Rule 43 and Section 18(6): Agricultural Capital Goods

Rule 43 and Section 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.

Rule 42 apportions credit because inputs are consumed. Rule 43 cannot do that, because capital goods are used without being used up — so it spreads the credit over a deemed 60-month life and tests the ratio afresh every month. And section 18(6) applies an entirely different arithmetic when the asset is sold.

The Handbook states the principle: "unlike inputs and input services, end-use of capital goods is more objective because output for each month can be determined… Capital goods 'used' do not get 'used up'. Hence, the computations applicable to input and input services cannot be applied to capital goods." Rule 43 credits the whole tax in the month of receipt, spreads it as Tm = credit ÷ 60 per month over the deemed five-year life in rule 43(1)(c), aggregates the monthly amounts as Tr, and reverses Te = (E/F) × Tr each month. On sale, section 18(6) requires the higher of the credit reduced by five percentage points per quarter or part and the tax on the transaction value.

The three buckets, and where each lands

And the swap rule is what makes this workable. "Credit on 'all' capital goods deemed to accrue on '5% per quarter' (or part). Swap of end use from ineligible to eligible and vice versa will be available to the extent accrued as per rate above."

So a tractor bought for exempt farm use and later deployed on taxable contract work is not stranded — the credit accrues at 5% a quarter and the swap picks up what has accrued.

How rule 43 computes the monthly reversal

The Handbook's step list:

• (a) Credit on capital goods exclusively for taxable including zero-rated outward supplies is "'wholly' available";
• (b) Credit on capital goods exclusively for non-business and exempt supplies is "'wholly' NOT available";
• (c) Credit on capital goods not exclusively either is taken "subject to treatment under this rule (TC)";
• (d) "Credit subject to treatment will be divided by 60 for each month (TM) of the deemed useful of 5 years being 60 months (rule 43(1)(c) is prescribed useful life for all capital goods)";
• (e) "Each such capital goods will have its own TM for a given month. Now monthly TM of all such capital goods must be aggregated (TR)";
• (f) "Credit liable to reversal is computed on the ratio of 'specially exempt supplies' by 'total turnover in the State' for the registered person (TE)";
• (g) "Amount so arrived will need to be reversed. Interest will be applicable because total capital goods credit (A) would have been taken in the month of receipt… and now a 'new TE' would be computed each month based on the ratio."

The Handbook's worked figures, for May 2020:

And how Tr was built, from two machines:

Note that both machines contribute, because both are still inside their 60-month window in May 2020 — machine Y, received in May 2018, has 36 months left.

The difference from rule 42 that catches people out

"unlike Rule 42 which mandates determination of the actual amount of reversal on the completion of the financial year, Rule 43 does not prescribe any re-computation at the end of the financial year. This could be presumed to be due to the fact that reversal… under Rule 43 is based on number of tax periods unlike that of Rule 42."

And the Handbook flags the asymmetry this creates:

"due consideration should be given to the fact that any shortage of ITC on account of any reason cannot be subsequently availed under Rule 43. On the other hand, any excess credit availed would promptly be subject to scrutiny by the proper officer."

The practical instruction is to get rule 43 right monthly, because there is no year-end mechanism to fix an under-claim — only an exposure if the claim was too high.

Section 18(6): selling the tractor

A different rule applies on disposal. Section 18(6) requires payment of "an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed, or the tax on the transaction value of such capital goods… whichever is higher."

The prescribed reduction — rule 44 — is "five percentage points for every quarter or part thereof from the date of the issue of the invoice for such goods."

The Handbook's tractor example:

Two features are worth stating. "Every quarter or part thereof" means a single day into a quarter counts as a whole quarter. And the "whichever is higher" test means the seller must also compute tax on the transaction value** and pay the greater of the two — a tractor sold at a strong price can produce a liability well above ₹35,000.

Job work, briefly

Section 19 governs credit where goods go out for processing. "Two types of RP are involved – Principal who is the one who sends goods for job work and Job-worker… ITC of inputs to the principal and ITC of goods & services consumed in providing the service of Job-work to the Job worker." Details go in Form ITC-04.

The Handbook's agricultural illustration: "if a manufacturer of Fertilizer sends the inputs for some chemical process on the fertilizer, then the ITC of raw material is available to the manufacturer which is sent to the Job worker and the ITC of any goods & services consumed is available to the job worker."

Key takeaways

• Rule 43 does not apportion; it spreads — credit over a deemed 60-month life under rule 43(1)(c).
• Tm = credit ÷ 60 per asset per month; Tr aggregates them; Te = (E/F) × Tr is reversed monthly.
• The whole credit is taken in the month of receipt, so the monthly reversals carry interest.
• Credit on all capital goods accrues at 5% per quarter, which is what makes an end-use swap possible.
• Rule 43 has no annual re-computation — a shortfall cannot be recovered later, an excess remains exposed.
• Section 18(6) on sale: the higher of credit reduced by 5 percentage points per quarter or part (rule 44) and tax on the transaction value.
• A tractor bought April 2020 and sold October 2023 reverses 70% of ₹50,000 = ₹35,000, subject to the transaction-value comparison.
• Section 19 and Form ITC-04 govern job work; principal and job worker each keep their own credits.

Read next

• ITC Reversal in a Rice Mill: Rule 42, Worked Through
• GST on Leasing of Agricultural Land: Actual Use Decides
• Section 17(3): What Counts as an Exempt Supply for Reversal

Disclaimer: Positions stated as on 5 September 2026, based on sections 17, 18(6) and 19 of the CGST Act, 2017 and rules 43, 44 and 45 of the CGST Rules, 2017, as reproduced in the ICAI Handbook on Applicability of GST on Agricultural Sector (January 2026, law updated to 31 December 2025).