Review of Fixed Assets under GST During Finalisation

Review of Fixed Assets explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Fixed assets carry the largest single GST amounts in most balance sheets, and the eligibility question is often settled by an accounting decision rather than a tax one — whether the spend was capitalised.

"Ineligible credits… are to be considered as part of cost of an asset and cannot be treated as input tax credit." And on immovable property: "'Construction' applies only to the extent the expenditure is capitalized in the books." The Handbook's action point: "For building repairs/renovations, verify if the expense was capitalized (ITC blocked) or charged to the P&L as revenue expenditure (ITC may be eligible)."

What the auditor is looking for

The Handbook lists seven questions for the fixed asset block:

• credit taken on assets generally;
• blocked or restricted credit;
• ineligible credit correctly capitalised;
• assets in the custody of third parties;
• GST on disposal of assets, credit taken or not;
• transfer of assets to related parties or distinct persons;
• retention of assets on closure of a unit.

The section 17(5) categories that touch fixed assets

Motor vehicles. Credit is blocked on "motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver)", except when used for "further supply of such vehicles", "transportation of passengers" or "imparting training on driving such motor vehicles."

Vessels and aircraft. Blocked except for further supply, transportation of passengers, training on navigating or flying — and for transportation of goods, which has no parallel in the motor vehicle entry.

Leasing, renting, insurance and repairs of those restricted vehicles, vessels or aircraft — blocked, "Allowed if the asset is used for the eligible purposes stated above, or if the services are received by a manufacturer or general insurance provider of such vehicles."

Construction of immovable property. Blocked on works contract services "except when received by a sub-contractor for the further supply of works contract services", and blocked on goods or services used for construction "on the taxpayer's own account, even if used for business."

With the two limits that decide most cases:

• "'Construction' applies only to the extent the expenditure is capitalized in the books."
• "The restriction does not apply to 'Plant and Machinery', which is defined to exclude land, buildings, civil structures, and telecom towers."

The auditor's four action points follow directly: ensure credit is not taken on ≤13-seater vehicles or their insurance and renting; check whether building work was capitalised or expensed; ensure civil structures are not wrongly classified as plant and machinery; and verify that GST on ineligible items "is capitalized into the asset's cost and not routed through the Electronic Credit Ledger."

That last point is the one that shows up in the balance sheet. Ineligible credit routed through the credit ledger overstates the ledger and understates the asset — two errors from one entry.

Assets with third parties

Moulds, dies, jigs, fixtures and tools "can be held by third parties (job workers) for an indefinite period of time as may be decided by the principal. This will not have any impact under GST law." But the principal must still maintain "all relevant data in terms of location of the third party, nature of asset held etc."

Other capital assets "are to be returned within a period of 3 years or as extended from time to time by the appropriate authority."

And the consequence of failure: "If the same is not returned the auditor has to ensure that the same has been declared as deemed supply and relevant tax discharged." Job work timelines →

Reverse charge hidden inside asset cost

"Several services such as erection and commissioning, technical consulting services, architect's services, etc. are capitalised as part of the cost of an asset as per AS-10/IND AS-16. These services qualify as import of services under Section 2(11) of the IGST Act when (i) the supplier is located outside India, (ii) the recipient is located in India, and (iii) the place of supply is in India."

Three action points, and they diverge:

• verify RCM was discharged, "including adherence to the applicable time of supply rules under Section 13(3)";
• ensure the RCM tax "is not claimed as ITC where the import of services relates to the construction of immovable property, as ITC is blocked under Section 17(5)(c) and (d)";
• but "where the import of services relates to plant and machinery, ITC remains available, as plant and machinery is specifically excluded from the ITC block."

So the same imported architect's fee is credit-eligible or not depending on what it was capitalised into — and the tax is payable under reverse charge either way.

Right-of-use assets

"In the case of companies where IND AS is followed, right to use of assets would be created in the books of accounts. There will not be any impact in relation to GST as the ITC can be taken only on the basis of actual invoices without considering any factors like time value, discounting etc."

The caution is about direction of error. A right-of-use asset is a present-valued figure with no invoice behind it; credit follows the lessor's monthly invoices instead. The Handbook simply says the auditor "should take additional care if any input tax credit has been availed by the entity" against such an asset.

Key takeaways

• Ineligible credit belongs in the cost of the asset, not in the electronic credit ledger.
• Credit on motor vehicles ≤13 seats and their leasing, renting, insurance, servicing and repair is blocked, with narrow exceptions.
• Vessels and aircraft have one extra exception the vehicles entry lacks — transportation of goods.
• For immovable property, "'Construction' applies only to the extent the expenditure is capitalized" — so the capitalisation decision decides eligibility.
• Plant and machinery is outside the block, and excludes land, buildings, civil structures and telecom towers.
• Moulds, dies, jigs, fixtures and tools may stay with a job worker indefinitely; other capital goods must return within 3 years, extendable.
• Failure to return within the period is a deemed supply, taxable with interest.
• Capitalised imported services attract RCM — with credit blocked for immovable property but available for plant and machinery.
• Right-of-use assets create no GST; credit follows actual invoices only.

Read next

• Section 18(6): Disposal of Capital Goods on Which ITC Was Taken
• Year-End Inventory under GST: Goods in Transit and Job Work
• Finalisation of Accounts with GST: The Audit Approach

Disclaimer: Positions stated as on 5 September 2026, based on sections 16, 17 and 18 of the CGST Act, 2017, section 2(11) and section 13(3) of the IGST Act, 2017 and rule 45 of the CGST Rules, 2017, as reproduced in the ICAI Handbook on Finalisation of Accounts with GST Perspective (Second Edition, June 2026).