Filing for Input Tax Credit (ITC) transfer in FORM GST ITC-02 is essential during business reorganizations like mergers, acquisitions, or demergers. This blog clarifies the pre-conditions, the types of ITC transferable, the procedural nuances for the acquiring entity, and other relevant details to help businesses navigate this aspect of the GST regime efficiently.
Pre-Conditions for Filing FORM GST ITC-02
Before a business can file FORM GST ITC-02, it must meet several specific conditions:
Nature of Business Transaction
The registered entity must undergo a sale, merger, demerger, amalgamation, lease, or transfer. Additionally, the entity being acquired (transferor) must file an ITC declaration to transfer the ITC to the acquiring entity.
Matched ITC Availability
The transferor needs matched Input Tax Credit in their Electronic Credit Ledger as of the effective date of the merger, acquisition, amalgamation, lease, or transfer.
Registration Requirement
Both the acquiring (transferee) and the acquired (transferor) entities must be registered under the GST regime.
Compliance with Past Returns
The transferor entity must have filed all previous period returns validly.
Resolution of Pending Actions
The merging entity must resolve all pending actions categorized as “Pending for action.” Additionally, the transferor must settle any liabilities arising from the returns they filed.
Transfer of Liabilities
The business transfer must include a specific provision for transferring liabilities. A Chartered Accountant or Cost Accountant must certify this provision. Liabilities include stayed demands of tax or matters in litigation or recovery.
Types of ITC Transferable via FORM GST ITC-02
The ITC that can be transferred through FORM GST ITC-02 includes:
Matched ITC Balance
Only the matched ITC balance available in the transferor’s Electronic Credit Ledger is eligible for transfer.
Major Tax Heads
ITC under Central tax, State/UT tax, Integrated tax, and CESS can be transferred. However, provisional or unmatched ITC cannot be transferred using this process.
Decision Making for the Acquiring Entity
As an acquiring entity, you have flexibility in your decision-making process regarding ITC transfer requests:
Acceptance/Rejection
Upon filing by the transferor, the details notify the transferee through the GST portal. The transferee can change the decision to accept or reject an ITC transfer request multiple times until the transferor finally submits it.
Impact on Electronic Credit Ledgers
The acceptance or rejection of the ITC transfer request impacts the Electronic Credit Ledgers as follows:
If Accepted
The ITC transfers to the transferee’s ledger, updating their Electronic Credit Ledger accordingly.
If Rejected
The ITC remains with the transferor, and their Electronic Credit Ledger updates to reflect this, while the transferee’s ledger remains unchanged.
ITC Transfer in Case of Demerger
In demerger scenarios, ITC apportions based on the value of assets of the new units as specified in the demerger scheme.
Required Certification
A practicing Chartered Accountant or Cost Accountant must certify that the sale, merger, amalgamation, lease, or transfer of business includes a specific provision for the transfer of liabilities. This certification is mandatory for filing FORM GST ITC-02 and must be uploaded along with the form.
Conclusion
Navigating the complexities of FORM GST ITC-02 requires a thorough understanding of the pre-conditions, the types of ITC transferable, and the procedural steps involved. Ensuring compliance with these requirements helps in the smooth transition of ITC during business reorganizations, facilitating seamless continuity in operations under the GST framework. By adhering to these guidelines and leveraging professional certifications, businesses can efficiently manage ITC transfers, ensuring legal compliance and operational efficacy during periods of significant organizational change.
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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
