Section 18 CGST — ITC in Special Circumstances (New Registration, Composition Switch, Merger)

ITC in Special Circumstances explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

When You Get ITC That Was Previously Unavailable

Section 18 covers four situations where a person becomes entitled to ITC that was not previously available:

18(1)(a) — New Registration

Person who obtains voluntary registration (below threshold but registers anyway) can claim ITC on inputs held in stock, semi-finished, and finished goods on the day immediately preceding the date of registration. Capital goods ITC: reduced by 5% per quarter from date of purchase. File ITC-01 within 30 days. This incentivizes voluntary registration — you recover past GST costs on existing inventory.

18(1)(b) — Switching from Composition to Regular

When a composition dealer switches to regular scheme (voluntarily or because turnover exceeds Rs. 1.5 crore), they can claim ITC on inputs in stock, semi-finished, and finished goods as on the switch date. Capital goods: ITC reduced by 5% per quarter. Must file ITC-01 within 30 days of switch. This makes switching less painful — you recover accumulated input costs.

18(1)(c) — Exempt Supply Becomes Taxable

If a previously exempt supply becomes taxable (government removes exemption), ITC on inputs held in stock for making that supply becomes available from the date the supply becomes taxable. Example: pre-packaged food items became taxable from July 2022 — manufacturers could claim ITC on raw materials in stock as of July 18, 2022.

18(3) — Transfer of ITC on Business Transfer/Merger

On transfer of business as a going concern (merger, acquisition, demerger), the transferor's ITC balance transfers to the transferee. Filed through ITC-02 on the GST portal. Both parties must jointly file. This ensures ITC is not lost merely because of corporate restructuring.

18(4) — Switching from Regular to Composition (ITC Reversal)

When switching TO composition from regular: all ITC on inputs in stock, semi-finished, finished goods, and capital goods must be REVERSED. For capital goods: reverse original ITC reduced by 5% per quarter. File ITC-03 within 60 days. This is the reverse of 18(1)(b) — you surrender accumulated credits.