Section 85 of CGST Act: Liability in Case of Transfer of Business

Section 85 of the Central Goods and Services Tax Act, 2017 deals with GST liability when a taxable person transfers a business, wholly or partly. It protects Government revenue by making the transferor and transferee jointly and severally liable for specified pre-transfer dues, while also fixing the transferee's liability for supplies made after the transfer.

Key point: A transfer of business does not by itself wipe out GST dues relating to the period up to the transfer. Subject to Section 85, liability can attach to both the transferor and the transferee.

What Section 85 covers

The provision applies where a taxable person who is liable to pay tax under the CGST Act transfers the business in whole or in part. The statutory language is broad and expressly includes transfer by sale, gift, lease, leave and license, hire, or any other manner whatsoever.

Section 85(1): Joint and several liability for earlier dues

Where a taxable person transfers the business wholly or partly, the transferor and the person to whom the business is transferred are jointly and severally liable, wholly or to the extent of the transfer, for tax, interest or penalty due from the transferor up to the time of transfer.

This rule applies whether the relevant tax, interest or penalty had already been determined before the transfer and remained unpaid, or is determined after the transfer.

"Joint and several liability" means that, within the scope of the statutory liability, the dues are not confined only to the original taxable person. The revenue may enforce the liability against persons made liable by Section 85, subject to the Act, the facts of the transfer and applicable legal remedies.

Section 85(2): Liability of the transferee after transfer

If the transferee carries on the transferred business, whether in the transferee's own name or another name, the transferee is liable to pay GST on supplies of goods or services or both made from the date of transfer. Where the transferee is already registered, Section 85(2) also requires an application within the prescribed time for amendment of the registration certificate.

Practical effect of Section 85

Situation	GST consequence
Business transferred wholly or partly	Section 85 may impose joint and several liability on transferor and transferee for dues up to the transfer.
Old liability is quantified only after transfer	The section expressly extends to qualifying pre-transfer dues determined after the transfer.
Transferee continues the business	The transferee is liable for GST on supplies made from the date of transfer.
Registered transferee has relevant registration particulars changed	Registration compliance, including amendment where applicable, should be completed within the prescribed framework.

Related registration provision

Section 22(3) of the CGST Act is also relevant to succession or transfer of a business. A person to whom a registered person's business is transferred as a going concern, whether on account of succession or otherwise, is liable to be registered with effect from the date of the transfer or succession, subject to the statutory provision.

For changes in registration particulars, the applicable CGST Rules and the GST common portal procedure should be checked at the time of filing because forms and portal workflows may be amended.

Transfer of unutilized input tax credit

A business transfer may also involve input tax credit issues. Rule 41 of the CGST Rules provides a mechanism for transfer of unutilized input tax credit in cases such as sale, merger, demerger, amalgamation, lease or transfer of business, subject to the prescribed conditions. FORM GST ITC-02 is used for the prescribed electronic process where the rule applies.

Important: Section 85 concerns liability for tax, interest and penalty. Transfer of input tax credit is a separate compliance issue and must satisfy the applicable provisions and conditions.

Due diligence before transfer of a business

Because Section 85 can expose a transferee to pre-transfer GST dues, parties should identify outstanding returns, assessments, demands, interest, penalties, recovery proceedings and pending disputes before completing a transfer. The transaction documents should clearly address tax liabilities and records, but contractual allocation between the parties does not by itself override a statutory liability imposed by the CGST Act.

Official GST resources

For the statutory text and current GST material, refer to the official CBIC GST resources and the GST common portal. Users should verify the latest notifications, rules, circulars and portal requirements before acting on a transaction.

Related CGST Act provisions

Updated: 15 September 2026. This page is a general legal information resource. Check the current statute, rules, notifications and facts applicable to a particular transaction.