Capital goods ITC is not a one-time purchase entry. The GST impact can continue when the asset is used partly for exempt supplies, transferred, sold, scrapped or moved between GST registrations.
GST input tax credit is not an automatic reimbursement of every GST-charged bill. Section 16 of the CGST Act allows a registered person to take credit of input tax on goods or services used, or intended to be used, in the course or furtherance of business, subject to conditions and restrictions. The practical checklist therefore starts with business use, valid tax invoice/debit note, receipt of goods or services, supplier reporting in outward supplies so it is communicated to the recipient, tax payment to Government and return filing.
| ITC gate | What to verify | Evidence to keep |
|---|---|---|
| Business use | Expense is used or intended for business | PO, contract, campaign brief, asset register, cost centre approval. |
| Document | Invoice/debit note or other prescribed document exists | Tax invoice with supplier GSTIN, recipient GSTIN, tax, value and place-of-supply details where relevant. |
| Receipt | Goods/services have been received | GRN, service acceptance, delivery proof, project completion note. |
| Supplier reporting | Invoice appears/communicates through GST system, especially GSTR-2B control | GSTR-2B extract and vendor follow-up trail. |
| Restrictions | Section 17 blocked-credit and apportionment rules do not deny/restrict credit | Blocked-credit review checklist and reversal working. |
Capital goods used for taxable business supplies may support ITC, subject to Section 16 and Section 17 restrictions. Rule 43 provides a specific method for determining and reversing capital-goods credit where assets are used partly for business/non-business or taxable/exempt supplies. Finance teams should treat the asset register as a GST control document, not only an accounting schedule.
| Event | GST control | Official anchor |
|---|---|---|
| Purchase of capital goods | Check invoice, GSTR-2B, business use and depreciation treatment | Section 16 and Rule 36. |
| Common use for taxable + exempt supplies | Compute/reverse proportionate credit as applicable | Section 17 and Rule 43. |
| Sale/transfer of asset on which ITC was taken | Pay amount as required under Section 18(6) framework | Section 18. |
| Scrap sale of certain capital goods | Check transaction value treatment and specific proviso | Section 18(6) proviso. |
| Branch transfer to another GSTIN | Review supply/deemed supply and documentation | Invoice/e-way/e-invoice rules may also apply. |
When capital goods or plant and machinery on which ITC has been taken are supplied, Section 18(6) requires payment based on the prescribed reduced ITC amount or tax on transaction value, whichever is higher. For refractory bricks, moulds and dies, jigs and fixtures supplied as scrap, the proviso permits tax on transaction value.
This draft uses official GST law, GST rules, GST portal and CBIC/GST Council sources only. Before publishing, re-check whether any notification, circular, rule text or portal workflow has changed after the draft date.