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GST Input Tax Credit – GST ITC02 – Format, Eligibility & Rule

Introduction:

In case of transfer of business by way of sale of business, merger or demerger, a registered taxpayer can transfer the input tax credit unutilized and available in his electronic credit ledger into another business by filing a declaration in Form GST ITC-02.

What is GST ITC-02?

ITC-02 is a form used for transferring the Input Tax Credit (ITC) balance in the electronic credit ledger of a GSTIN to another GSTIN due to mergers and acquisitions. It must be filed by the transferor and action must be taken by the transferee. There is no time limit specified under the Act or Rules.

What is the reason to file ITC-02?

Multiple amalgamations, mergers, and demergers have taken place after the implementation of GST. In such cases, a transferor of business will have unutilized ITC lying in the electronic credit ledger. He can transfer this ITC to the new business only by filing GST ITC-02. On filing GST ITC-02, the unutilized credit of the transferor will get transferred to the electronic credit ledger of the transferee.

What are the pre-conditions for filing of ITC declaration in FORM GST ITC-02?

The following conditions must be met for being eligible to file the FORM GST ITC-02:

  • In case any registered entity undergoes sale, merger, de-merger, amalgamation, lease or transfer, the acquired entity must file ITC declaration for transfer of ITC in the FORM GST ITC-02.
  • The acquired or transferor entity must have matched Input Tax Credit available in the Electronic Credit Ledger, as on effective date of merger/ acquisition/ amalgamation / lease/ transfer.
  • The acquiring entity (transferee) and the acquired entity (transferor), both should be registered under the GST regime.
  • The acquired entity (transferor) must have validly filed all the returns for the past periods.
  • All transactions categorized as “Pending for action” of the merging entity should be either accepted, rejected or modified and any liabilities arising out of the returns filed by the transferor must be paid.
  • The transfer of business should be with specific provision of transfer of liabilities. It should be accompanied by a certificate issued by Chartered Accountant or Cost Accountant to that effect. Liabilities here would include stayed demands – of tax or in respect of litigation or recovery cases.

Can any ITC can be transferred by filing FORM GST ITC-02?

The following ITC can be transferred by filing the FORM GST ITC-02:

  • Matched ITC balance available in the transferor’s Electronic Credit Ledger;
  • Such ITC appearing under the major heads – Central tax, State / UT tax, Integrated tax, and CESS can be transferred by filing FORM GST ITC-02.
  • The amount of ITC that is provisional or un-matched, cannot be transferred by the Acquired Entity (transferor) using this process.

Can the claim be modified?

  • Upon filing of the FORM GST ITC-02 by the acquired entity (transferor), such details are notified to the acquiring (transferee) entity through the GST portal.
  • On acceptance, the un-utilized credit specified in FORM GST ITC-02 will be credited to his Electronic Credit Ledger.
  • The Transferee (acquiring) Entity can change its decision to accept or reject an ITC transfer request any number of times until it is finally submitted by the transferor at the GST portal.

What is the position of the registered individual in case of the claim being accepted or rejected?

In-case the claim is accepted – If the ITC transfer request of an acquired Entity (transferor), filed through FORM GST ITC-02 is ACCEPTED by the acquiring Merged Entity (transferee), the ITC will be transferred to the transferee, and the Electronic Credit Ledger of the (transferee) Acquiring Entity will get updated.

In-case the claim is rejected – However, if the ITC transfer request of an acquired entity (transferor), filed through the FORM GST ITC-02 is REJECTED by the acquiring entity (transferee), the ITC will not be transferred to the transferee, and the Electronic Credit Ledger of the acquired entity will receive back the ITC. The Electronic Credit Ledger of the acquiring entity (transferee) will not remain unchanged.