)

ABC Pvt. Ltd. purchased machinery worth Rs. 9,00,000 (excluding GST) 21 7-2017 on which it paid GST @ 18%. lt availed the ITC.

On 5-3-2018 it sold the machinery for Rs. 7,00,000 (excluding GST) to CDE Pvt. Ltd.

The GST rate on sale is 18%. What will be the course of action for ABC Pvt. Ltd. to follow under the CGST Act, 2017?

Answer – GST paid on machinery was 18% of Rs. 9,00,000 i.e., Rs. 1,62,000. The machinery was used for three quarters. Hence, it is eligible for ITC of 15% (5% per quarter or part thereof), i.e., Rs. 24,300. Balance ineligible ITC is Rs. 1,37,700.

  • The machinery was sold for Rs. 7,00,000. GST @ 18% is Rs. 1,26,000.
  • ABC Pvt Ltd. is liable to pay an ‘amount’ which is higher among the two i.e., Rs. 1,37,700 (as higher than Rs. 1,26,000).

Frequently Asked Questions: -

When all of the above conditions are fulfilled, GST will be applicable at the prescribed rate of the asset on the value mentioned under section 15 of the CGST Act. The Para regarding ‘assets of business’, that may be considered either current assets or fixed assets.

When capital goods are used exclusively for business purposes and the input tax credit shall apply under GST. To claim the input tax credit on capital goods, the taxpayer should record the business transaction while filing the GST return filing.

Capital goods are not considered as output services under the law; hence no ITC can be claimed against them when utilized for further supply. Capital goods are also not included in transactions for consideration, whether sale value or purchase value. Hence no GST is payable on capital goods.

This article is merely a general guide meant for learning purposes only. K M Gatecha & CO LLP is not liable for any loss or harm incurred by readers who take action based on the information provided in this article. “Please keep in mind that the opinions expressed in this Blog/Comments Section/Forum are clarifications intended for the readers’ reference and guidance as they investigate further on the topics/questions raised and make informed decisions. These are not intended to be investment advice or legal advice.” All the instructions, references, content, or documents are for educational purposes only and do not constitute a piece of legal advice We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information contained in this video or for any conclusion of the information. Prior to acting upon this content, you’re suggested to seek the advice of your financial, legal, tax, or professional advisors as to the risks involved may be obtained and necessary due diligence, etc may be done at your end.