Understanding ITC Rules for Capital Goods under GST and Capital Goods Sent on Job Work

With the introduction of GST, businesses in India have had to adapt to new tax regulations. One area that has seen significant changes is the ITC rules for capital goods. In this article, we will discuss the ITC rules for capital goods under GST and the regulations surrounding capital goods sent on job work.

ITC Rules for Capital Goods under GST

Under GST, the ITC (Input Tax Credit) rules for capital goods have changed significantly. Before GST, businesses could claim ITC on capital goods in a single installment. However, under GST, businesses can claim ITC on capital goods in installments over a period of years.

The ITC on capital goods can be claimed in five equal installments over a period of five years. The installment for the first year is 20%, and the remaining four installments are 20% each. However, businesses can claim the full ITC amount in a single year if they sell the capital goods before the end of the five-year period.

Capital Goods Sent on Job Work

Capital goods sent on job work are goods that are sent to a third-party manufacturer for further processing or manufacturing. In these cases, the ITC on the capital goods can be claimed by the owner of the goods.

However, there are certain regulations that businesses need to follow when claiming ITC on capital goods sent on job work:

The capital goods must be returned to the owner within one year of being sent for job work.
The owner must keep a record of the goods sent for job work and the details of the manufacturer.
The manufacturer must also keep a record of the goods received for job work and the details of the owner.

Conclusion

Understanding the ITC rules for capital goods under GST and the regulations surrounding capital goods sent on job work is crucial for businesses in India. By following these regulations, businesses can claim ITC on capital goods and avoid any legal issues.

As a small or medium business owner or startup founder, it is important to stay up to date with GST regulations to ensure your business is compliant and running smoothly.