A machine's credit, returned one sixtieth at a time

The sentence doing the damage this week is "GST refunds are being opened up for capital goods". A client hears it and pictures the credit on a ₹1.5 crore machine coming back.

What the Council described is one sixtieth of it a month, five years from now, and only on the part the formula lets through.

The shape of it

Refund of accumulated input tax credit on capital goods, covering zero-rated supplies and the inverted duty structure, spread over 60 months, for credit availed on or after 1 April 2027.

Four conditions in one sentence, and each of them narrows the number a client is imagining.

A credit of ₹24,00,000 becomes ₹40,000 of credit a month. If inverted rated supplies are 80% of adjusted total turnover, the formula lets about ₹32,000 of that through — before tax payable on the inverted supply is deducted at the end.

That is a real improvement on nil, which is what it has been since 2017. It is not a cheque.

Two heads, two dates, and the merge that will cause trouble

The Council recommended opening the refund formula to input services and to capital goods, and gave them different dates:

• Input services — credit availed on or after 1 November 2026
• Capital goods — credit availed on or after 1 April 2027, spread over 60 months

A client who hears both in one conversation will remember one date and apply it to both. The one that hurts is applying November to a machine: credit availed on capital goods in, say, January 2027 falls between the two dates and carries no refund right under either limb.

The governing fact in both cases is when the credit was availed, not when the refund is claimed. It is the only date worth writing in the file.

Why sixty months, and what it implies

Capital goods credit is lumpy. A single machine can generate more accumulated credit than a year of inputs, and a refund mechanism that returned it in one period would hand a large, one-off outflow to the exchequer on a schedule nobody could forecast.

Spreading it over sixty months converts that into something predictable — and incidentally ties the refund to the asset's working life in roughly the way depreciation does, which is a defensible way to think about it when explaining the delay to a client who is unimpressed by it.

It also means something practical: a client planning capital expenditure has a reason to care which side of 1 April 2027 the credit is availed on, in a way that compounds over five years rather than resolving in one return.

What is not settled

Being plain about the gaps is more useful than smoothing over them:

• The mechanics of the sixtieth — whether it runs from the month of availment, and what happens if the asset is sold or the registration cancelled mid-course, is not something the recommendation settles.
• Interaction with the existing formula. Capital goods enter rule 89(5) in some manner the rules will have to specify, and the eventual drafting decides how the monthly instalment is treated in Net ITC.
• Whether the date moves. Implementation was indicated from the April 2027 returns, after consultation. April 2027 is far enough away that this is a date to watch rather than to plan irreversibly around.

What to do now

• Nothing in a return. The amendment to clause (ii) of the proviso to section 54(3) has not happened.
• For clients with capital expenditure planned around early 2027, flag the date. It is the one place where a decision taken now has a direct consequence.
• Keep it apart from the input services change in anything you write to a client. They are two heads, two dates and two mechanisms, and the only reliable way to stop them merging is never to put them in the same sentence without their dates attached.