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Capital Goods ITC

Separate capital goods purchases, bifurcate ITC, and track the 5-year schedule per asset.

Capital goods — machinery, equipment, computers, vehicles for business — carry ITC that must be tracked separately from revenue purchases. ITC on capital goods used partly for exempt supply must be reversed per Rule 43 on a 5-year schedule. GSTAgent identifies capital goods from Tally's fixed asset register and sets up per-asset ITC tracking.

Capital goodsSec 16FARRule 43

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The Problem

Why this needs to be automated

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Capital goods mixed with revenue in Tally

In Tally, capital purchases may be booked under Fixed Assets, Capital Expenditure, or similar groups. Without automatic detection, they get mixed with regular purchase ITC and both calculations are wrong.

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5-year Rule 43 schedule per asset

ITC reversal under Rule 43 for exempt use runs at 5% per quarter (60 months / 20 quarters) per capital good. With multiple assets acquired at different times, tracking manually in Excel is error-prone.

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Fixed Asset Register linkage

The capital goods ITC register should align with the Fixed Asset Register in books. Discrepancies between GST ITC records and accounting FAR cause problems during audit.

Regulatory Context

The law that makes this matter

Sec 16(1)

ITC on capital goods

ITC is available on capital goods used for business. Must be capitalised in books and used for making taxable outward supplies.

Rule 43

Reversal for exempt use

ITC on capital goods used for both taxable and exempt supplies must be reversed at 5% per quarter of the useful life (60 months assumed).

Sec 17(5)(c)

Works contract blocked

ITC on capital goods obtained by works contract services for construction of immovable property is blocked (exception: plant and machinery).

How It Works

4 steps. Mostly automated.

Detect capital goods from Tally

Bridge detects entries under Fixed Assets, Capital Expenditure parent groups in Tally. Bill of Entry imports also identified.

Per-asset ITC record

Each capital good gets its own ITC record — date of purchase, original ITC, proportion for taxable vs exempt use.

Rule 43 reversal schedule

For capital goods with exempt use: reversal = (ITC / 60) × quarters of exempt use. Schedule generated per asset per quarter.

FAR linkage check

Capital goods ITC register compared against Fixed Asset Register balances. Discrepancies flagged for reconciliation.

Sample Output

What you actually see

Sample data — Metro Print Works Pvt. Ltd · FY 2026-27

Capital goods identified

3 assets

Total capital goods ITC

₹84,500

ITC for taxable use

₹69,290

Rule 43 reversal this quarter

₹8,450

Remaining ITC to track

₹76,050

FAR reconciliation status

Matched

Sample data for illustration only. Actual results depend on your client's Tally data. Not professional tax advice.

Edge Cases

How GSTAgent handles the tricky ones

Scenario	GSTAgent Output
Capital good disposed before 5 years	Rule 44 — remaining ITC (original ITC minus ITC already reversed) must be reversed in month of disposal
Capital good transferred to another GSTIN	ITC transferred via ISD or stock transfer — flagged for CA to handle
Computer used 100% for business — no exempt supply	No Rule 43 reversal needed — full ITC available. Only Sec 17(5) check applies

Per asset

ITC tracked individually

60 months

Assumed useful life for Rule 43

Reversal per quarter for exempt use

Auto

Schedule generated, no manual tracking

FAQ

Common questions

What counts as a capital good for GST ITC purposes?

Any goods — machinery, equipment, computers, furniture — where the cost is capitalised in books and ITC is to be taken. Contrast with consumables that are expensed.

Can I claim full ITC on capital goods in year 1?

Yes — unlike income tax depreciation, GST ITC on capital goods can be claimed fully in the year of purchase (subject to Sec 17 restrictions). No spreading over years unless Rule 43 applies.

What happens to ITC if a capital good is written off?

If written off before 5 years, ITC must be reversed under Rule 44 — 5% per quarter for remaining life. If written off after 5 years, no reversal.

Is ITC available on vehicles used for business goods transport?

Yes — vehicles for transport of goods (trucks, tempos, pick-ups) are not blocked under Sec 17(5)(a). ITC fully available. Only passenger vehicles (≤ 13 seating) are blocked.

Ready to run this workflow?

A GSTAgent subscription code is required. CA firm plans from ₹1,400/month for 10 clients.

View Capital Goods ITC →View pricing ← All workflows