Transfer of Input Tax Credit on Conversion of Partnership Firm into Private Limited Company.
Statutory provisions regarding the transfer of input tax credit on sale, merger, lease, or transfer of business.
Sub-section (3) of section 18 of the Central Goods and Services Tax Act, 2017 (in short ‘the CGST Act’) deals with the transfer of credit on sale, merger, lease, or transfer of business. Accordingly, where there is a change in the constitution of a registered person on account of the sale, merger, demerger, amalgamation, lease, or transfer of the business with the specific provisions for transfer of liabilities, the said registered person would be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or assigned business.
The change in the constitution of a registered person includes the conversion of a proprietorship firm into a private limited company. Hence, the input tax credit lying in the input tax credit of the ledger of the proprietorship firm can be transferred in terms of sub-section (3) of section 18 of the CGST Act.
Procedure for transfer of credit.
The procedure for transfer of credit is prescribed under rule 41 of the CGST Rules, as under:–
(i) The registered person would furnish the details of the sale, merger, de-merger, amalgamation, lease, or transfer of business, in Form GST ITC-02 electronically on the Common Portal along with a request to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee (no time limit is prescribed for filing Form GST ITC-2);
(ii) In the case of a demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
The ‘value of assets means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.
(iii) The transferor would also submit a copy of a certificate issued by a practicing chartered account.
(iv) The transferee would accept the details furnished by the transferor on the Common Portal and, upon such acceptance, the unutilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.
Upon transfer of the partnership firm into a private limited company, the GST registration number would get changed. However, this would not affect the entitlement of ITC of the transferee company if the transfer satisfies the conditions specified under sub-section (3) of section 18 and follows the procedure prescribed under rule 41 of the CGST Rules.
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