Equipping Modern Enterprises with Powerful GST, E-Way Bill & E-Invoicing Solutions

logo image
  • GST Filing & Reconciliation
  • E-Way Bill Automation & E-Way Bill APIs
  • E-Invoicing Simplified
  • GSTIN Search
  • Expert Assistance

Form GST ITC – 02

The transfer of input tax credit (ITC) on sale, merger, demerger, amalgamation, lease, or transfer of a business can be done by a taxpayer by filing Form GST ITC-02. In this article, we will discuss Form GST ITC-02 in detail:

What Is Form GST ITC-02?

As per Rule 41(1) of the CGST Rules 2017, a GST registered person should furnish all the details regarding the transfer of credit or ITC, in the event of –

  • Sale
  • Merger/Demerger
  • Amalgamation
  • Lease or
  • Transfer or Change in the ownership of the business in Form GST ITC-02.

This form should be filed electronically on the GST portal by the GST registered person (transferor). Through this form, the transferor will be able to transfer the unutilised ITC lying in his/her electronic credit ledger to the transferee.

What Are The Conditions For Filing Form GST ITC-02?

Few of the important conditions for filing Form GST ITC-02 are:

  • In case of a demerger, the ITC will be apportioned in the ratio of the value of assets of the new entities as specified in the demerger scheme.
  • The transferor is required to submit a copy of a certificate issued by a practising Chartered Accountant or a Cost Accountant certifying that the sale, merger, demerger, amalgamation, lease, or transfer of business has been done in accordance with the applicable laws and regulations.
  • The matched unutilised ITC, as declared in Form GST ITC-02, will be credited to the transferee’s electronic credit ledger as soon as they(transferee) accept the details furnished by the transferor on the GST portal. After that, the ITC and capital goods transferred should be accounted for by the transferee in their books of accounts.
  • In case the registered taxpayer (transferor) is a sole proprietor, and the legal heirs decide to continue the business after the death of the sole proprietor, the transition will be treated as a transfer of a business as per GST act and rules. The credit can be transferred to the GSTIN of the legal heirs as per Rule 41(1) of the CGST Rules, 2017.

How To File Form GST ITC-02?

The process is mainly divided into two stages-

  • The transferor files Form GST ITC-02 on the GST portal stating the matched unutilised ITC under each major head, i.e., Central Tax, State/UT Tax, Integrated Tax and Cess.
  • The transferee accepts/rejects the ITC transferred on the GST portal.

Steps to be taken by the transferor

The following steps are to be taken by the transferor to transfer the matched unutilised ITC on the GST portal:

  1. Login to the GST Portal with valid credentials.
  2. On the Dashboard, under ‘Services’, select ‘Returns’ and then ‘ITC Forms’.
  3. Under ‘GST ITC-02’, click on ‘PREPARE ONLINE’.
  4. In the Form GST ITC-02 the matched unutilised ITC figures are auto-populated from the transferor’s electronic credit ledger.

Here, the transferor has to fill in the GSTIN of the transferee and enter the matched ITC (less than or equal to the auto-populated matched ITC) under each tax head (ITC that needs to be transferred to the transferee).

  1. Under ‘Particulars of certifying Chartered Accountant or Cost Accountant’, details of the certificate issued by the practising Chartered Accountant or the Cost Accountant have to be specified. As mentioned above, this certificate should state that the sale, merger, demerger, amalgamation, lease or transfer of business has been done according to the applicable laws and regulations. The details that need to be filled in here are:
    • Name of the firm that has issued the certificate,
    • Name of the certifying Chartered Accountant or the Cost Accountant,
    • Membership number of the certifying firm,
    • Date on which the certificate has been issued,
    • Scanned copy of the certificate in JPEG/PDF format (not exceeding 500 KB).

Once these details are updated, click on ‘SAVE’. This section can be revisited and edited through the dashboard.

  1. Click on the checkbox to accept the declaration statement.
  2. Select the authorised signatory from the drop-down available.
  3. Choose ‘File ITC-02 with DSC’ or ‘File ITC-02 with EVC’.
  4. Click ‘PROCEED’ on the warning alert to continue to file the Form GST ITC-02

Note:

  • In case the Digital Signature Certificate (DSC) option is selected, the authorised signatory of the transferor has to sign the form with his/her DSC.
  • In case the Electronic Verification Code (EVC) option is selected, the transferor has to enter the OTP received on the authorised signatory’s registered mobile number to
  • The system will show a confirmation message once the form is filed successfully. A system-generated Application Reference Number (ARN) will be made available.
  • The Transferor can then click on ‘DOWNLOAD’ to download the Form GST ITC-02 in PDF format.

Steps to be taken by the transferee

The following steps need to be taken by the transferee to accept the transferred ITC on the GST portal:

  1. Login to the GST Portal with valid credentials.
  2. On the Dashboard, under ‘Services’, select ‘User Services’ and the ‘ITC 02- Pending for actions’.
  3. The system will display:
    • ARN (Link format)
    • GSTIN of the transferor
    • Name of the transferor
    • Date of filing of Form GST ITC-02 and
    • Status of the form – ‘Pending for Action’.

Click on the ARN to proceed.

  1. The system will display the details of the ITC that has been transferred by the transferor under the respective tax heads. On the right bottom corner, there will be two options – ‘ACCEPT’ and ‘REJECT. The Transferee can click on ‘ACCEPT’ or ‘REJECT’ accordingly.
    • In case the transferee clicks on ‘ACCEPT’, the ITC will get successfully transferred to the transferee, and the electronic credit ledger of the transferee will get
    • In case the transferee clicks on ‘REJECT’, the ITC will not get transferred to the transferee, and the electronic credit ledger of the transferee stays unaffected. Whereas, the ITC that was transferred will roll back into the electronic credit ledger of the transferor.
  1. The system will show a confirmation message after accepting the transfer of ITC. Here, the transferee will have to:
  • Click on the checkbox to accept the declaration statement.
  • Select the authorised signatory from the drop-down available.
  • Choose ‘File ITC-02 with DSC’ or ‘File ITC-02 with EVC’.
  1. Click ‘PROCEED’ on the warning alert to accept the transfer of ITC in GST ITC-02.
  2. Sign the form:
  • In case the Digital Signature Certificate (DSC) option is selected, the authorised signatory of the transferee has to sign the form with his/her DSC.
  • In case the Electronic Verification Code (EVC) option is selected, the transferee has to enter the OTP received on the authorised signatory’s registered mobile number to proceed.
  1. The system will show a confirmation message stating the acceptance of the form. The transferee’s dashboard will also be updated (status of the Form ITC-02 will change from ‘Pending for Action’ to ‘Accepted’).