This circular provides clarification on the manner of apportionment and transfer of unutilised input tax credit (ITC) in cases of merger, demerger, amalgamation, or other forms of business reorganisation under section 18(3) of the CGST Act read with rule 41 of the CGST Rules.

It clarifies that in cases of demerger or partial transfer of business, ITC is required to be apportioned in the ratio of value of assets transferred, and such apportionment is to be done at the State level for each distinct registration, and not at the all-India level. FORM GST ITC-02 is required to be filed only in those States where both the transferor and transferee are registered.

The circular further clarifies that the prescribed asset-based apportionment formula applies to all types of business reorganisation involving partial transfer of assets and liabilities, and the ratio is to be applied on the total unutilised ITC, including CGST, SGST/UTGST, IGST and Cess, without applying the formula separately for each tax head. However, the transferor may decide the break-up of ITC under each tax head, subject to availability.

It also clarifies that the ratio of value of assets is to be determined as on the appointed date of demerger as specified in the scheme, while the quantum of ITC to be transferred is to be calculated based on the ITC balance available in the electronic credit ledger on the date of filing FORM GST ITC-02. These clarifications aim to ensure consistency and remove ambiguity in ITC transfer during business restructuring.