Deferred Input VAT
Updated June 13, 2026
Definition
Deferred input VAT is input VAT on depreciable capital goods that had to be spread over 60 months, or over a shorter useful life, when the goods bought in a calendar month cost more than ₱1,000,000 in total, excluding VAT. The TRAIN Law allowed this amortization only until December 31, 2021; unused balances keep being claimed as scheduled until fully used (NIRC §110(A)).
Before 2022, when a VAT-registered business bought capital goods (goods used in business on which depreciation is allowed) in a calendar month and their total acquisition cost, excluding VAT, exceeded ₱1,000,000, it could not credit the input VAT at once. The input VAT was spread evenly over the month of acquisition and the 59 following months, or over the useful life if that was shorter than five years. The TRAIN Law (RA 10963) amended Section 110(A) of the Tax Code so that this amortization is allowed only until December 31, 2021. For capital goods bought from January 1, 2022, input VAT is credited in full in the period of purchase. Businesses that still carry unutilized input VAT on capital goods bought up to 2021 keep applying it as scheduled until fully used. Capital goods covered by the old rule included: - Manufacturing equipment and machinery - Vehicles used for business operations - Computer systems and IT equipment - Production facilities and installations - Other depreciable goods used in the business
Why it matters
Understanding deferred input VAT matters for businesses that bought large capital goods before 2022 and for those buying now: **Cash Flow Planning**: Capital goods bought from 2022 onward give a full input VAT credit in the period of purchase, which lowers the VAT payable that period. Older purchases still release only their scheduled portion each period. **Compliance Requirements**: Claiming input VAT in the wrong period, or claiming more than allowed, can lead to a deficiency VAT assessment with a 25% surcharge and 12% interest a year (NIRC §248, §249), or 10% and 6% for micro and small taxpayers. **Financial Reporting**: Unamortized input VAT from pre-2022 purchases is carried as an asset and reduced as each period's portion is claimed. **Tax Planning**: Exporters and other zero-rated sellers can apply for a refund or tax credit of input VAT attributable to zero-rated sales within two years after the close of the quarter of the sale (NIRC §112(A)).
How it works
**Step 1: Check the Purchase Date** Capital goods bought from January 1, 2022 are not amortized. Only purchases up to December 31, 2021 could fall under the old rule. **Step 2: Claim New Purchases in Full** For purchases from 2022, credit the full input VAT shown on the VAT invoice in the return for the period of purchase. **Step 3: Continue Old Schedules** For capital goods bought up to 2021 whose monthly total exceeded ₱1,000,000 (excluding VAT), keep claiming the scheduled portion, total input VAT divided by 60 or by the months of useful life if shorter, until the balance is used up. **Step 4: Report on the VAT Return** Report input VAT, including any scheduled portion from old purchases, on the quarterly VAT return, BIR Form 2550Q. **Step 5: Keep the Schedule** Keep a schedule of each old purchase showing acquisition date, total input VAT, amounts claimed and remaining balance for audit.
Examples
Manufacturing Equipment Purchase
ABC Manufacturing Corp. buys production machinery for ₱5,000,000 (VAT-inclusive) in January 2026. Purchase price: ₱5,000,000 Input VAT (12/112): ₱535,714 Purchase made after December 31, 2021, so no amortization: Q1 2026 VAT return: ₱535,714 input VAT credited in full
Office Building Acquisition
XYZ Trading Inc. buys an office building for ₱15,000,000 (VAT-inclusive) in March 2026. Purchase price: ₱15,000,000 Input VAT: ₱1,607,143 No deferral for purchases from 2022: Q1 2026 VAT return: ₱1,607,143 input VAT credited in full
Purchases Made Before 2022
DEF Construction bought a crane for ₱2M (VAT-inclusive) in June 2021 and trucks for ₱3M (VAT-inclusive) in September 2021. Each month's purchases exceeded ₱1,000,000 excluding VAT. Crane input VAT: ₱214,286 ÷ 60 = ₱3,571/month (June 2021 to May 2026) Trucks input VAT: ₱321,429 ÷ 60 = ₱5,357/month (Sept 2021 to Aug 2026) Combined monthly claims: June to Aug 2021: ₱3,571 Sept 2021 to May 2026: ₱8,929 June to Aug 2026: ₱5,357
Export Company Impact
GHI Exports buys ₱8M worth of equipment (VAT-inclusive) in 2026 and makes only zero-rated export sales. The ₱857,143 input VAT is credited in full in the quarter of purchase. With no output VAT to offset, GHI may apply for a refund or tax credit certificate of the input VAT attributable to its zero-rated sales within two years after the close of the quarter when the sales were made (NIRC §112(A)).
Common Mistake - Amortizing a New Purchase
JKL Corp. bought machinery for ₱11,200,000 (VAT-inclusive) in February 2026 and spread the ₱1,200,000 input VAT over 60 months out of habit. Input VAT claimed in Q1 2026: ₱20,000 for each month instead of ₱1,200,000 in full Result: JKL paid more VAT than required in the quarter of purchase Reason: amortization of input VAT on capital goods ended after December 31, 2021
Common misconceptions
- Myth: All input VAT on equipment must be deferred
- Fact: Only purchases up to December 31, 2021 whose monthly total exceeded ₱1M (excluding VAT) were amortized. From 2022, input VAT on equipment is credited in full.
- Myth: Capital goods bought today must still be amortized over 60 months
- Fact: The TRAIN Law allowed amortization only until December 31, 2021. Only balances from earlier purchases continue as scheduled
- Myth: The ₱1M threshold includes VAT
- Fact: The ₱1M threshold excluded VAT and applied to the total purchases of capital goods in a calendar month
Questions people ask
What is deferred input VAT in simple terms?
Deferred input VAT was the rule that spread input VAT on large purchases of capital goods over 60 months instead of crediting it at once. It applied only to purchases up to December 31, 2021; for purchases from 2022 the full input VAT is credited when the goods are bought.
Why does the BIR require deferred input VAT?
The amortization rule spread large input VAT credits over five years. The TRAIN Law (RA 10963) ended it for purchases after December 31, 2021, so businesses now credit the full input VAT on capital goods in the period of purchase, while unused balances from earlier purchases continue as scheduled (NIRC §110(A)).
Which purchases require deferred input VAT treatment?
Under the old rule, depreciable capital goods bought in a calendar month whose total acquisition cost, excluding VAT, exceeded ₱1,000,000. For purchases from January 1, 2022, no purchase requires deferral.
How do I calculate monthly deferred input VAT?
For purchases made up to 2021, divide the total input VAT by 60, or by the months of useful life if shorter than five years. For example, ₱3M of equipment (VAT-inclusive) has ₱321,429 input VAT, or ₱5,357 a month starting in the month of acquisition.
What happens if I sell capital goods before 60 months?
For capital goods bought from 2022 there is nothing left to amortize. For goods bought up to 2021, NIRC §110(A) as amended by TRAIN lets the unutilized input VAT be applied as scheduled until fully utilized.
Can I claim deferred input VAT if I have no output VAT?
Yes. Exporters and other zero-rated sellers credit input VAT like other VAT-registered persons and may apply for a refund or tax credit certificate of input VAT attributable to zero-rated sales within two years after the close of the quarter when the sales were made (NIRC §112(A)).
What are penalties for incorrect deferred input VAT treatment?
Claiming input VAT that is not allowed, or in the wrong period, can lead to a deficiency VAT assessment with a 25% surcharge and 12% interest a year (NIRC §248, §249), or 10% and 6% for micro and small taxpayers, and to criminal liability where there is willful evasion.
How should deferred input VAT appear in financial statements?
The unamortized input VAT on pre-2022 purchases is carried as an asset on the balance sheet, often called 'Deferred Input VAT', and reduced as each period's scheduled portion is claimed on the VAT return.
Does the ₱1M threshold apply per item or total purchase?
Under the old rule the ₱1,000,000 test was applied to the total acquisition cost, excluding VAT, of capital goods bought in a calendar month, not to each item. Ten machines at ₱500,000 each bought in the same month (₱5,000,000 in total) were subject to amortization.
When does the 60-month amortization period start?
Under the old rule, amortization started in the month of acquisition and ran for that month and the 59 succeeding months. Equipment bought in January 2021 was amortized from January 2021 to December 2025.
Next steps
Learn more
VAT Calculator
Calculate VAT amounts and determine deferred input VAT requirements
BIR Form 2550Q
Quarterly VAT return where input VAT on capital goods is reported
Capital Goods VAT Guide
Complete guide to VAT treatment of capital goods purchases
Input VAT vs Output VAT
Understanding the difference between input and output VAT
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Sources & References (1)
Primary sources and the laws, regulations, and official issuances this page relies on. Links open the recorded source documents or references.
- LawPhil Project (Arellano Law Foundation). “NIRC §110(A) as amended by RA 11976 (EOPT removed 60-month amortization): full text.” lawphil.net. NIRC of 1997 (RA 8424), Sec. 110(A), as amended by RA 11976. Source checked .