Distribution of Input Tax Credit in Business Reorganization by CBIC

The Central Board of Indirect Tax and Customs (CBIC) declared clarification on the distribution of the Input Tax Credit for the cases of business reorganization like a merger, demerger, amalgamation, change in constitution or change in the ownership of the business mentioned under section 18 (3) of the Central Goods and Services Tax (CGST) Rules and Rule 41 (1). The department issued the directions under Circular No. 133 03/2020 CGST dated 23.03.2020.

The Calcifications Were Listed as Below:

• According to Rule 41 (1), the ITC is to be distributed according to the ratio value of assets under the demerger schemes. It is not clear whether the directions are issued for the assets of the states or that in the country. The circular describes that the value of assets will be considered for that of the state. FORM GST ITC-02 is to be filed by the assessees registered under GST Get to know the complete GST registration procedure online on the Indian government GST portal official website. We have explained by the actual screenshot of every step. Read More for the transfer of the asset. Both transferee and transferor. It states that “Under the provisions of the CGST Act, a person/ company (having the same PAN) is required to obtain separate registration in different States and each such registration is considered a distinct person for the purpose of the Act. Accordingly, for the purpose of apportionment of ITC pursuant to a demerger under sub-rule (1) of rule 41 of the CGST Rules, the value of assets of the new units is to be taken at the State level (at the level of distinct person) and not at the all-India level.”
• According to Rule 41 (1), the rule is to be applied in the ITC cases of demerger only. The above state method will be applicable to other cases of the reorganisation of business related to business assets along-with liabilities. The above-stated provisions will now be available to other forms of business reorganizations related to business assets along-with liabilities. The process of calculating the amount of ITC is being described in the circular with the help of an example
• The circular clears the provisions of Rule 41 (1) for the ITC viz. CGST /SGST /IGST Get the brief introduction of SGST, IGST and CGST. We have mentioned their full forms, meanings and adjustments of input tax credit under GST in India. Read More /Cess / and states that, ‘The ratio has been clarified to apply to the total amount of unutilized ITC of the transferor (i.e. the sum of CGST/SGST/UTGST and IGST) and not individually. It is further stated that the said formula shall also be applicable for the apportionment of Cess between the transferor and transferee’. The process of calculating the amount of ITC is being described in the circular with the help of an example
• The formula described under Rule 41 (1) does not clarify the treatment of dates, utilization and the ratio of the assets but the circular clears everything with the help of required examples

Read Also: View and Download All Input Tax Credit Forms


• Rule 41 (1) states that the formula for distribution is applicable for ITC balance of the transferor listed under the e-Ledger dated under Form GST ITC – 02 by the transferor and the circular further clears that the same will be conducted according to the ratio of assets as on the date of the demerger and the ratio is applied on ITC balance on the date listed under FORM GST ITC – 02 to ascertain the amount of ITC transferable