Capital Goods Under GST

Capital Goods Under GST

Capital goods are essentially assets that a business purchases and capitalizes on its balance sheet, intending to use them for business operations over an extended period.

Key Characteristics of Capital Goods:

• Capitalized in books of account: The cost of the goods is recorded as an asset, not an expense.
• Used for business: The goods are employed for the purpose of generating revenue.
• Long-term use: These assets are expected to be used for multiple accounting periods.

Examples of Capital Goods:

• Machinery
• Equipment
• Vehicles
• Computers
• Furniture

Importance of Capital Goods under GST:

• Input Tax Credit (ITC): Businesses can claim input tax credit on capital goods, which reduces their overall tax liability.
• Reversal of ITC: If the capital goods are used for exempt supplies or personal use, the input tax credit claimed on them may need to be reversed.
• Sale of Capital Goods: The sale of capital goods after claiming input tax credit has specific GST implications.