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Published on:

September 1, 2024

Shaaransh Sharma

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Explore GST

Basics of GST

GST on Sale of Fixed Assets

The introduction of the Goods and Services Tax (GST) has transformed taxation policies for goods & services in India, leaving large reverberations across businesses within different sectors. One of them is the sale/purchase of fixed assets under GST which has affected both transactions and these questions were floated up. This blog intends to make a careful study of how GST applies to the sale of fixed assets, how capital goods are dealt with and the claiming process for Input tax credit (ITC) as well as whether businesses can claim GST input on fixed assets.

What Are Fixed Assets and How Are They Treated Under GST?

Fixed Assets - (Capital assets or capital goods) is a term in accounting for what an entity expects to remain useful for long periods, and which are not intended to be bought with the purpose of resale. Fixed assets which include machinery, buildings vehicles etc. These are assets that are essential for business operations daily and generally write off over time in terms of wear & tear.

As per GST law fixed assets are considered as capital goods if they are used in business or work and their sale is covered under some provision of CGST/SGCT. Under the GST law for a non-revokable case, when fixed assets are sold off or exchange may be handled through the supply of goods; Accordingly, you must charge and report full tax.

The peremptory rate of GST is applicable on the sale of fixed assets based on whether it's nature also according to those reasoning about the category identified with Harmonized System from claiming Nomenclature (HSN) codes.

GST on Sale of Fixed Assets

If and when businesses are dropping their fixed assets on sale, they will also have to unravel the GST aspect of it.

Sale of Fixed Assets: According to GST laws, all fixed asset sales are liable under the category of inward supply and would be charged at a rate depending on what type I sell.

The GST rate applicable to the sale of a commercial vehicle by any company will be as per motor vehicles. In case any machinery is the asset to be sold, then obviously their sale should levy GST at ‘GST rate on Machinery applicable.

In addition, the valuation of these assets for GST is also very important. GST is levied on the sale price of an asset which shall include any additional costs like freight, insurance or incidental charges related to the sale of such an asset.

Eg if the business organises transport for machinery as part of the sale, this must have an addition to its value and GST charged on the total amount in lieu.

The business must also raise a correct tax invoice against the sale of fixed assets and its GST returns, should reflect all such transactions done by the business.

Treatment of Depreciated Assets

Fixed assets, on the other hand, are resources that a business has used over time and may have undergone depreciation. Depreciated assets are treated differently than new ones with GST. Businesses need to charge GST on the sale of a depreciated asset at current market value, which is often lower than the original purchase price (net of depreciation).

GST authorities may require businesses to reverse the input tax credit (ITC) claimed on the purchase of assets in certain cases.

Sale of Fixed Assets Under GST

This is considered a taxable supply of goods under GST and all the same rules as for regular sale apply to this. But there are a few key points that businesses should recognise:

Proper Valuation

As previously stated, the costs of sale — such as freight, packaging or insurance can not be subtracted in determining the value at which an asset is sold. Also, please take care the GST is calculated on full value.

Classification of Goods

The fixed asset will have to be categorized under the right HSN code for GST. · Various other errors in classification may lead to the error GST rate and result in penalties by tax authorities.

Tax Invoice

Tax invoice of sale of fixed assets: A business while selling a fixed asset must issue a tax invoice and specify the details such as buyer GSTIN, Description of asset, Sale value Gross amount charged along with rate & Amount on CGST/SGST separately. This invoice should be included by the business while filing his GST returns.

Compliance with GST Returns

The GST returns must show any fixed asset sale in a business. The business will have to report the sale in that month and they should comply with filing requirements, or else may be responsible for penalties or interest.

In Businesses, fixed assets and working capital are two essential components one should understand. The latter is better explained in out other blog on Exploring the Different Types of Working Capital

Sale of Capital Goods Under GST

Capital goods belong to one of the specialized fixed assets categories that are used in manufacturing or supply delivery. Sale of capital goods under GST and ITC on it — Sale among specific rules

Input Tax Credit on Capital Goods

Input tax credit (ITC) is a refund given to industries against the GST they paid on purchasing capital goods. Businesses can use this credit for payment of GST on future sales (output tax), thereby reducing the overall tax burden.

But when the company decides to sell those capital goods, then the ITC claim made on that purchase has to be reversed. It can depend on the sale price of the capital goods and also the percentage used. The formula for reversal of ITC is specified in the GST law and takes into account both useful life as well as proportionate value at which it was sold.

Can We Claim GST Input on Fixed Assets?

Businesses often seek advice on whether they can claim a GST input credit or the ability to replenish any of their fixed assets. In the majority of cases, yes with specific conditions. Businesses may be allowed to claim input tax credit subject to conditions of use, and the supply type while claiming ITC can help with upgrading operations.

Conditions for Claiming Input Tax Credit on Fixed Assets

For businesses to be able to claim GST input on fixed assets, they must meet the following criteria:

These fixed assets are used to make the taxable supplies of our business. However, if the assets have been used for exempt supplies or personal usage then ITC could not be claimed concerning the same.
You can keep proper documentation such as tax invoices, payment proofs and proof of assets used in the business.
The ITC has been claimed timely by the registered person which in most cases expires after one year from the tax invoice date.
The ITC is reflected properly in the GST returns.

They should keep that in mind for fixed assets sold, reversal of ITC claimed on the said asset would be necessary in the prescribed ways.

Sale of Capital Goods Purchased in the Pre/Post GST Era

Condition	ITC Availed	ITC Not Availed
Criteria	With Consideration	Without Consideration
Taxability (Supply or Not)	Yes	Yes
Rate	CT(R)-1/2017	CT(R)-1/2017
Valuation	Section 18(6), Rule 44(6), Section 15	Section 18(6), Rule 44(6), Transaction Value as per Valuation Rules

Practical Scenarios and Case Studies

To better understand how GST on the sale of fixed assets works in practice, let’s explore a few scenarios:

Scenario 1: Sale of Machinery with Depreciation

For instance, ABC Manufacturing bought machinery for INR 10 lakh claiming an ITC of INR 1.8 lakh; A company has been using the machinery for five years, and after that period, it decided to list this machinery at a price of ₹ 4,00,000. As per the provisions of GST law, the Company should charge INR 4,00.000 + GST & reverse the proportionate ITC claimed on purchase.

Scenario 2: Sale of Company-Owned Vehicle

Another example – is XYZ Ltd. an owner of a commercial vehicle that was acquired for INR 8,00,000 two years back? So the company plans to sell the vehicle for INR 3,50,000. Therefore, the sale value of the vehicle is subject to GST based on the applicable rate for motor vehicles and shall be reported as a supply in the company's GST return.

Margin Scheme

Criteria	Motor Vehicle	Other than Motor Vehicle
Margin Scheme Applicability	Yes	Yes
Conditions	1. Dealer registered under GST 2. Deal in Second-hand Motor Vehicle 3. Not avail ITC on purchase of second-hand Motor Vehicle 4. Sale of goods as such or after minor processing	1. Dealer registered under GST 2. Deal in Second-hand goods (other than Motor Vehicle) 3. Not avail ITC on purchase of second-hand goods 4. Sale of goods as such or after minor processing
Calculation of Margin	Difference between purchase price and sale price	Difference between purchase price and sale price
Rate of Tax	As per Notification No. 8/2018-CTR dated 25.01.2018	As per Notification No. 1/2017-CTR dated 28.06.2017

Key Considerations for Business

While selling fixed assets under GST, there are certain core factors that a business needs to consider.

Compliance and Record-Keeping

You need to comply with GST rules on the sale of fixed assets, and so keeping accurate records is crucial. Companies need to maintain a register of the cost price, GST paid, ITC claimed depreciation and sale value when such Fixed Assets are sold.

ITC Reversal

Businesses making sales of capital goods are required to determine and reverse the due amount of ITC in the prescribed manner. Otherwise, you may be hit with fees and interest charges.

GST Classification and Rates

It is important to maintain an accurate record of fixed assets classified under the appropriate HS Code as charged at the right GST rate.

Timely Reporting

Companies need to make sure that the report of sale fixed assets is made in the proper month and it should be included on their GST returns.

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Conclusion

GST on Sale of Fixed Assets The sale of fixed assets under GST is a grey area which makes the purchaser as well seller understand a few things very clearly before proceeding with the sale or purchase. From calculating the accurate GST liability to documenting meticulously or reversing input tax credit, businesses must be up-to-date and on top of things when it comes to managing their taxes during the sale of capital goods products.

Given that the GST is continuously evolving, staying abreast with new GST norms and procedures becomes imperative for businesses aiming to manage tax-related issues effectively.

FAQs

1. What is the GST rate on the sale of fixed assets?

The rate of GST varies based on the type of asset such as machinery or motor vehicles, determined by HSN code classification.

2. Should freight and insurance be included in the GST value of fixed assets?

Yes, the GST needs to be calculated on the value which should include freight as well as anything that is incurred in bringing goods.

3. How is GST calculated on depreciated fixed assets?

GST is levied on the depreciated value of an asset (current market price), which may necessitate a reversal in input tax credit.

4. Can we claim GST input on fixed assets?

Businesses can avail input tax credit on GST paid for fixed assets which will be used by businesses in taxable supplies they are making subject to the rules of availing ITC under GST.