What are Capital Goods Under GST?
Capital goods are goods whose value is capitalised in the books of accounts and which are used or intended to be used in the course of business. Examples include machinery, computers, vehicles (in some cases), factory equipment, and office furniture used for business purposes.
💡 ITC on Capital Goods — Basic Rule
ITC on capital goods used exclusively for business is fully available in the year of purchase. There is no requirement to spread ITC over the useful life of the asset — it can all be claimed upfront.
ITC Rules for Capital Goods
| Usage | ITC Available? |
|---|---|
| Exclusively for taxable supplies (business use) | Full ITC available immediately |
| Exclusively for exempt supplies | No ITC — add to cost of capital goods |
| Exclusively for personal use | No ITC |
| Used for both taxable and exempt supplies | Proportionate ITC (Rule 43) |
| Used for both business and personal | Only business portion ITC claimable |
ITC Not Available on These Capital Goods
ITC is blocked under Section 17(5) on the following capital goods:
- Motor vehicles for transportation of persons (cars, SUVs) — unless used for further supply of vehicles, transportation of passengers, imparting training, or taxi services
- Vessels and aircraft — unless used for transportation of goods/passengers or further supply
- Construction of immovable property — plant and machinery may be an exception
- Equipment for personal consumption
⚠️ Company Car — No ITC
GST paid on purchase of a car for business executives or employees is NOT claimable as ITC. This is one of the most commonly misunderstood blocked ITC items.
ITC Reversal When Selling Capital Goods
If you sell a capital good before completing 5 years from the date of invoice, you must reverse a portion of the ITC originally claimed. The reversal amount is:
ITC Reversal = ITC claimed × (remaining months out of 60) / 60
Example:
- Bought machinery in April 2023 — ITC claimed: ₹1,80,000
- Sold in October 2024 — 18 months used, 42 months remaining
- ITC to reverse = ₹1,80,000 × 42/60 = ₹1,26,000
- Alternatively, pay GST on sale value if higher than reversal amount
GST on Sale of Capital Goods
When you sell a used capital good, GST is payable on the higher of:
- GST on transaction value (sale price)
- ITC reversal amount calculated above
If no ITC was originally claimed on the capital good, GST on sale is calculated on the depreciated value (WDV) of the asset.
Proportionate ITC on Common Capital Goods (Rule 43)
For capital goods used for both taxable and exempt supplies, ITC must be computed under Rule 43:
- Take 1/60th of total ITC on the capital good each month (spread over 5 years)
- For each month, calculate the ratio of taxable turnover to total turnover
- Apply this ratio to the 1/60th amount to get eligible ITC for that month
- Remaining amount is reversed
📈 Calculate Your ITC Eligibility
Use our free ITC Calculator to compute eligible Input Tax Credit for your business.
ITC Calculator →Frequently Asked Questions
I bought a laptop for business — can I claim full ITC?
Yes — a laptop used for business purposes is a capital good and full ITC on the GST paid is available in the year of purchase. Ensure the invoice is in your business name with your GSTIN.
Our company bought a car for the MD — can we claim ITC?
No. Motor vehicles for transportation of persons are a blocked category under Section 17(5). Even if used for business, ITC on cars is not available unless your business involves transportation of passengers or selling vehicles.
We are selling old factory machinery — do we pay GST?
Yes if the machinery was used in your GST-registered business. GST applies on the sale and you may need to reverse ITC if the machinery is less than 5 years old. If older than 5 years, no ITC reversal but GST on sale still applies on transaction value (or WDV).
Can we take ITC on solar panels installed on factory roof?
Solar panels are generally treated as plant and machinery — ITC is available. However if they are embedded in the building structure, the department may treat them as part of immovable property and deny ITC. Maintain clear documentation showing they are removable plant and machinery.