Rule 43: Capital Goods and the Sixty-Month Rule

Rule 43 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 on inputs and input services in the month it arises. That works because those are consumed in the period.

A machine is not. It is bought once and used for years, across periods with different taxable and exempt mixes. Rule 43 handles it by spreading the credit over a deemed useful life of sixty months.

Capital goods used exclusively for non-business or exempt supplies get no credit at all. Capital goods used exclusively for taxable supplies including zero-rated get full credit. Everything else goes into a common pool — Tc. The pool's credit is apportioned over sixty months: Tm = Tc ÷ 60 for each capital good, aggregated as Tr, and the reversal for the period is Te = (E ÷ F) × Tr, added to output tax liability with interest. A capital good whose use changes enters or leaves the pool from that point.

The three buckets

Exclusively non-business or exempt. Credit is not credited to the electronic credit ledger at all. Rule 43(1)(a). The tax is a cost.

Exclusively taxable, including zero-rated. Credit is credited in full to the electronic credit ledger. Rule 43(1)(b).

Common — used for both. The credit is credited to the ledger, and the amount is denoted "A", with the useful life taken as five years from the date of invoice. Rule 43(1)(c).

The computation

Tc — the aggregate of "A" credits for all common capital goods, at the beginning of a tax period.

Tm — for each capital good, A ÷ 60, being the credit attributable to a tax period.

Tr — the aggregate of Tm for all capital goods whose useful life remains during the tax period.

Te — the common credit attributable to exempt supplies:

Te = (E ÷ F) × Tr

where E is the aggregate exempt turnover and F the total turnover of the registered person in the State or Union territory during the tax period.

Te is added to the output tax liability of the person, along with applicable interest, during every tax period of the useful life of the concerned capital goods.

Note the difference from Rule 42: there is no 5% flat deeming for non-business use in Rule 43. Non-business use is dealt with through the exclusive-use bucket.

Worked example

A machine bought in April 2026 for ₹1,00,00,000 plus GST ₹18,00,000, used for both taxable and exempt output.

• A = ₹18,00,000, credited in full to the ledger in April.
• Tm = 18,00,000 ÷ 60 = ₹30,000 per month.
• Assume this is the only common capital good, so Tr = ₹30,000.

For a month with exempt turnover ₹40,00,000 and total turnover ₹2,00,00,000:

• Te = (40,00,000 ÷ 2,00,00,000) × 30,000 = 0.20 × 30,000 = ₹6,000

₹6,000 is added to output tax liability that month, with interest. This repeats for sixty months, with the ratio recomputed each period.

Over five years, if the exempt ratio held at 20%, total reversal would be ₹3,60,000 — exactly 20% of the ₹18,00,000 credit.

Change of use

The rule deals with movement between buckets, and the mechanics are asymmetric.

From exclusively exempt or non-business, to common use. The credit — which was never taken — is now brought in. The amount "A" is arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof since the date of invoice, and added to Tc.

From exclusively taxable, to common use. The credit was taken in full. The same five-percentage-points-per-quarter reduction applies to arrive at "A", which is added to Tc, and the amount is then apportioned monthly going forward.

The five-points-per-quarter reduction is the same convention used in Rule 44 for reversal on cancellation and in s.18(6) for sale of capital goods. Twenty quarters at five points each is one hundred — which is the arithmetic behind the sixty-month useful life.

What counts as capital goods

Section 2(19): goods, the value of which is capitalised in the books of account of the person claiming the credit, and which are used or intended to be used in the course or furtherance of business.

Two consequences:

Capitalisation in the books is the test, not the nature of the asset. An item expensed in the books is an input, not a capital good, and goes to Rule 42 even if it is durable.

The tax component must not have been capitalised. Section 16(3) denies credit on the tax component where depreciation has been claimed on it under the Income-tax Act. So the GST must be booked as a receivable, not added to the asset cost.

Sale of a capital good

Governed by s.18(6) read with Rule 44(6) — on supply of capital goods on which credit was taken, the person pays the higher of:

• credit taken reduced by five percentage points per quarter or part thereof from the date of invoice; or
• the tax on the transaction value of the supply.

Note this operates independently of Rule 43. A machine sold in month 30 attracts s.18(6) on disposal, and its Rule 43 apportionment stops.

Practical notes

• Maintain a capital goods register with invoice date, credit amount, bucket, and month count. Rule 43 cannot be reconstructed from the general ledger.
• Recompute Te every month — the ratio moves.
• Interest is payable on Te, so a missed month is not a timing difference.
• Watch capitalisation decisions. Whether an item is expensed or capitalised determines whether Rule 42 or Rule 43 applies.
• Do not capitalise the GST. Section 16(3) blocks the credit if depreciation is claimed on the tax component.
• Reconcile to GSTR-9 Table 7 and to the fixed asset register at year end.

Key takeaways

• Capital goods used exclusively for exempt or non-business purposes get no credit.
• Common-use capital goods enter Tc and are apportioned over sixty months as Tm.
• Te = (E ÷ F) × Tr, added to output tax liability with interest, every month of the useful life.
• There is no 5% deeming in Rule 43, unlike Rule 42's D2.
• A change of use brings the asset in or out, with a 5 percentage point per quarter reduction.
• Section 2(19) makes capitalisation in the books the test for capital goods.

Read next

• Rule 42 Worked: The Monthly Formula and Annual True-Up
• ITC on Capital Goods: Rules, Depreciation and Reversal
• ITC Reversal Under Rules 42 and 43
• Section 18 CGST: ITC in Special Circumstances

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition).