Understanding Input Tax Credit Transfer in Business Transfers under GST
Simplified Guide to Transferring Input Tax Credit (ITC) in Business Transfers under GST
Transferring a business, whether wholly or partially, involves many important considerations. One crucial aspect is transferring the unutilized Input Tax Credit (ITC) under the GST regime. Let’s break down the process and key points to understand better:
1. Legal Framework:
- Section 18(3) of the CGST Act, 2017, and Rule 41 of the CGST Rules, 2017, govern the transfer of unutilized ITC.
- These provisions enable the transferor to pass on the unutilized ITC to the transferee during business transfers.
2. Provision Details:
- The transfer can happen due to sale, merger, demerger, amalgamation, lease, or any change in business ownership.
- The transferor can transfer the unutilized ITC to the transferee as per the prescribed procedure.
3. Process Overview:
- The transferor needs to furnish details of the business transfer in FORM GST ITC-02 electronically on the GST portal.
- A certificate issued by a practicing chartered accountant or cost accountant certifying the business transfer must also be submitted.
- The transferee needs to accept the details furnished by the transferor on the common portal.
- Upon acceptance, the unutilized ITC specified in FORM GST ITC-02 gets credited to the transferee’s electronic credit ledger.
4. Additional Clarifications:
- Circular 133/2020 clarifies aspects of ITC apportionment during business reorganization.
- The value of assets for apportionment is at the State level.
- Transferors file FORM GST ITC-02 only where both parties are registered.
- The relevant date for ITC balance calculation is the filing date of FORM GST ITC-02 by the transferor.
- The value of assets is determined as of the appointed date of demerger.
5. Practical Challenges:
- Currently, transferring ITC between states is not allowed on the GST common portal, despite legal provisions permitting it.
- However, a ruling by the Authority for Advance Ruling (AAR) allowed ITC transfer between different states, highlighting a disparity between the law and circular directives.
6. Conclusion:
- The transfer of unutilized ITC under GST demonstrates the regime’s adaptability to business restructuring.
- It ensures businesses undergoing transformations maintain their tax credits, supporting cash flows and operational efficiency.
- Adherence to procedural requirements, including FORM GST ITC-02 filing, is crucial for successful transfers.
- Despite challenges, the legal framework underscores the GST regime’s commitment to seamless tax compliance and business continuity.
In summary, understanding the process and nuances of transferring ITC is essential for businesses navigating changes in ownership or structure under the GST framework.
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