The GST bar follows the tax depreciation claim
Section 16(3) of the CGST Act, 2017 disallows input tax credit on the tax component of capital goods and plant and machinery where the registered person has claimed depreciation on that component under income-tax law. Compare the credit with the depreciation computation actually used for tax. A gross carrying amount or book depreciation is a warning sign to investigate; it is not itself the income-tax claim described in section 16(3).
Read the applicable text: CBIC CGST Act text, sections 16 and 17 Income Tax Department guidance on AY 2026–27 transition.
Reconcile invoice amounts by tax head
Record vendor, GSTIN, invoice, asset identification, eligible tax and any blocked or otherwise ineligible component. Tie each component to GST credit actually taken, available credit or a documented reason for exclusion. Separately trace amounts into the addition register for the income-tax depreciation block. Check eligibility under sections 16 and 17 independently; removing tax from the depreciation base does not make a blocked credit allowable.
Track a recoverable tax amount and a nonrecoverable cost separately
For the net-cost treatment illustrated here, exclude GST recovered through input tax credit from the income-tax depreciation base. Reconcile the actual cost under the applicable income-tax rules; section 16(3) itself governs GST credit eligibility. Where tax is not recoverable, establish whether it forms part of the relevant asset cost under applicable income-tax provisions before claiming depreciation. Document any apportionment or restriction by component; the examples do not imply an unfettered right to split credit by choice.
Identify the underlying error before choosing a correction
A tax-base error, an ineligible credit and a financial reporting classification issue are separate problems. Compare the filed return, credit ledger and depreciation schedule with the reviewed position. If both benefits were claimed, the section 16(3) disallowance concerns the overlapping GST amount. Quantify that amount and the incremental depreciation separately. Check the permissible correction routes and deadlines for the respective returns. A later adjustment does not automatically restore GST credit. Assess interest under section 50(3) and Rule 88B where ineligible credit was both availed and utilised. Do not assume an edit to the fixed-asset register changes either filed position.
Set the check before finalising either filing
Use a shared schedule with GST amount, actual credit claimed, income-tax base and evidence of any current or earlier-year depreciation. Review adjustments between provisional and filed figures and retain the link to the invoice and the asset block. For FY 2025–26 the relevant income-tax return is AY 2026–27 under the 1961 Act. For FY 2026–27 onward, check the corresponding depreciation provisions of the Income-tax Act, 2025 and applicable rules; the GST and income-tax filings remain separate.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Eligible tax taken as credit
An equipment invoice has ₹10 lakh base and ₹1.8 lakh GST. Assume the ₹1.8 lakh is fully eligible and claimed. The illustrative tax cost base is ₹10 lakh, absent other cost items. At an assumed 15% full depreciation rate the deduction is ₹1.5 lakh.
Illustrative example 2: Gross book cost but net tax claim
Book cost is ₹5.9 lakh including ₹0.9 lakh GST. The filed tax working shows ₹5 lakh and at the assumed 15% rate depreciation of ₹0.75 lakh. No GST was included in the depreciation claim on these facts; investigate the book discrepancy separately.
Illustrative example 3: Two claims on the same amount
GST credit of ₹72,000 was taken and the income-tax return also claimed depreciation on a tax block that included the full ₹72,000. At the assumed 15% rate the excess depreciation is ₹10,800. The tax component in overlap is ₹72,000, not ₹10,800.
Illustrative example 4: Ineligible tax assumed to form part of cost
Equipment base is ₹8 lakh and ₹1.44 lakh GST is independently ineligible. If the full tax is properly part of the income-tax cost and no credit is taken, the base is ₹9.44 lakh; 15% gives ₹1.416 lakh.
Illustrative example 5: Independently supportable split
Of ₹1.8 lakh GST, assume ₹1.2 lakh is allowable and claimed and ₹0.6 lakh is nonrecoverable and qualifies for inclusion in cost. For ₹10 lakh base the resulting tax base is ₹10.6 lakh and assumed 15% depreciation is ₹1.59 lakh.
Illustrative example 6: The half-rate assumption changes the deduction, not the overlap
If ₹40,000 of the same GST is both credited and depreciated at an assumed 7.5%, the depreciation attributable to it is ₹3,000. The overlapping GST component remains ₹40,000.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | List capital invoices | Invoice, GSTIN and asset register |
| 2 | Confirm business and asset use | Commissioning and deployment evidence |
| 3 | Classify the tax component | Tax head and supplier or import documents |
| 4 | Test general GST eligibility | Sections 16 and 17 assessment |
| 5 | Tie to credit actually taken | GST return and electronic ledger |
| 6 | Map the income-tax block | Tax asset roll-forward |
| 7 | Identify actual depreciation claimed | Filed computation and schedules |
| 8 | Measure overlap distinctly | Tax amount and depreciation increment |
| 9 | Check correction availability | Filing status, statutory limits and legal review |
| 10 | Approve and preserve the bridge | Signed reconciliation and version history |
Sixteen practitioner FAQs
1. Does gross book depreciation automatically block GST credit?
Section 16(3) refers to depreciation claimed under income-tax law. Check the filed tax computation.
2. Is mere invoice possession enough for credit?
The other applicable section 16 conditions still have to be met.
3. Can eligible GST appear in a tax block and the credit ledger?
Flag the overlap and establish whether income-tax depreciation was actually claimed on that component.
4. Is the denied ITC limited to the year's depreciation amount?
The statutory reference is the relevant tax component, not the annual depreciation calculated on it.
5. How do you treat a separately blocked component?
Record the reason and test whether that tax qualifies as a cost under the applicable tax rules.
6. Can the taxpayer freely split credit across the GST heads?
Only use a split supported by actual eligibility and the evidence.
7. What if multiple invoices make up one machine?
Trace the GST and tax block entry invoice by invoice before aggregating.
8. What if the claim occurred in an earlier year?
Review the filed depreciation and credit trail for the relevant earlier period.
9. Can you assume credit is taken because it appears in GSTR-2B?
No. Compare actual filed credit and the ledger.
10. Do blocked credits automatically qualify for tax depreciation?
No. Confirm the cost and depreciation requirements separately.
11. Can a journal entry fix a filed overlap?
A journal may correct books; the tax and GST filings each need their applicable correction route.
12. Should the GST team check the asset's first-use date?
Record it for the depreciation check; GST timing follows its own conditions.
13. Is the example rate prescribed for every machine?
No. The rates are assumed; select the applicable tax block and conditions.
14. Does a capital subsidy cure overlapping credit?
No. Test the subsidy and the GST tax component separately.
15. What if the credit is reversed later?
Preserve dates, basis and actual filings; assess the legal effect rather than assuming a cure.
16. Should the overlap be measured at group level?
Start with the registered person, entity and invoice before any group reporting.
Official sources
CBIC CGST Act text, sections 16 and 17 Income Tax Department guidance on AY 2026–27 transition
CBIC Circular 192/04/2023-GST: section 50(3) and Rule 88B treatment for wrongly availed IGST credit
Income Tax Department: Income-tax Act, 1961, section 43, actual cost