ITC on capital goods, CSR spend and free samples

Three heads that sit in different parts of Section 17 and get reversed together in every audit.

Capital goods

Capital goods are goods capitalised in the books and used or intended to be used in the course or furtherance of business. Credit is available in full in the month of receipt, not spread over the life of the asset, except in the Rule 43 common use situation.

Where a capital good is used partly for exempt supplies, Rule 43 spreads the credit over sixty months with a monthly reversal referable to exempt turnover.

On disposal of a capital good on which credit was taken, Section 18(6) with Rule 44 requires payment of the higher of the credit attributable to the remaining useful life computed at five percent per quarter, or the tax on the transaction value.

The recurring dispute is the boundary with Section 17(5)(c) and (d). Apparatus fixed to earth by foundation or structural support is plant and machinery and eligible; the building it sits in is not.

Corporate social responsibility

For periods from 1 October 2023, clause (fa) of Section 17(5) blocks credit on goods or services used or intended to be used for activities relating to obligations under corporate social responsibility referred to in Section 135 of the Companies Act, 2013.

For earlier periods the position was contested. Advance rulings divided, some allowing credit on the reasoning that CSR expenditure is compulsory and therefore incurred in the course of business, others denying it as not being for business.

For those earlier years the argument remains available and should be pleaded with the board resolution, the CSR policy and the compulsion under Section 135. For later years it is closed, and the expenditure must be budgeted with the tax as a cost.

Voluntary donations and sponsorships outside the CSR obligation are not covered by the clause and are analysed on ordinary business use, with sponsorship also raising a reverse charge question.

Free samples, gifts and write offs

Section 17(5)(h) blocks credit on goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample. This is the clause that catches pharmaceutical physician samples, FMCG trade samples, promotional giveaways and inventory obsolescence.

The important distinction is between a free sample and a supply for a price that includes it. Where goods are supplied as part of a bundled offer for a single consideration, they are not free samples, and Circular 92/11/2019-GST addresses buy one get one free and similar schemes.

Normal process loss in manufacture is not a write off of goods within the clause. Support it with a process study rather than a description.

Warranty replacements provided without separate consideration, where the value of the warranty was included in the original price, are treated differently from free supplies, and the position should be documented at the time of sale.

Authorities relied on

What to do on Monday

1. Reconcile inventory write offs, expiry, samples and giveaways to a credit reversal every year; this is the most common single audit finding.

2. Distinguish process loss from write off with a documented process study.

3. Budget CSR expenditure with GST as a cost for periods from October 2023, and preserve the argument for earlier years.

4. Compute the Section 18(6) liability before disposing of any capital asset on which credit was taken.

Questions we are asked on this

Is credit available on CSR spend for periods before October 2023?

It is arguable, on the ground that the expenditure is compulsory and therefore in the course of business. Plead the board resolution and the statutory compulsion.

Are buy one get one free supplies free samples?

No. Circular 92/11/2019-GST treats them as a supply of two goods for a single price, so credit is not blocked.

Do we reverse credit on inventory provisions?

A provision is not a write off. The reversal attaches when the goods are written off in the books. Track the difference.

What is payable when we sell a machine on which credit was taken?

Under Section 18(6) with Rule 44, the higher of the credit for the remaining useful life computed at five percent per quarter, or tax on the transaction value.

Is credit available on a demonstration unit?

Where it is capitalised and used in the business, yes. Where it is given away, clause (h) applies from the date of disposal.

In this cluster

• Input tax credit under GST: the complete 2026 position
• Section 16(2)(c): can your ITC be denied because the supplier did not pay tax?
• Section 16(4) time limit for claiming ITC: what survives after the amnesty
• GSTR-2A and 2B mismatch notices: how to answer without conceding
• Blocked credits under Section 17(5): the clause by clause map
• Safari Retreats: what the Supreme Court decided on ITC for construction, and what Parliament then undid
• ITC on canteen, transport, insurance and other employee benefits
• ITC reversal under Rules 42 and 43: working the formula correctly
• Rule 37: ITC reversal when you do not pay your supplier within 180 days
• Rule 37A: reversal where your supplier did not file its GSTR-3B

GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.