GST ITC Transfer Not Allowed Between Merged Companies in Different States
This has serious implications for companies undergoing mergers, especially those with multi-State GST registrations.
Let’s break it down in simple terms with legal backing and expert tips.
What Was the Issue About?
Many companies undergoing mergers or amalgamations asked whether they could transfer the unutilised Input Tax Credit (ITC) from one GSTIN (State registration) to another under the same PAN.
This often happens when:
- Two companies merge through a court or tribunal order
- The merging entities had GST registrations in different States
What Did CBIC Clarify?
CBIC Circular No. 209/1/2024-GST dated 26 June 2024 clearly states:
Transfer of ITC under Rule 87(14) read with Section 18(3) of the CGST Act is not allowed if the transferee and transferor are registered in different States or Union Territories.
This is in line with the concept of “distinct persons” under Section 25(4) of the CGST Act, which treats each registration in a different State as a separate entity.
Legal Basis: Why Is ITC Transfer Disallowed?
Here’s how the law stands:
| Legal Provision | Key Point |
|---|---|
| Section 18(3) of CGST Act | Allows ITC transfer in case of sale, merger, demerger, etc. |
| Rule 87(14) of CGST Rules | Lays down Form GST ITC-02A for such transfers |
| Section 25(4) of CGST Act | Treats each State-wise GST registration as a ‘distinct person’ |
| CBIC Circular 209/1/2024 | ITC transfer not allowed between distinct persons |
Expert Tip:
Plan your GST exits carefully. Before finalising any merger or amalgamation, do a State-wise ITC audit.
Practical Impact on Businesses
This CBIC stance affects many practical scenarios:
- Holding-subsidiary mergers: If the holding and subsidiary are in different States, ITC of the absorbed company in State A cannot move to State B.
- Credit loss: Unutilised ITC in the absorbed entity may lapse if not adjusted before merger.
What You Should Do
If you’re planning a corporate restructuring:
✔ Check GSTIN location of both entities
✔ Calculate unutilised ITC per State
✔ Use ITC via outward supplies or refund before merger
✔ Avoid assumptions about automatic credit transfer
✔ Consult with a GST expert for strategic planning
Internal Efiletax Link
Want help with GST exit planning or credit audits?
👉 Talk to an Efiletax GST expert now
External Source for Reference
CBIC Circular No. 209/1/2024-GST:
Available on CBIC site
FAQ: GST ITC Transfer on Amalgamation
Q1.What if ITC is not claimed before merger?
If ITC is not used or refunded before the merger, and the GSTIN is in a different State, the credit may lapse.
Q2. Is there any exception to this rule?
As per current law and CBIC clarification, no exception exists for cross-State ITC transfer during amalgamation.