GST implicattion on business transfer or merger?

13th Nov, 2025| 5 Min read.

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.