ITC-02 explained: moving unutilised credit to a new owner

When ITC-02 applies

Section 18(3) of the CGST Act allows the unutilised credit of a registered person to be transferred to the transferee where there is a change in constitution because of sale, merger, demerger, amalgamation, lease or transfer of the business, and the arrangement makes specific provision for transfer of liabilities. Rule 41 lays down the procedure. The transferee must be registered under GST.

Procedure under Rule 41

• The transferor files ITC-02 on the portal, giving the transferee's GSTIN and the credit to be transferred under each head
• A certificate from a practising chartered accountant or cost accountant is attached, certifying that the sale, merger or other transaction provides for transfer of liabilities
• The transferee accepts the details on the portal, and the credit moves to its electronic credit ledger
• The inputs and capital goods transferred must be recorded in the books of the transferee

Demerger

In a demerger, credit is apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme. The value of assets means the value of the entire assets of the business, whether or not credit has been availed on them. Work out this ratio from the scheme documents before filing.

Practical points

ITC-02 should be filed while the transferor's registration is still active and before it is cancelled, because a cancelled GSTIN cannot file it. The transferor should have filed all returns up to the date of transfer. If the business is transferred without a clause on liabilities, credit cannot move under this route. A professional can review the transfer agreement, prepare the certificate and coordinate both sides of the filing.

Get it handled for you

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This guide explains the law in general terms as of October 2026. Time limits and requirements can depend on the facts of your case and on the notice you received.