GST & Indirect Tax

GST ITC on Capital Goods: Sale, Transfer and Scrapping Checklist for Finance Teams

Finin2min GST Desk·June 2026·8 min readCAPITAL GOODS

Reviewed by CA Nikhil Gupta · Last reviewed 19 June 2026

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.

Use the GST Refund Route and RFD-01 Checklist to apply these points to your figures or facts.

The Official ITC Test: Start With Section 16

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.

For the connected rule, example or next step, see GST Reconciliation Dashboard for Finance Teams.

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.

⚠ Practical caution: Do not decide ITC only from the accounting ledger description. The same word — marketing, travel, rent, food or equipment — can be eligible, restricted or blocked depending on facts, contract, recipient, usage and Section 17 exceptions.

Capital Goods: Initial Claim

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.

For the connected rule, example or next step, see GST on Free Samples and Promotional Goods: Return, ITC and Notice Checklist.

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.

Section 18(6) Watch Point

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.

⚠ Practical caution: Before scrapping fixed assets, do not rely only on the accounting write-off. Check whether GST invoice, tax payment and Section 18/Rule 43 working are required.

Official References Used

This article uses official GST law, GST rules, GST portal and CBIC/GST Council sources only. Notifications, circulars, rule text and portal workflows can change after this article’s last-reviewed date — verify against the current official source before relying on it.

For the connected rule, example or next step, see Schedule I Serial 1 - GST Goods Rate Entry.

Frequently Asked Questions

Can ITC be claimed on capital goods? ▼

Yes, subject to Section 16 conditions, Section 17 restrictions and proper documentation.

What happens when capital goods are sold? ▼

Where ITC was taken, Section 18(6) requires a GST payment mechanism based on reduced ITC or tax on transaction value, whichever is higher.

Does Rule 43 apply to all capital goods? ▼

It is relevant where capital goods are used partly for business/non-business or taxable/exempt supplies and credit attribution/reversal is needed.

Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: GST & Indirect Tax
Official starting point: www.gst.gov.in

Page source links

Primary sources & related provisions

Statutory provisions referenced in this guide: