GST Implications in Business Transfer

Updated: Feb 11, 2019

Business Transfers plays the vital role in the current era of Business World. To keep ourselves in-pace with the recent developments in Business, some sort of business decisions in the nature of Takeover, Amalgamation, De-merger, Split off, etc will be taken. By doing so, there are certain tax implications and the burden is on the Tax Professionals to advise and compliance.


Let's take a tour for GST Implications in Business Transfers.


As we all know, the Key elements of discussion in GST Implications is the ITC (Input Tax Credit), GST Liability and GST Compliances. We will take up each of them separately.


1. ITC Treatment in Business Transfers


The ITC should be considered in 2 different sections. The First Sections consists of all Treatment of ITC in other provisions of GST as the business is ongoing and the all such treatments should be executed to the date of transfer of Business.


The issue begins after the date of Business Transfer and the treatment of Accumulated ITC as on the date of transfer. Since the business ceases to exists due to the change of Constitution of Business, the accumulated ITC can't be used for set off and the vice versa, no more GST Liability will be aroused out of the Business Transactions. As per the common parlance of Business Transfers, the business transactions is also ceases to exist in the current constituted business and supposes to initiate transactions in the re-constituted Business or the Re-structured Constituted Business.


As per Section 18(3) read with Rule 41(1) of the CGST Act, the registered person is required to file Form ITC-02 to transfer the un-utilised accumulated ITC to the restructured constituted business. For instance, if the Business is demerged in the ratio 40:60 to the 2 new companies than the accumulated ITC shall be transferred in the same ratio by filing Form GST ITC-02. 2. GST Liability


GST Liability as on the date of Transferor shall be borne by the Transferor Company after setting of the Eligible ITC if any. The excess GST Liability if any shall be paid by the Transferor Company by way of the credit to the Cash Ledger. However, from the date of transfer of Business, the GST Liability of the Transferee Company will be initiated in accordance with the Business Transactions. There is one exception to this, in case the Effective date for Business is different from the date of Business transfer, than the same shall be followed in accordance with the Effective Date of Business Transfer Agreement. 3. GST Compliance The GST Regsitration of the Transferor is liable to be surrendered after filing the Annual Returns of the Transferor Company. However, the Transferor company is required to comply with the NIL filings of the subsequent GSTR post Business Transfer to avoid any Late Fees Default. As soon as the GST Annual Return is filed, the Transferor Company is required to make an Application for Cancellation of GST.


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