GST Input Tax Credit on Capital Goods (2026)

Updated: 3 June 2026 | Rule 43 · Section 17(5) · CGST Act

ITC on capital goods under GST is available fully in the year of purchase (the old 5-year spread rule has been removed). The capital good must be used for taxable supplies. If used for exempt or personal purposes, proportionate ITC must be reversed. Motor vehicles, food, and personal-use items remain blocked under Section 17(5).

100%

ITC on capital goods available upfront in year of purchase
No more 5-year spreading — full credit in the same tax period, subject to conditions and Rule 43

ITC on Capital Goods — All Scenarios at a Glance

Scenario	ITC Available?	Amount	Rule / Section
Capital good used 100% for taxable supplies	Yes — Full	100% of GST paid	Section 16
Capital good used 100% for exempt supplies	No	Nil ITC; charge to cost	Section 17(2)
Capital good used for both taxable & exempt supplies (mixed use)	Partial — proportionate	ITC in proportion to taxable turnover ratio (Rule 43)	Rule 43, Section 17(2)
Capital good used for personal/non-business purpose	No	Nil — reverse any ITC taken	Section 17(1)
Motor vehicle (≤13 seats) for business use	Blocked	No ITC available	Section 17(5)(a)
Motor vehicle used as taxi / driver training / further supply	Yes — Full	100% of GST paid	Section 17(5) exception
Plant & machinery (industrial equipment, generators, ACs)	Yes — Full	100% (if used for taxable output)	Section 16
Works contract for factory building construction	Blocked	No ITC on civil construction	Section 17(5)(c)/(d)
Capital good sold within 5 years of purchase	Reversal required	Higher of: tax on sale value OR original ITC minus 5%/quarter	Section 18(6), Rule 40(2)

Conditions to Claim ITC on Capital Goods

All four of the following conditions must be satisfied to claim ITC on a capital good:

#	Condition	Detail
1	Possession of valid tax invoice / debit note	Invoice must show GSTIN of supplier and recipient, HSN/SAC, and GST amount separately
2	Receipt of capital goods	Goods must have been physically received (or deemed received for services)
3	Tax paid by supplier	Supplier must have paid GST to the government; ITC reflecting in GSTR-2B is the safe indicator
4	GST return filed	Buyer must have filed their GST return for the period

ITC Reversal on Capital Goods — How the 60-Month Rule Works

When a capital good is sold, transferred, or used for exempt/personal purposes, any ITC originally claimed must be reversed. The reversal formula under Rule 40(2) / Section 18(6) is:

ITC to be reversed = Original ITC claimed − (Original ITC × 5% × Number of quarters used)

The useful life for this calculation is 60 months (5 years). After 5 years, no reversal is needed on disposal. The tax payable on sale of the capital good is the higher of: (a) ITC reversed as above, or (b) GST on the transaction value of the sale.

Common Capital Goods & ITC Eligibility

Capital Good	ITC Eligible?	Condition
Industrial machinery / manufacturing equipment	Yes	Used for taxable goods/services production
Air conditioner (office/factory)	Yes	Installed at place of business for taxable supply
Generator / DG set (commercial use)	Yes	Used to support taxable business activity
Computers, laptops, servers	Yes	Used for business; not personal use
Car / SUV (≤13 seats, for self-use)	No — Blocked	Section 17(5)(a); regardless of business use
Trucks, goods vehicles (>13 tonnes GVW)	Yes	Not blocked; used for transport of goods
CCTV / security equipment	Yes	For business premises security
Factory building (civil construction)	No — Blocked	Section 17(5)(c)/(d); immovable property construction
Furniture & fixtures (office use)	Yes	Used for taxable supply business

Frequently Asked Questions

When is ITC on capital goods available under GST?

ITC on capital goods is available in the same tax period (month/quarter) in which the capital good is received and the GST invoice is uploaded by the supplier. The buyer must have received the goods, possess a valid tax invoice, the supplier must have paid GST to the government, and the capital good must be used (or intended to be used) for making taxable supplies. There is no requirement to spread ITC over multiple years — the full ITC is available upfront under Rule 43 as applicable.

Does a business need to reverse ITC when a capital good is sold?

Yes. When a registered person sells a capital good on which ITC was claimed, GST is payable on the sale. The tax payable on sale is the higher of: (a) GST on the transaction value (sale price), or (b) ITC claimed originally minus 5% reduction per quarter (or part thereof) of useful life (60 months). Effectively, if you sell a machine within 5 years, you reverse proportionate ITC based on remaining useful life. After 5 years, there is no reversal obligation.

Which capital goods are blocked from ITC under Section 17(5)?

Section 17(5) of the CGST Act blocks ITC on: motor vehicles (cars, SUVs) with seating capacity up to 13 persons (unless used for taxi/transport/training/further supply), aircraft and vessels for personal use, food and beverages, outdoor catering, beauty treatment, health services, cosmetic surgery, club/health club memberships, travel benefits for employees, works contract services for construction of immovable property (other than plant and machinery), and goods or services for personal consumption. These blocks apply even if the purchase is for business purposes.

Can a business claim ITC on an air conditioner or generator?

Yes. ITC on air conditioners, generators, UPS systems, and similar electrical equipment installed at a business premises (factory, office, shop) is generally available, provided the business makes taxable supplies. These are not in the blocked list under Section 17(5). However, if these items are installed at a building used for personal purposes, or if the building itself is under construction (civil structure), the ITC position can be more complex. For a commercial premises making taxable output supplies, AC and generator ITC is claimable.

Is ITC available on factory building construction?

No. ITC is not available on works contract services used for construction of an immovable property (including a factory building), except for plant and machinery. This block is under Section 17(5)(c) and (d) of the CGST Act. Materials like cement, steel, and bricks used in civil construction of a building also do not qualify for ITC when capitalized as an immovable property. However, ITC on plant and machinery — even embedded in a building (like a chimney or cold storage chamber that is part of the manufacturing process) — is available.

GST ITC Complete Guide ITC Reversal Rules Section 17(5) Blocked ITC GST on Motor Vehicles GSTR-2B Reconciliation GST Annual Return GSTR-9

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