GST Transition: Process of GST Migration

The Goods and Services Tax abolished all other forms of indirect taxes. Today, individuals and businesses who supply goods and services are required to pay GST on the value of the goods and services supplied. Existing businesses, which used other forms of indirect tax, can transition to GST. There are certain provisions relating to the transition to GST. First, the business should register itself under GST and then the provisions of GST transition would become applicable. The GST registration transition can be done using the following steps –

  • When the registered dealer wishes to transition to GST, he would be issued a provisional registration certificate of transition in a prescribed form. This form is Form GST REG-25.
  • To finalise the registration after receiving the registration certificate in Form GST REG -25, the dealer should submit all the relevant documents in Form GST REG – 24
  • If the details provided by the dealer are proper and satisfactory, the final registration certificate would be issued. This certificate would be issued in Form GST REG – 06
  • If an assessee was registered under Central law and State law and the assessee is not required to register for GST, the provisional certificate, issued in Form GST REG-25 can be cancelled. Such cancellation should be done within 30 days of transition to GST in Form GST REG-28.

Now that you know how an individual and business can transition to GST, it is time to learn about GST transition provisions. These provisions help assessees to smoothly transition to GST without any problems. Moreover, the provisions help assessees switch to the GST regime without losing the earned tax benefits in the previous regime. The different types of GST transition provisions are as follows –

GST transition provision for Input Tax Credit

Under the previous regime, assessees availed Input Tax Credit for under VAT, service tax, customs duty, etc. There are provisions in the GST Act to transfer the earned Input Tax Credit to GST. The transition provisions are different for different instances. Such instances include the following –

  • The closing balance of the Input Tax Credit, which can be found in last return filed by the assessee before GST, can be availed as a credit under the new GST regime. To avail the credit, the assessee should have filed the returns of the last six months before GST was introduced. This means, that the returns from January to July 2017 should have been filed and the Input Tax Credit balance as per that return would be considered as credit. To carry forward the credit available under Input Tax Credit scheme of the last regime, the assessee should fill Form TRAN 1 by 27th December, 2017. Once filled, the form can also be rectified but rectification is allowed only once.
  • Under the previous regime, only a part of the Input Tax which was paid on capital goods was allowed as Input Tax Credit. The remaining part would, therefore, remain unutilised. This remaining part can be transferred to GST by filling up Form TRAN 1
  • Any manufacturing unit or a service provider might have paid duty on the goods which are still held in stock when GST was introduced. The duty paid on such stock of goods can be availed as credit in GST. To avail credit, the goods should be declared by the assessee on the GST portal. The goods should also be supported by their invoices which should not be more than one year old. If the invoice showing the duty paid on goods is not available, credit under GST would not be allowed. However, traders would be able to avail credit even in the absence of invoices provided that the stock is identified separately and the credit is passed on to the final consumer of the stock. In case of non-availability of invoices, the credit can be availed in the following manner –
    GST rate Intra-State credit  Inter-State Credit
    Below 18% 40% 20%
    18% and above 60% 30%

    A registered dealer who fulfils the following criteria can also avail Input Tax Credit.–

    1. Was not registered under the previous law
    2. Is engaged in the manufacture of GST exempt goods or provides GST exempt supplies
    3. Provides work contract service and gets abatement
    4. Is a first stage or a second stage dealer
    5. Is a registered importer

    To avail credit, the following conditions should be fulfilled –

    1. The inputs or goods should be used for making supplies which are taxable
    2. The credit should be passed on to the customers in the form of reduced prices
    3. The assessee should be eligible to receive input tax credit on the inputs
    4. There should be invoices which show the payment of duty under the previous regime
    5. The invoices should not be more than 12 months old
    6. The supplier of services should not be eligible to receive abatement under GST
  • If the goods or services are received after the date of GST introduction but the duty on such goods and services has been paid beforehand, input tax credit would be available. To avail credit, the invoice should be recorded within 1st August, 2017. If there is a delay, an extension of 30 days can be allowed provided the extension is allowed by a competent authority and the delay is due to a justifiable cause.
  • If there are any claims or appeals for refunds which are pending, the refund would be done as per previous laws. The refund should relate to the amount of CENVAT credit, interest or tax paid before 1st July, 2017.
    Moreover, any amount which is payable under the previous tax regime would be considered to be arrears under the GST regime. Such arrears would then be recovered as per the provisions of the GST Act.
  • If the goods are lying with an agent and a VAT has been paid on such goods, the agent can claim an input tax credit. To claim this credit, the agent should be registered under GST. The principal to whom the goods belong should declare the stock of such goods which are lying with the agent. This declaration should be done in Form GST TRAN 1 and the form should be submitted within 60 days of the appointed date. The invoice of the goods should not be more than 12 months on the date preceding the appointed date and the principal should not have reversed or received input tax credit bon such goods.
  • If goods and services are in continuous supply, GST would not have to be paid on the supply of such goods and services after the implementation of GST if the consideration for supply of goods or services was received before the appointed date and the applicable tax has already been paid as per the previous law.

A brief about the differed GST transition forms and credit

TRAN -1 Form – This form should be filled by all registered taxpayers who want to avail an input tax credit on the closing stock of the goods which they have on 1st July, 2017. The form would contain the GSTIN number, trade name, name of the registered person and other details relating to input tax credit.

TRAN -2 Form – This form is applicable for individuals and businesses that have not registered under any tax regime which existed before GST was introduced but such individuals have closing stock of goods on 1st July 2017 for which they might or might not have any input tax.

Credit for Excise and additional Customs Duty – Prior to GST introduction, manufacturing businesses had to pay excise duty on manufacturing their goods and no credit was given for excise duty or additional customs duty paid by them. However, GST is levied on the supply of goods and not on their manufacture. So, if businesses had paid excise duty on their manufacturing activities and they transition to GST, they would not be grated any credit for the excise duty or additional customs duty already paid by them.

GST transition provision for job work

Tax would not be payable on semi-finished goods or inputs which have been removed for job work for doing specified processes and if such inputs or semi-finished goods were returned on or after 1st July 2017. The conditions under which no tax would be payable include the following –

  • Goods are returned back to the factory within 6 months starting from 1st July. The period can also be extended to up to a maximum of 2 years.
  • The goods which are held by the job worker have been declared in Form TRANS -1
  • The supply of the semi-finished goods is done only on the tax which is paid in India or if the goods are exported within 6 months starting from 1st July. The period can also be extended to up to a maximum of 2 years.

If the goods were removed before 1st July and are returned back within 6 months starting from 1st July, tax would not be applicable. However, if the goods are not returned within 6 months, the input tax credit would be recovered.

GST transition provision by input service distributor

If the service was received before 1st July but the invoices are received on or after 1st July, GST transition provisions would become applicable.

GST transition provision for composite dealers

If a registered dealer was paying tax on the basis of composite scheme under the previous tax regime, but becomes a normal taxpayer under the GST regime, he can avail input tax credit. To avail the credit, however, the following conditions would have to be met –

  • The input should be used for taxable supplies
  • The registered dealer should be eligible for Input Tax Credit under GST
  • The invoice of the goods or supplies or any other document showing the duty paid should be available
  • The invoices should not be older than a year.

Every taxable individual or business supplying goods or services should follow the above-mentioned GST transition provisions to transition to the GST regime so that the business adheres to the current tax laws of the country.

Frequently Asked Questions

Q Is GST transition hard?

No, GST transition is a simple affair which can be done by filling the relevant forms and submitting them with your complete information.

Q Is there a charge levied on GST transition?

No, there is no charge which is levied on GST transition.

Q Is it necessary to transition to GST?

The GST tax regime has become applicable to all businesses since 2017. So, if you want your business to follow the legal framework of India you should transition to the GST regime.

Q Is GST applicable on advance payment done to the contractor?

Any advance which is paid to contractors would be eligible for GST. Such contractors would have to pay GST on the advance payments that they have received.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.