M&A in Startups: Don’t Overlook the GST Angle

Mergers & Acquisitions are transformative for startups—but beneath the surface lies a complex layer often overlooked: GST compliance.
Whether you’re a founder preparing for exit, an investor funding scale-ups, or a financial advisor structuring the deal—understanding GST in M&A is critical for protecting value and ensuring seamless integration.
Here’s what you need to know:

Transfer of Input Tax Credit (ITC):

Unutilized ITC can be a significant cash asset—if transferred correctly.
Section 18(3) of the CGST Act and Rule 41 enable ITC transfer via Form GST ITC-02.

💡 In demergers, ITC must be apportioned based on asset value ratios (as per Circular 133/03/2020-GST). Missteps here can lead to ITC loss or scrutiny.

Structure Determines GST Impact

1. Transfer as a Going Concern (TOGC) – Exempt from GST. But only if all business elements are transferred and documented.
2. Slump Sale – May trigger GST depending on asset type.
3. Demerger – Requires meticulous ITC allocation across states/entities to avoid credit reversals and future disputes.

GST Registration & Post-Deal Liabilities

Under Section 87 of the CGST Act, GST registration and liabilities need realignment post-amalgamation. Any oversight here can carry risks or dual tax exposures.

Investor/Advisor Checklist Before Closing a Deal

✔️ Conduct detailed GST due diligence: returns, liabilities, pending litigations.
✔️ Certify ITC transfers with CA validation.
✔️ Align GST compliance with deal structure early—don’t leave it for post-closing.
✔️ Plan cash flows factoring in credit reversals or tax costs.

The GST layer in M&A isn’t just about compliance—it’s about preserving deal value, ensuring smooth transitions, and protecting stakeholder interests.
Have you encountered GST-related roadblocks during a merger, acquisition, or demerger? Let’s discuss in the comments—or connect if you’re planning a transaction and want to future-proof your GST strategy.

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Treelife

Treelife Team | [email protected]

We are a legal and finance firm with a deep focus on the startup ecosystem. We offer a wide range of services, including Virtual CFO, Legal Support, Tax & Regulatory, and Global Expansion assistance.

Our goal at Treelife is to provide you with peace of mind and ease in business.