IGST Section 18 — Transfer of input tax credit

IGST Act · Transfer of input tax credit

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Quick Answer

Section 18 of the IGST Act, 2017 governs Transfer of input tax credit. It provides the core statutory basis, outlining the essential legal principles, rights, and liabilities under Indian indirect tax law. Section 18 IGST: Transfer of input tax credit — eligibility, conditions, case laws and compliance impact under Indian tax law.

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Plain-English Explanation

Plain English Summary

Section 18 of the IGST Act, 2017 outlines the mechanism for transferring input tax credit (ITC) related to Integrated Goods and Services Tax (IGST) when it's used to pay Central GST (CGST), Union Territory GST (UTGST), or State GST (SGST). In essence, it ensures that the correct government (Central or State/UT) receives the revenue when IGST credit is utilized to offset liabilities under other GST components.

This section becomes relevant whenever a registered taxpayer uses the IGST credit available in their electronic credit ledger to pay their CGST, UTGST, or SGST liabilities. This is permissible under the GST law, which prioritizes the utilization of IGST credit before using CGST or SGST credit. Section 18 ensures that the Central Government, which initially collects the IGST, transfers the appropriate amount to either the Central GST account, the Union Territory GST account, or the respective State GST account, depending on how the credit was utilized.

Here's a breakdown of the key conditions and processes involved:

IGST Credit Utilization: This is the trigger. The taxpayer must have actually utilized their IGST credit to pay either CGST, UTGST, or SGST.
Reduction of IGST Collection: Upon such utilization, the total IGST collection by the Central Government is reduced by the amount of IGST credit used.
Transfer of Funds: The Central Government then transfers an equivalent amount from the IGST account to the appropriate account.
- If IGST credit was used to pay CGST, the transfer is to the Central GST account.
- If IGST credit was used to pay UTGST, the transfer is to the Union Territory GST account.
- If IGST credit was used to pay SGST, the transfer is to the account of the appropriate State Government (the state where the taxpayer is registered).
Timelines and Manner: The specific manner and timelines for these transfers are prescribed under the GST Rules. Businesses do not have to directly manage these fund transfers, as they are handled internally by the government.
"Appropriate State": The term "appropriate State" refers to the State or Union Territory where the taxable person is registered or liable to be registered under the CGST Act. This is crucial for determining where the IGST amount should be transferred when used to offset SGST liabilities.

Let's illustrate with a few practical examples:

Example 1: A manufacturer in Maharashtra (registered under GST in Maharashtra) sells goods inter-state, collecting IGST of ₹50,000. Later, their CGST liability is ₹30,000. They use their IGST credit to pay the CGST. Section 18 now mandates that the Central Government reduces its IGST collection by ₹30,000 and transfers ₹30,000 from the IGST account to the CGST account.
Example 2: A trader in Delhi (registered under GST in Delhi) sells goods inter-state, collecting IGST of ₹20,000. They also have a UTGST liability of ₹10,000. They use their IGST credit to pay the UTGST. The Central Government reduces its IGST collection by ₹10,000 and transfers ₹10,000 from the IGST account to the Delhi UTGST account.
Example 3: A service provider in Tamil Nadu (registered under GST in Tamil Nadu) sells services inter-state, collecting IGST of ₹40,000. Their SGST liability is ₹25,000. They use their IGST credit to pay the SGST. The Central Government reduces its IGST collection by ₹25,000 and transfers ₹25,000 from the IGST account to the Tamil Nadu SGST account.

Important Considerations for Businesses:

While businesses don't directly perform these fund transfers, understanding this section is crucial for:

Reconciliations: It helps reconcile your GST returns and electronic credit ledger with the government's records.
Understanding Credit Utilization: Knowing how IGST credit is used and its implications on government revenue helps businesses better manage their ITC.
Avoiding Disputes: While the transfer is internal, understanding the process can help you understand potential discrepancies (though rare) and address them effectively.

Amendments: There haven't been any major amendments directly to Section 18 of the IGST Act. However, changes in GST rules regarding the order of ITC utilization (Rule 88A of the CGST Rules) can indirectly impact how Section 18 comes into play.

In conclusion, Section 18 of the IGST Act provides a vital mechanism for the smooth transfer of funds between government accounts when IGST credit is utilized to offset other GST liabilities. It ensures that the revenue is correctly allocated to the Central or State/UT governments, based on where the credit was ultimately used. While the process is handled internally by the government, businesses benefit from understanding the underlying principles for better GST compliance and ITC management.

(1)Subject to such conditions and restrictions as may be prescribed -

(a)a person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act;

(b)a person who takes registration under sub-section (3) of

section 25 shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration;

(c)where any registered person ceases to pay tax under

section 10 , he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under

section 9 : Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed ;

(d)where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed .

(2)A registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.

(3)Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed .

(4)Where any registered person who has availed of input tax credit opts to pay tax under

section 10 or, where the goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed , on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption: Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

(5)The amount of credit under sub-section (1) and the amount payable under sub-section (4) shall be calculated in such manner as may be prescribed.

(6)In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under

section 15 , whichever is higher: Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under

section 15 .

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Frequently Asked Questions

Under what circumstances can input tax credit (ITC) be transferred under IGST Section 18?

Section 18 of the CGST Act (applicable to IGST through Section 20 of the IGST Act) allows for the transfer of ITC primarily in cases of business reorganization, such as mergers, demergers, amalgamation, sale, transfer, or lease with the specific provision for transfer of business. It's crucial that the transfer results in a change of ownership and the new owner is liable to pay GST.

What is the procedure for transferring ITC in case of a business transfer? What documents are required?

The transferor (selling business) must furnish details of the transfer, including the amount of ITC to be transferred, to the jurisdictional tax officer. The transferor and transferee both must file Form GST ITC-02 on the GST portal before such transfer. Key documents required generally include a copy of the agreement for transfer/sale of the business, CA certificate certifying the transferred ITC and the transferor's GST registration details, the transferee's GST registration details. The GST portal may require additional information.

What happens to the unutilized ITC if the business is transferred without fulfilling the conditions outlined in Section 18?

If the transfer does not meet the criteria specified in Section 18 or ITC-02 is not filed correctly, the unutilized ITC cannot be transferred to the transferee. The transferor entity remains liable for the ITC and can utilize it against their own output tax liability, assuming they continue to have taxable supplies. If the entity ceases to exist without proper transfer, the ITC is effectively lost.

Can ITC related to capital goods be transferred under Section 18?

Yes, the ITC related to capital goods can also be transferred under Section 18, provided all the conditions for business transfer are met. The amount of ITC to be transferred should be determined based on the remaining useful life of the capital goods as per the provisions of the GST law.

What is the time limit for transferring ITC under Section 18?

While the law doesn't explicitly define a time limit for filing GST ITC-02 after the transfer of business, it is advisable to file the form and complete the ITC transfer process as soon as possible after the transfer takes place. Delaying the transfer can lead to complications and potential disputes with tax authorities.

What happens if the details furnished in Form GST ITC-02 are found to be incorrect or misleading?

Furnishing incorrect or misleading information in Form GST ITC-02 can lead to penalties and/or interest under the GST law. The transferee may also face denial of the ITC if the details provided by the transferor are found to be false. It's critical to ensure accuracy and completeness of the information provided.

If a business is transferred from one state to another, how does IGST Section 18 apply to the transfer of ITC?

When a business is transferred from one state to another, the IGST implications are similar. The transferor needs to determine the eligible ITC (including CGST, SGST/UTGST, and IGST) available for transfer. The transferee's GST registration in the other state will be used to claim the transferred ITC. The same ITC-02 procedure applies, ensuring all documentation correctly reflects the interstate transfer.

Key Conditions & Requirements

Condition	Details
Utilisation of IGST credit	The transfer of input tax credit occurs only upon utilisation of the credit of integrated tax (IGST) availed under the IGST Act.
Payment of Central Tax	If IGST credit is used for payment of Central Tax (CGST) as per Section 49(5) of the CGST Act, the integrated tax amount collected is reduced by the utilised credit.
Transfer to Central Tax Account	The Central Government must transfer an amount equal to the reduction from the integrated tax account to the central tax account.
Payment of Union Territory Tax	If IGST credit is used for payment of Union Territory Tax (UTGST) as per Section 9 of the UTGST Act, the integrated tax amount collected is reduced by the utilised credit.
Transfer to Union Territory Tax Account	The Central Government must transfer an amount equal to the reduction from the integrated tax account to the Union Territory tax account.
Payment of State Tax	If IGST credit is used for payment of State Tax (SGST) as per the respective SGST Acts, the integrated tax amount collected is reduced by the utilised credit.
Apportionment to State Government	The reduced amount (due to SGST payment) must be apportioned to the appropriate State Government.
Transfer to State Government Account	The Central Government must transfer the apportioned amount to the account of the appropriate State Government.

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Amendment History

Enforced w.e.f. 1st July, 2017.

No numbered amendments recorded for this section.