Example

M/S ABC purchased machinery for Rs 30 lakh and GST charged on invoice @ 20 % i.e. Rs 6 lakh. ABC Ltd. claimed depreciation as an indirect expense on cost of machinery of Rs. 36 lakh under Income Tax Act. ABC also availed Input tax credit of Rs 6 lakh as tax paid on capital goods used for the purpose of business or furtherance of business.

Whether M//s ABC is correct in claiming ITC and depreciation under Income Tax Act.

Answer

Section 16(3) provides that where 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, the input tax credit shall not be allowed on the said tax component.

In view of the above provision ITC of Rs 6 lakh shall have to be reversed. Company is also liable to pay interest as per section 50(3) as excess credit taken according to provision of GST for the period of claiming ITC till the liability paid.