CA Varun Gupta
Quick Summary
1. Introduction The expression "Transfer of Going Concern is not taxable under GST" is commonly used in practice. However, the technically correct position is that transfer of a business as a going concern, as a whole or as an independent part thereof, is treated as an exempt supply of service und
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FAQ :
No, technically a transfer of a business as a going concern is treated as an exempt supply of service under GST, taxable at a Nil rate, provided it meets certain conditions. It is covered under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate).
The business must be live and running at the time of transfer, there must be a genuine transfer of the business (not just individual assets), the transfer can be of the whole business or an independent part, the transferee must be capable of continuing the business, and the continuity of the business must be demonstrable.
A detailed Business Transfer Agreement is essential, ideally including clauses covering the transfer as a going concern, description of the undertaking, assets and liabilities transferred, employee transition, customer contracts, licences, consideration, and GST implications. A Bill of Supply should be issued instead of a tax invoice.
Yes, even though the supply is exempt, the transferor must assess the need for proportionate reversal of common ITC used for both taxable and exempt supplies under Rule 42 and Rule 43 of the CGST Rules. The value of the going concern transfer can significantly impact the ITC reversal ratio.
Under Section 85 of the CGST Act, both the transferor and the transferee are jointly and severally liable for any GST, interest, or penalties due up to the date of transfer. Therefore, the transferee should conduct thorough GST due diligence before finalising the transaction.
The transferee is liable to obtain GST registration from the date of transfer or succession. If they don't have a registration in that state, they must apply for a fresh registration. If they already have a registration, they may need to amend it to include the new place of business.
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