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Transition to GST

Updated on :  

08 min read

GST consolidates multiple taxes into one. It is important to have rules in place to ensure that a registered business smoothly transitions to GST.

Let’s discuss each of these cases in detail :

Input Tax Credit

Provisions have been made for the smooth transition of Input Tax Credit available under VAT, Excise Duty or Service Tax to GST.  A registered dealer opting for composition scheme will not be eligible to carry forward ITC available in the previous regime.

Here are some of the cases where ITC transition provisions will be applicable:

Closing balance of credit on Inputs:

The closing balance of ITC as per the last return filed before GST can be taken as credit in the GST regime.

The credit will be available only if the returns for the last 6-months i.e. from January 2017 to June 2017 were filed in the previous regime (i.e. VAT, Excise and Service Tax returns had been filed).

Form TRAN 1 has to be filed by 27th December 2017 to carry forward the Input Tax Credit. Also, TRAN 1 can be rectified only once.

Credit on Capital Goods:

Before GST, only a part of input tax paid on Capital Goods could be taken as credit.

For example, if ITC on a Capital Good purchased in the year 2016-17 is Rs 10,000,

50% i.e. Rs 5,000 can be claimed as ITC in the same year and balance Rs 5000 can be claimed in the next year.

In such cases, there could be some amount of un-utilized credit available on the capital goods. This credit can be carried forwarded to GST by entering the details in Form TRAN 1.

Credit on Stock:

A manufacturer or a service provider who has goods lying in the closing stock on which duty has been paid can also take the credit for the same. The dealer has to declare the stock of such goods on the GST Portal.

The dealer should have the invoices for claiming this credit. Also, the invoices should be less than 1 year old.

What if you don’t have invoices?

Manufacturers or service providers who do not have an invoice evidencing payment of duty, cannot claim the credit under the GST regime. Only traders can claim credit in case invoice is unavailable, subject to the following conditions:

  • The stock should be identified separately
  • The credit can be taken by the trader only if the benefit of the same is passed on to the final consumer
How will credit be taken in case of no invoice?
Rate of GST on GoodsIntra-state  Credit to CGSTInter-state Credit to IGST
18 % or more60%30%
Less than 18%40%20%

Registered persons who were not registered under previous law

Every person who is

  • registered dealer and was unregistered under previous law
  • Who was engaged in the manufacture of exempted goods or provision of exempted services
  • Who was providing works contract service and was availing abatement
  • A first stage dealer or a second stage dealer
  • A registered importer

can also enjoy ITC of inputs in stock held on 1st July. The following conditions must be fulfilled –

  • Inputs or goods are used for making taxable supplies
  • Such benefit is passed on by way of reduced prices to the recipient
  • Taxable person is eligible for input tax credit on such inputs
  • The person is in possession of invoices evidencing payment of duty under the earlier the law
  • The invoices are not older than 12 months
  • The supplier of services is not eligible for any abatement under GST

ITC on Goods Sent Before 1st July

Input tax credit can be claimed by the manufacturer/dealer for those goods received after the appointed day, the tax on which has already been paid under previous law. Above credits would only be allowed if the invoice/tax paying document is recorded in the accounts of such person within 1st August 2017. A thirty-day extension may be granted by the competent authority on grounds of sufficient cause for delay.

Refunds and Arrears

Any claims/appeals pending for the refund on the due amount of CENVAT credit, tax or interest paid before 1st July shall be disposed of according to the previous laws.  

Any amount found to be payable under previous law will be treated as arrears of GST and be recovered according to GST provisions.

Other Cases

Job Work

No tax shall be payable on Inputs, semi-finished goods removed for job work for carrying certain processes and returned on or after 1st July Conditions when there is no tax payable:

  • Goods are returned to the factory within 6 months from 1st July (extendable for a maximum period of 2 months)
  • Goods held by job worker Is declared in Form TRANS-1
  • Supply of semi-finished goods is done only on payment of tax in India or the goods are exported out of India within 6 months from 1st July (extendable by not more than 2 months)

Taxes are not applicable if finished goods were removed before 1st July for carrying certain processes and are returned within 6 months from 1st July

Input tax credit will be recovered if the goods are not returned within 6 months

Credit Distribution by Input Service Distributor

Transition provisions will apply in cases where the service was received prior to 1st July and the invoices received on or after 1st July.ISD will be eligible to distribute input tax credit under GST.

Composition Dealer

When a registered dealer who was paying tax under composition scheme previously but is a normal taxpayer under GST can claim credit of inputs available as on 1st July by satisfying certain conditions –

  •         The Input is used for taxable supply
  •         Registered Person is eligible for ITC under GST
  •         Invoice or other duty payment documents are available
  •         Such invoices are not more than twelve months old

To know more about TRAN 1 and TRAN 2 forms, go to – Transition of old input credits to GST regime

All Articles

  1. A step-by-step guide to prepare TRAN-1 using the offline tool templates, and then generate and upload the JSON file.
  2. The Sabka Vishwas Scheme is for resolving disputes relating to the erstwhile Service Tax and Central Excise Acts, with relief provided by the government.
  3. Here is a step-by-step process to file the TRAN-2 form on the GST portal : Note: Ensure that you file the TRAN-1 Form and the GSTR-3B return of the relevant month before you proceed with these steps. Step 1: Login
  4. TRAN-1 can be filed and revised once on the GST Portal till 27th December 2017. Here is a step by step guide to file TRAN-1 on GST Portal/ GSTN.
  5. A manufacturer or dealer has to file TRAN-3 to carry forward ITC from Credit Transfer Document (CTD).Here is a guide to file TRAN -3 on GST Portal:
  6. Filing VAT and Service Tax returns for June 2017 is very important. It is required to carry forward ITC in VAT or Service Tax to GST.
  7. What happens to the CENVAT Credit when a dealer who was not registered under Excise Act receives goods cleared before 1st July 2017? Learn more...
  8. The first evidence of an economy changing its slow gears is seen in the invoices that are being generated countrywide. Don't worry, we're here to help!
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  10. ITC claim on stock and transition forms, TRAN-1, TRAN-2 to be filed depending on registered under pre GST regime, due dates for TRAN 1 & TRAN 2
  11. This is a short list of things, provisions and laws to remember while transitioning to GST. Read to find out more.
  12. Goods leaving a seller when VAT is applicable might reach buyers after GST is live. Read more on the transition provisions of goods in transit under GST.
  13. The GST Law has an entire chapter on transition provisions. Learn more about the provisions related to works contract, ISDs, and goods lying with agents.
  14. In an ongoing business dealing with contracts, contract price revision is very common. What happens when contract price is revised after GST?
  15. Businesses are worried about the taxability of goods sent on approval basis before GST and returned after GST implementation.
  16. Revision of VAT returns and other returns of old tax regime will be allowed after GST is implemented, with certain restrictions.
  17. Unregistered persons can claim CENVAT credit upon registering under GST. Read to find out how much input tax credit you can avail.
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  19. More than 140 countries have implemented GST. Now let us take a look at what the other countries faced post implementation of gst.
  20. Forms Required for Transition of Input Tax Credit are Tran 1, Tran 2. criteria is holding closing stock , registration, having document showing tax payment
  21. Tax on Goods Return after GST provisions for refunds and tax payable on the type of goods returned by a registered taxpayer or unregistered taxpayer
  22. Under GST ITC on stock transition provision provides credit of duties held in inputs, semi-finished goods, finished goods available to eligible taxpayers
  23. Major concerns is the availability and eligibility for claim of ITC available for utilization, when the current indirect tax regime changes to GST.
  24. A guide on system requirements specified by GSTN for accessing the GST common portal and usage of the digital signature certificate.
  25. Many countries have adopted the GST model before India. Read more for a comparison of Indian GST with GST of other countries
  26. More than 140 countries have implemented GST. Now let us take a look at what the other countries faced post implementation of gst.
  27. A detailed guide on how SMEs can migrate from the current tax regimes to GST.