Taxpayer need to file Form GST ITC-02A, if he/she has obtained separate registration for multiple places of business in a State/UT and intends to transfer unutilized matched Input Tax Credit lying in his/her Electronic Credit Ledger to registered entities/place of businesses. This form was not enabled by GSTN but recently HSTN has enabled file of Form ITC-02A.

Before going into this deeper, first we will memorize the section 25(2) of CGST act  where the abstract of the section is as follows :

“A person seeking registration under this Act shall be granted a single registration in a State or Union territory:

Provided that a person having multiple places of business in a State or Union territory may be granted a separate registration for each such place of business, subject to such conditions as may be prescribed.”

The Typical part is of with the proviso, where it says if any person wants to take separate registration for different business verticals in the same state it allows to take.

Goods and Services Tax , GST

For Example let say X is having registration in UP and at the same time he is planning to set up another business where the risks and rewards from the new business was entirely different from the earlier one. Now he is intended to take a separate registration in UP itself as it was permitted by proviso to section 25(2).

There might be a situation where some assets of business 1 are transferred to business 2 then the credit will be laid in business 1,it means ITC in relation to the transferred assets to business 2 will be held with business 1. (There can be number of such instances but for the purpose of example I took one circumstance)

To provide relief to the Tax Payers, now the department has enabled ITC-02A form to facilitate the tax payers to transfer the credit to new verticals with in the same state.

How they can insert such relief, as Act was drafted earlier : As we are aware that the civil right for a tax payer cannot be restricted by any Act in force ( Settled Discussion held in various case laws). Unless there is any provision in Act or law, department cannot provide such relief (because act or law needs to authorize it).

Proviso of Section 25(2) reserves some right with the wording “subject to such conditions as may be prescribed”. With the powers vested with this wording department inserted a new rule, Rule 41A of CGST rule,(inserted through vide notification no.03/2019-CT dated 29.01.2019 w.e.f 01.02.2019) where it provides as:

A registered person who has obtained separate registration for multiple places of business in accordance with the provisions of rule 11 and who intends to transfer, either wholly or partly, the unutilized input tax credit lying in his electronic credit ledger to any or all of the newly registered place of business, shall furnish within a period of thirty days from obtaining such separate registrations, the details in FORM GST ITC-02A electronically on the common portal, either directly or through a Facilitation Centre notified in this behalf by the Commissioner:

What quantum of amount can be transferred to the new verticals:

As per Proviso the Rule 41A : ITC shall be transferred to the newly registered entities in the ratio of assets held by them at the time of registration.

It is to be noted that value of assets means, Value of entire assets of the business whether or not input tax credit has been availed thereon)

For better understanding purpose an example as follows:

ITC available in business 1 is 1,20,000/-

Asset A value is 2,00,000/-(ITC was not availed and ITC portion was capitalized and added to asset value), Asset B value is 3,00,000/-. Asset B was transferred to new business 2

Now ITC can be transferred to Business 2 be

1,20.000 X 3,00,000 / 5,00,000 = 72,000/-

Note : ITC can be transferred or received separate each major head wise and not on cumulative basis. It means Proportionate of IGST/SGST/CGST of each head to be calculated separately

Modus Operandi of ITC-02A :

The newly registered person (transferee – in our example it is business 2) shall, on the common portal, accept the details so furnished by the registered person (transferor – in our example it is business 1) and, upon such acceptance, the unutilised input tax credit specified in FORM GST ITC-02A shall be credited to electronic credit ledger of the transferee.

Navigating Options in GST Portal :

“Services” option beside dashboard => Select option of “Returns” => Select option of ITC Forms, there you can find ITC-02A, under that

In case, if you are transferor – Select option of “Transfer ITC”

In case, if you are transferee – Select option of “Take Action”

It is to be noted that PAN number of Transferor and Transferee should be same.

How in earlier scenario, where ITC-02A was not enabled, credit availed by the transferee (Prior Scenario of ITC-02A) :

1) Transferor used to book sales entry to Transferee, where it unnecessarily increases Turnover with out actual sales made ( because both Transferee and Transferor units are of single person) – Now this type of Transactions will be ended. Further which will be having a serious implications on profits as one cannot book profits with out actual sales made.

2) The cost of booking sales transaction is also high – how ?? i will explain let say in our earlier example to transfer the credit of 72,000/- and entity was dealing in GST rated goods of 5% then transferor needs to book sale of 72,000/5% = 14,40,000/- which drastically increases turnover in the books and leads to unnecessary complications like GST Departmental Audit and compliance with GSTR 9C and some other sections of the GST act where the turnover limits are the criteria for enabling such provisions.

Post receipt of Credit what Transferee should do :

After “Take action” option in the ITC form by the Transferee then the amount will fall in the credit ledgers of the transferee. Transferee needs to reduce the amounts attributable to blocked credit u/s 17(5) and credit specifically attributable for non business purposes should be reversed and balance should be claimed while filing the subsequent 3B return.

Conclusion :

“One of the great mistakes is to judge policies and programs by their intentions rather than their results” – Milton Friedman

Hope this New ITC-02A Form will serve the purpose for which it is intended. Thanks you.

Author Bio

Qualification: CA in Practice
Company: Subhash Soni & Associates
Location: Rajahmundry, Andhra Pradesh, IN
Member Since: 08 Dec 2018 | Total Posts: 2
Chartered Accountant having experience in International Taxation, Mergers and Acquisition and Rich Experience in Problem Solving View Full Profile

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7 Comments

  1. vinita jindal says:

    i have a query
    As per the Amendment, we have to transfer it with in 30 days after obtaining registration.
    1. Suppose initially, new firm has no assets and having low assets then ITC will be negligible
    2. Only old firm can transfer the ITC. newly registered firm can transfer

    1. Samba306 says:

      Hi Vinita,

      Coming to the part of your 2nd point i will answer first : The business vertical which is possessing credit balance in the electronic credit ledger can able to transfer, In case of New Verticals they wont be having credit balance unless they filed the first 3B return and hence we can draw a conclusion that only old vertical can transfer the ITC……………….. With respect to your 1st point, your view is correct that the new vertical will be having low assets at the beginning of the vertical and hence the ITC transferred can be low ( It is to be noted that a controversy opinion also lead by some GST experts due to the wordings given in Rule 41A which inter alia using the literal interpretation, their view was ITC-02A form can be filed monthly (not only once) also, so that new verticals can claim more ITC to set off with their tax liability for every month – This view is also correct based on different judicial pronouncements .Hope we can get clarity over a period of time….. The explanation for this literal interpretation and judicial pronouncement will comes around 3 pages hence i am not able to provide the full data through this comment)

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