Equipment Paid in Instalments: Payment Evidence to Keep

If you pay for business equipment in instalments, keep a matching paper trail for every instalment: the bank debit with its UTR or cheque number, the supplier's receipt, and finally a GST invoice and a no-dues confirmation showing the full price is paid. This evidence decides whether a subsidy office counts the investment, whether your GST input credit survives the 180-day payment rule, and whether the asset's full cost is accepted for income-tax depreciation. This guide lists the records to keep, works through a ₹30 lakh example, and covers what to ask. Rules are as of November 2026; check your scheme guidelines and sanction letter.

For buying through a bank loan released in stages, also see equipment loan staged disbursement.

The usual instalment patterns

Your EMIs to a bank are not payments for the machine from a scheme's point of view; the payment is the lender's disbursement to the supplier plus your own margin money. Keep both records.

Why the evidence matters in three places

Subsidy claims. Many schemes count assets "acquired and paid for", as Gujarat's draft guidelines for its 2022-27 MSME scheme put it. Unpaid instalments on the claim date may be left out, and cash or third-party payments may be disallowed.

GST input tax credit. Under the second proviso to Section 16(2) of the CGST Act and Rule 37, if you do not pay the supplier the value plus tax within 180 days of the invoice date, you must reverse the credit on the unpaid portion, with interest where applicable, and can reclaim it after paying.

Income tax. Income-tax rules have long excluded from an asset's actual cost any payment above ₹10,000 made in cash to a person in a day (old Section 43(1)), which reduces depreciation. A seller is also generally barred from receiving ₹2 lakh or more in cash for one transaction (old Section 269ST). Confirm the corresponding provisions under the Income-tax Act, 2025 with your CA.

Worked example: a ₹30 lakh machine in four instalments

A unit buys a ₹30 lakh machine (before GST). GST at 18% is ₹5,40,000, so the invoice total is ₹35,40,000, raised on dispatch. The payment plan and an illustrative scheme with a 10% capital subsidy on eligible machinery paid for are shown below. All figures are illustrative.

Subsidy effect. If the claim is filed on day 120, the unit has paid ₹27 lakh. On a "paid for" basis, eligible investment is ₹27 lakh and the subsidy ₹2,70,000 instead of ₹3,00,000. Ask the scheme office whether the remaining ₹30,000 can be claimed later through a supplementary claim, or whether you should file after the retention is paid (within the claim deadline).

GST effect. On day 180, ₹3 lakh plus its GST of ₹54,000 is still unpaid. The unit must reverse ₹54,000 of input tax credit in its return, with interest if the credit was used, and can reclaim it once the retention is paid on day 210. A written retention clause does not change the 180-day rule.

If part of the price is funded by a term loan, check the EMI on the loan amount in the EMI calculator so that the retention payment does not clash with EMI dates.

Evidence to keep for each instalment

• Bank statement of the business account showing the debit, with UTR or cheque number highlighted
• Supplier's receipt or email acknowledgement mentioning the amount, date and purchase order number
• Proforma invoice for advances; GST tax invoice for the supply, in the applicant unit's name
• Purchase order and agreement setting out the instalment schedule and retention terms
• Delivery challan, e-way bill and installation report with the machine serial number
• Supplier ledger confirmation at year-end and a no-dues certificate after the last payment
• Loan disbursement advice if the bank paid the supplier directly
• CA certificate of investment where the scheme asks for one

Keep everything in one folder per machine, with a one-page summary table like the one above.

Payment rules to follow

1. Pay only from the business bank account of the applicant unit, not a partner's, relative's or personal account. See separating personal and business finances.
2. Do not pay in cash.
3. Do not net off the price against money the supplier owes you; a set-off leaves no bank trail.
4. Make sure each payment narration includes the supplier name and PO or invoice number.
5. Track the 180-day date for each invoice in your accounts.

If your supplier is a micro or small enterprise

The MSMED Act requires buyers to pay micro and small suppliers by the agreed date, and the agreed period cannot exceed 45 days from acceptance; delayed amounts carry compound interest at three times the RBI bank rate. A long instalment schedule with an MSE supplier should therefore be documented carefully and discussed with your CA or lawyer. Since 15 October 2025, new delayed-payment cases under the Act are filed on the Ministry of MSME's ODR portal (odr.msme.gov.in). Also, a buyer's deduction for amounts owed to MSE suppliers can depend on timely payment (old Section 43B(h), now Section 37(2)(g) of the Income-tax Act, 2025), though this mainly affects expense purchases rather than capital equipment.

Questions to ask

The scheme office: Do you count only instalments paid by the claim date? Can I file a supplementary claim for retention money? What payment proof format do you accept?

The bank: Will you pay the supplier directly at each milestone? Can disbursement match the retention schedule? Will you issue a disbursement certificate for the subsidy claim?

The supplier: Will you issue a receipt for each instalment and a no-dues certificate at the end? Is the invoice raised on dispatch or on installation?

Common mistakes

• Paying one instalment from the proprietor's savings account "just this once".
• Losing supplier receipts and relying only on the bank statement, which shows no PO number.
• Filing the subsidy claim before the last instalment without asking about supplementary claims.
• Forgetting the 180-day GST rule on retention money.
• Accepting an invoice in a name that differs from the applicant unit.

If something goes wrong

1. If the scheme office disallows a payment, ask for the reason in writing and submit the missing proof.
2. Escalate to the DIC General Manager or state commissionerate; for central schemes use CPGRAMS at pgportal.gov.in.
3. If the bank delays a disbursement or certificate, complain to its grievance officer and, after 30 days, to the RBI Integrated Ombudsman at cms.rbi.org.in.
4. If a supplier refuses a no-dues certificate after full payment, send a written request with the payment list; if the supplier is an MSE and the dispute is over delayed payment, the ODR portal is the route for new cases.

Key takeaways

• Keep a bank debit, a supplier receipt and an invoice trail for every instalment, plus a final no-dues certificate.
• Subsidy schemes often count only investment actually paid for by the claim date; in the example, ₹3 lakh retention cut the illustrative subsidy by ₹30,000.
• GST input credit on any part unpaid after 180 days from the invoice must be reversed until paid.
• Avoid cash and set-offs; pay only from the applicant unit's business account.
• With MSE suppliers, document the instalment schedule carefully because of MSMED Act payment limits.

Related guide: Buying machinery before subsidy approval.