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CS Executive · Tax Laws and Practice · Input Tax Credit and Computation of GST Liability

Mehta Industries claims depreciation under the Income-tax Act, 1961 on the full cost of a machine, including the GST of Rs 90,000 charged on it. What is the consequence for input tax credit under section 16 of the CGST Act, 2017?

Input tax credit on the Rs 90,000 tax component is not allowed. Section 16(3) bars credit on the tax component of capital goods where depreciation has been claimed on that component under the Income-tax Act, 1961. A taxpayer cannot take both benefits on the same tax amount.

  1. ACredit of Rs 90,000 is allowed in full, as depreciation and credit are independent
  2. BCredit of Rs 45,000 is allowed, being half of the tax component
  3. CCredit of Rs 90,000 is allowed only after the thirtieth day of November
  4. DInput tax credit on the tax component of Rs 90,000 is not allowedCorrect

Explanation

Section 16(3) provides that where depreciation has been claimed on the tax component of the cost of capital goods and plant and machinery, input tax credit on that tax component is not allowed. Since depreciation was claimed on the GST of Rs 90,000, no credit is available on it. Full credit or half credit has no basis in the section.

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