Sale of capital goods

Sale of Capital goods & Understanding GST Impacts on it

CA Poonam Gandhi

Updated on February 2nd, 2024

Table of Contents
Coverage of the term capital goods as per GST law
Provision of ‘supply’ in connection with the capital goods
The different possible situation with regard to
the sale of capital goods
Amount of GST (tax) payable on the sale of capital goods:
File your GST returns in minutes, not hours!
Due to the complex provisions prevailing under the GST law, GST impact on the sale of capital goods has always been a bit confusing.

The present article tries to clarify the same by explaining:

  • The coverage of term capital goods under GST
  • Provision of supply in connection with capital goods under GST
  • The different possible situation with regard to the sale of capital goods
  • The amount of GST payable on the sale of capital goods and synopsis thereof.

Coverage of the term capital goods as per GST law

capital goods under gst

Get Free Bonus Report: Claim 100% ITC for your business

Section 2(19) of the Central Goods and Services Tax Act, 2017 defines the term capital goods. Accordingly, in order to qualify as capital goods under GST, the goods need to satisfy the following criteria-

  • The value of goods should be capitalized in the books of accounts;
  • The input tax credit is availed on the same; and
  • The goods should have been used/ intended to be used for the furtherance of the business.

    • Provision of ‘supply’ in connection with the capital goods

    Capital goods under GST
    As we are dealing with the sale, it is important to understand the provision of term ‘supply’ as covered under section 7 of the CGST Act, 2017.

    The term ‘supply’ covers all the forms of supply of goods or services made/ agreed to be made for consideration.

    Additionally, the term also covers the activities specified under Schedule I and Schedule II.

    The activities covered under Schedule I and Schedule II in connection with the supply of capital goods under GST is explained hereunder-

    Para-1 to schedule I vis-à-vis the capital goods

    Schedule I covers the activities which are to be treated as supply even if made without consideration. As per para 1 of schedule I, the activity will be treated as supply if the following conditions are satisfied-
  • There is a permanent transfer/ disposal of business assets (which includes capital goods); and
  • The input tax credit has been availed on such business assets.

    • Schedule II vis-à-vis the capital goods

    Schedule II covers the activities which are specifically treated as supply of goods or supply of services. Accordingly, the activities will be treated as supply if the following conditions are satisfied-
  • The goods (transferred) were earlier forming part of the business assets,
  • The goods are so transferred/ disposed of that the same doesn’t form part of those assets, and
  • Such transfer/ disposal is under the direction of the person carrying on the business

    • The different possible situation with regard to

    the sale of capital goods

    Going through the provision of ‘supply’ (as above), it is interesting to note that while talking about a sale of capital goods under GST, the same can be bifurcated into the following different situations-
  • Capital goods sold for consideration on which input tax credit is availed.
  • Capital goods sold without consideration on which input tax credit is availed.
  • Capital goods sold for consideration on which input tax credit is not availed.
  • Capital goods sold without consideration on which input tax credit is not availed.

    • Amount of GST (tax) payable on the sale of capital goods:

    ITC on Capital goods

    Get Free Bonus Report: Claim 100% ITC for your business

    As per section 18(6) of the Central Goods and Services Tax Act, 2017 [read with rule 44(6)] on sale of the capital goods, the supplier will be liable to pay GST in the following manner-

    Particulars

    Amount Payable

    Cases, wherein, the refractory bricks, dies and moulds, jigs are fixtures are sold as scrap

    Amount payable = GST on the transaction value of the goods.

    In any other case

    Amount payable would be higher of the following-

    • Input Tax Credit attributable to the remaining life of the capital goods; or
    • Tax payable on the transaction value of the goods.
    Notably, the transaction value of the capital goods is to be determined as per section 15 of the CGST Act, 2017.

    The amount of GST payable including the calculation of input tax credit attributable to the remaining useful life of the capital goods is explained hereunder with the simple illustration-

    Perticulars

    Amount

    Capital goods purchased on July 2018

    1,00,000

    Input tax credit availed on purchase of the capital goods

    18,000

    Capital goods sold on August 2020

    60,000

    Number of month capital goods used (i.e. from July 2018 to August 2020)

    26 Months

    Useful life of the assets as per rule 44(1)(b) of the CGST Rules, 2017

    5 years (60 months)

    Remaining useful life of the capital goods (60 months – 26 months)

    34 Months

    GST payable on sale value (here it is assumed that the sale value itself is transaction value)

    10,800

    (60,000 * 18%)

    Input tax credit attributable to the remaining useful life of the capital goods

    10,200

    (18,000*34/60)

    Amount of GST payable on the sale of capital goods

    10,800

    (Higher of INR 10,800 and INR 10,200)

    Synopsis-

    GST payable at the time of sale of capital goods depends on the various situation. The following table summarizes the different situation and corresponding GST payment-

    Situation

    Taxability

    Basis for Taxability

    Capital goods sold for consideration on which ITC availed

    Higher of the following is payable as GST-

    • GST on transaction value; or
    • ITC apportioned to the remaining life of the asset.

    Section 18(6) read with rule 44(6)

    Capital goods sold without consideration on which ITC availed

    Higher of the following is payable as GST-

    • GST on transaction value; or
    • ITC apportioned to the remaining life of the asset.

    Section 7 read with Schedule I

    Capital goods sold for consideration on which ITC not availed

    GST on transaction value.

    Section 7 read with Schedule II.

    Capital goods sold without consideration on which ITC not availed

    GST Not Payable

    --

    GST Return Filing

    File your GST returns 
    in minutes, not hours!

    Get Live Demo and experience the simplicity by yourself.

    • GSTR 1 and GSTR 9C  all returns made automatically and faster
    • GSTR 1 data is auto populated
    • Auto-notification to your defaulting suppliers
    • 1-click data preparation
    Get A Callback
    CA Poonam Gandhi

    About the author

    Poonam Gandhi is a Chartered Accountant and a Lawyer, with practical experience of 9+ years in the field of Indirect Taxation.

    Follow us:

    Share0
    Tweet0
    Share0