Implication of GST on Transfer of business by the mode of Meger or normal transfer
When a business is transferred or merged, the Goods and Services Tax (GST) implications depend on the nature of the transaction — whether it is a transfer of a going concern, merger/amalgamation, or slump sale/asset sale. Here’s a detailed breakdown:
1. Transfer of a Going Concern
A “transfer of a going concern” means transferring a business as a whole, including assets and liabilities, that is capable of being carried on by the new owner.
GST Treatment:
- Exempt Supply under Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017, Entry 2:
“Services by way of transfer of a going concern, as a whole or an independent part thereof” are exempt from GST.
- Implication:
- No GST is payable on the transfer consideration.
- It must genuinely be a “going concern” (i.e., a live business with continuity of operations).
- The transferee usually assumes assets, liabilities, employees, and ongoing contracts.
- Input Tax Credit (ITC):
- ITC on inputs and capital goods used for the transferred business may be transferred to the transferee under Rule 41 of the CGST Rules, subject to filing Form GST ITC-02.
2. Amalgamation / Merger / Demerger
When two or more companies merge under a court or NCLT order, the GST effects are as follows:
🧾 GST Treatment:
- Schedule II, Entry 4(c) of the CGST Act:
- Transfer of business assets is not treated as a supply if it occurs by virtue of a merger or amalgamation under a court order.
- Effective Date of Merger:
- If the order specifies a “backdated” effective date, supplies made between that date and the date of the order are treated as if made by the transferee company.
- The transferee is liable to pay tax on such supplies.
Input Tax Credit (ITC):
- ITC balance can be transferred to the new entity under Rule 41(1) using Form GST ITC-02.
- Proper documentation of asset/liability transfer is essential.
3. Slump Sale or Asset Sale (Not Going Concern)
If the transfer is not a going concern, but rather a sale of individual assets, then GST applies normally.
GST Implications:
- Treated as supply of goods (if assets) or services (if rights or goodwill).
- Applicable GST rate depends on the nature of the asset (e.g., 18% on goodwill, 5%/12% on machinery, etc.).
- ITC reversal may apply to the seller for assets sold if previously claimed.
4. Compliance Points
| Transaction Type | GST Payable | ITC Transfer Allowed | Key Form |
| Transfer of Going Concern | ❌ Exempt | ✅ Yes | GST ITC-02 |
| Merger/Amalgamation (Court approved) | ❌ (subject to conditions) | ✅ Yes | GST ITC-02 |
| Slump Sale/Asset Sale (Not Going Concern) | ✅ Yes, based on asset type | ❌ Generally No | Normal Returns |
Key Considerations
- Ensure proper documentation and valuation of assets/liabilities.
- Inform jurisdictional officer of change in business constitution.
- Amend GST registration details or apply for a new registration (for transferee).
- Maintain proof of continuity (contracts, staff, customers) for going concern status.
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