When you buy machinery, equipment, or other expensive assets for your business, you pay a significant amount of GST. Claiming this back as Input Tax Credit (ITC) is essential for managing your cash flow. But the rules for claiming ITC on capital goods are slightly different from those for regular purchases.
What are capital goods under GST
Under GST law, "capital goods" means goods whose value is capitalised in your books of account and which are used or intended to be used in the course or furtherance of your business. This is defined in Section 2(19) of the CGST Act.
If you expense an item in your profit and loss account (like printer paper), it is an "input", not a capital good. If you record it as an asset on your balance sheet and claim depreciation on it over time (like the printer itself), it is a capital good.
Note: Goods used for constructing an immovable property on your own account (other than plant and machinery) have blocked credit under Section 17(5)(d) of the CGST Act, even if you capitalise them.
The rule: no double benefit on the tax component
The most important rule for capital goods is that you cannot claim both ITC under GST and depreciation under income tax on the exact same tax amount. This is stated in Section 16(3) of the CGST Act.
“Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed.” Section 16(3), CGST Act
You have to choose one:
- Option A (Usually better): Claim ITC for the GST amount. Capitalise only the base value of the asset. Claim depreciation only on the base value.
- Option B: Capitalise the total invoice value (base value + GST). Claim depreciation on the total value. Do not claim any ITC.
Worked example
Your manufacturing company buys a new machine for ₹10,00,000 plus 18% GST (₹1,80,000). The total invoice value is ₹11,80,000.
| Scenario | Asset value in books (for depreciation) | ITC claimed in GSTR-3B | Result |
|---|---|---|---|
| Option A: Claim ITC | ₹10,00,000 | ₹1,80,000 | Allowed |
| Option B: Claim full depreciation | ₹11,80,000 | ₹0 | Allowed |
| The mistake: Claim both | ₹11,80,000 | ₹1,80,000 | Not allowed (ITC will be recovered with interest) |
Common mistake: The accountant capitalises the full invoice amount in the ERP software by default, but also claims the ITC in GSTR-3B. During a tax audit, the officer will match the fixed asset register with the GSTR-3B claims and demand reversal of the ITC along with 18% interest.
Common use rules for capital goods
If you use a capital good partly for taxable business and partly for personal use, or partly for exempt supplies, you must restrict the ITC. You can only keep the ITC attributable to your taxable business purposes. The detailed calculation for reversing the ineligible portion over the asset's useful life (assumed to be 5 years) is given in Rule 43 of the CGST Rules.
Other conditions for claiming ITC on capital goods
Just like any other purchase, you must meet the basic conditions under Section 16(2) of the CGST Act:
- You must have the tax invoice.
- You must have actually received the goods. If the machine arrives in lots or instalments, you can only take credit upon receipt of the last lot or instalment.
- The supplier must have filed their GSTR-1 and the invoice must appear in your GSTR-2B.
- You must pay the supplier within 180 days, otherwise you have to reverse the ITC.
Check your own GSTR-2B
Before claiming ITC on a high-value capital asset in GSTR-3B, you must ensure the supplier has correctly reported it. Our tool lets you match your purchase register against your GSTR-2B in your browser to spot missing invoices instantly. Your GSTR-2B and purchase register files are read in your browser and never uploaded to any server.
Read more about the general rules in our guide to ITC on capital goods under GST.
Last checked: 10 October 2026. Sources: CGST Act Definitions, CGST Act Section 16.