Transfer of ITC on Change in Constitution (Section 18(3))
# Transfer of ITC on Change in Constitution [Section 18(3)]
## When the Provision Applies
Unutilised ITC in the credit ledger may be transferred to a successor business in the following cases:
Sale of business
Merger / Demerger / Amalgamation
Lease or transfer of business
Change in ownership (including death of proprietor)
## Conditions & Procedure
Step
Requirement
1
Transferor (registered person) files Form ITC-02 on the portal
2
Attach a CA/CMA certificate confirming that the change is accompanied by a provision for transfer of liabilities
3
Transferee accepts the details on the portal
4
On acceptance, ITC is credited to the transferee's electronic credit ledger
## Important Operational Rules
1. State-level transfer only — Transfer happens at the State/UT level, NOT all-India.
2. Demerger — ITC transfer is in the proportion of value of assets transferred, irrespective of whether ITC was originally taken on those assets.
3. Multiple Place of Business (within same State/UT) — A registered person obtaining separate registration for multiple places of business in a State/UT may transfer ITC to any/all newly registered places in the ratio of value of assets held at the time of registration.
## Key Formula for Demerger
$$\text{ITC Transferable} = \text{Total Unutilised ITC} \times \frac{\text{Value of Assets transferred}}{\text{Total Value of Assets}}$$
Worked example
### Example 1
Example — Demerger ITC Transfer
ABC Ltd. demerges its 'Chemicals Division' to XYZ Ltd. on 1st June 2026.
Total assets of ABC Ltd. = ₹50 crore
Assets transferred to XYZ Ltd. = ₹20 crore
Unutilised ITC in ABC Ltd.'s credit ledger = ₹5,00,000
This applies even if some of the transferred assets never carried ITC originally.
### Example 2
Example — Death of Proprietor
Mr. A (proprietor) dies on 15th April 2026. His son inherits the business and obtains fresh registration. Mr. A's credit ledger has ₹3,50,000 unutilised ITC.
Process: The legal heir files ITC-02 with a CA certificate confirming transfer of liabilities. After acceptance, the entire ₹3,50,000 transfers to the son's credit ledger (assuming same State).
⚠️ Common exam mistakes
Attempting cross-state ITC transfer — Section 18(3) transfer is strictly STATE-LEVEL.
Forgetting to include a transfer-of-liabilities clause in the demerger/sale agreement; without it, ITC cannot transfer.
In demerger, transferring ITC based on the ITC originally taken on transferred assets — it should be based on VALUE of assets transferred regardless of ITC history.
Skipping the CA/CMA certificate — this is mandatory for ITC-02 filing.
Bare-Act text Section 18(3) · CGST Act, 2017 · click to expand
Section 18(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.