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CA Intermediate · Taxation · Input Tax Credit

Kapoor Industries, a registered manufacturer of taxable goods, purchased a machine for Rs 10,00,000 plus CGST Rs 90,000 and SGST Rs 90,000 and availed full ITC in April 2026. In the same month it was put to use for taxable supplies. Later, the machine was sold on 1 April 2027 (exactly 12 months after purchase, i.e. 4 quarters elapsed) for Rs 8,00,000 plus applicable GST at 18% (Rs 1,44,000 of tax). Under the rules for removal of capital goods on which ITC was taken (and which are supplied as such), the person must pay the higher of the ITC reduced by 5 percentage points per quarter or the tax on the transaction value. What amount must Kapoor pay as tax on this sale?

Kapoor must pay Rs 1,44,000. The ITC of Rs 1,80,000 reduced by 20 percentage points for four quarters is Rs 1,44,000, and tax on the Rs 8,00,000 sale value at 18% is also Rs 1,44,000. The higher of the two is payable, and no further amount is required.

  1. ARs 1,44,000 being tax on transaction value, since it is higher than the reduced ITCCorrect
  2. BRs 1,44,000 plus Rs 1,44,000 reversal
  3. CRs 1,80,000 being the full ITC taken
  4. DRs 1,53,000 being ITC reduced by 15 percentage points per year

Explanation

Total ITC taken = 90,000 + 90,000 = Rs 1,80,000. Reduced by 5% per quarter for 4 quarters = 20 percentage points, so ITC remaining = 1,80,000 x 80% = Rs 1,44,000. Tax on transaction value = 18% of 8,00,000 = Rs 1,44,000. Both are equal at Rs 1,44,000, so the higher is Rs 1,44,000 and that is the amount payable. Paying both would be double counting; the full ITC ignores the quarterly reduction.

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