Section 87: Amalgamation and the Retrospective Order Problem

Section 87 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.

A scheme of amalgamation says the merger takes effect from 1 April. The order approving it comes eighteen months later. What happened to the supplies the companies made to each other in between?

Section 87(1): where two or more companies are amalgamated or merged in pursuance of an order of a court or Tribunal or otherwise, and the order takes effect from a date earlier than the date of the order, and any two or more of them have supplied or received goods or services to or from each other during the period from the effective date to the date of the order, those transactions of supply and receipt shall be included in the turnover of the respective companies and they shall be liable to pay tax accordingly. 87(2): notwithstanding anything in the order, the companies shall be treated as distinct companies for the period up to the date of the order, and their registration certificates shall be cancelled with effect from the date of the order.

The problem the section solves

Company law allows a scheme to specify an appointed date earlier than the date on which the order approving it is made. From the appointed date, the transferor's business is treated as vested in the transferee.

Applied literally to tax, that would mean the two companies were one entity during the interim period — so supplies between them would be supplies to self, outside the levy, and the tax paid on them would be recoverable while the credit taken would be unsupported.

Section 87 blocks that reading. For GST purposes, the transactions remain supplies, are included in turnover, and tax is payable on them.

Section 87(2): distinct companies, and the cancellation date

"Notwithstanding anything contained in the said order" — so the scheme's own terms do not displace this.

Two directions:

Distinct companies up to the date of the order. Each retains its separate identity for GST throughout the interim period. Each files its own returns, holds its own credit ledger, and is separately assessable.

Registration cancelled with effect from the date of the order. Not from the appointed date. So the transferor company's registration remains live — with filing obligations — until the order date.

That is the operationally important point. The instinct after an amalgamation is to stop filing for the transferor. Section 87(2) says the registration subsists until the order date, and the filing obligations subsist with it, together with late fee under s.47 and the risk of cancellation under s.29(2) for non-filing.

What to do during the interim period

Keep transacting normally. Inter-company supplies between the merging entities during the interim period are taxable supplies. Invoice them, report them, pay tax on them, and take credit on them.

Do not reverse credit taken on inter-company supplies on the footing that the entities merged retrospectively. Section 87(1) makes those supplies taxable, so the credit rests on genuine taxable supplies.

Keep filing for both entities. GSTR-1 and GSTR-3B for each GSTIN, up to the order date.

Do not surrender the transferor's registration early. Cancellation is with effect from the date of the order, and premature cancellation strands the credit that has to move under ITC-02.

What to do when the order comes

1. File ITC-02. Section 18(3) with Rule 41 allows the transferor's unutilised input tax credit to be transferred on a merger or amalgamation, with a specific provision for the transfer of liabilities, in FORM GST ITC-02 — filed by the transferor and accepted by the transferee.

Sequence matters: ITC-02 must be filed while the transferor's registration is still active. Once cancelled, the credit is stranded. Section 18(3) and ITC-02 →

2. Apply for cancellation of the transferor's registration, with effect from the date of the order, in FORM GST REG-16, attaching the order.

3. Amend the transferee's registration under Rule 19 for any change in constitution, additional places of business acquired, or authorised signatories.

4. Reconcile the interim-period inter-company transactions — supplies reported by each side against credit taken by the other, since these become an obvious audit target.

5. Record the treatment. A note setting out the appointed date, the order date, the s.87 treatment adopted and the ITC-02 reference belongs in the file, because a departmental audit two years later will ask exactly this.

Section 87 and the accounts

There is an unavoidable divergence between the accounting and GST treatments, and it should be documented rather than left to be discovered.

In the financial statements, an amalgamation accounted from the appointed date will typically eliminate the inter-company transactions of the interim period on consolidation of the merged entity.

In GST, those same transactions are included in turnover and taxed under s.87(1).

So the turnover in the financial statements will not agree to the GST returns for the year in which the merger falls — and that difference has to be explained in the GSTR-9C reconciliation, in the table for unreconciled turnover, with the reason stated. Doing that at the time is far easier than reconstructing it during an audit. GSTR-9C reconciliation →

Related liability provisions

Section 85 — a business transfer makes transferor and transferee jointly and severally liable for pre-transfer dues. An amalgamation is a transfer of business, so s.85 applies alongside s.87. Section 85 →

Section 94(2) — where a change occurs in the constitution of a firm or association, the partners or members before and after the reconstitution are jointly and severally liable for periods before it, without prejudice to s.90.

Section 88 — where a company is wound up, the liquidator's obligations and the personal liability of directors of a private company. Sections 88 and 89 →

Key takeaways

• Section 87(1): inter-company supplies in the interim period between the appointed date and the order date remain taxable and are included in turnover.
• Section 87(2): the companies are distinct companies up to the order date, notwithstanding the scheme.
• Registrations are cancelled with effect from the date of the order — so keep filing until then.
• File ITC-02 before the transferor's registration is cancelled, or the credit is stranded.
• The accounting and GST treatments of the interim period diverge; explain it in the GSTR-9C reconciliation.
• Section 85 applies alongside s.87, making the transferee liable for pre-transfer dues.

Read next

• Section 85: Buying a Business and Inheriting Its GST
• Section 18(3): Transfer of Credit, ITC-02 on Merger or Demerger
• Sections 88 and 89: Liquidation and Director Liability
• Change in Constitution and Fresh Registration Under GST

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition).