A Complete Guide to TRAN 1 and TRAN 2 Forms

The Goods and Services Tax (GST) regime in India introduced various forms for GST compliance, including the TRAN 1 and TRAN 2 forms. To make the transition to the new GST tax system easier for businesses, the Central Board of Excise and Customs (CBEC) has created two forms – GST TRAN 1 and GST TRAN 2. These forms are intended for business owners previously registered under the old indirect tax laws. These forms allow registered dealers and manufacturers to claim an input tax credit (ITC) for the taxes paid under the previous tax regime. Here we will delve deeper into the TRAN 1 and TRAN 2 forms, their purpose, and the correct procedures for filing them.

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    Transitioning to GST

    What is TRAN 1

    TRAN 1 is an important document that helps businesses to make a smooth transition from the old indirect tax system to the GST regime. It is a form specifically designed for registered business owners previously registered under the old indirect tax laws. The purpose of this form is to allow businesses to carry forward their input tax credit to the new tax system. Filing TRAN 1 is an important step for businesses to smoothly transition to the new tax system and avoid any potential penalties for non-compliance.

    What Is TRAN 2 Form

    TRAN 2 is another important form created to help businesses transition from the old indirect tax system to the new GST system. This form is also intended for registered business owners who were previously registered under the old indirect tax laws. However, it serves a different purpose than TRAN 1. While TRAN 1 allows businesses to carry forward their input tax credit to the new system, TRAN 2 is used to claim credit for taxes paid on goods that were in transit at the time of the GST rollout. The TRAN 2 form requires businesses to provide information about the taxes paid on goods in transit at the time of the GST rollout and any other eligible tax credits they wish to claim. It must be filed by the due date to ensure businesses can claim the eligible credit under GST.

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    Points To Remember Under GST TRAN

    • To file Transition Forms under GST, you need to file them separately for each GSTIN.
    • Only eligible credits under GST can be carried forward from the previous regime. You cannot claim credit for anything that is not eligible under GST.
    • You can apply for credits from the previous regime to GST only if you have filed the previous six-month returns under the old regime. It is important to file previous VAT/ Excise/ Service Tax returns properly.
    • Under the GST system, taxes and duties that were previously categorised as central taxes, such as Excise and Service Tax, will now be carried forward as CGST (Central Goods and Services Tax).
    • State taxes, like VAT, will be carried forward as SGST under GST.

    Steps to file GST TRAN 1

    • Taxpayers need to log in to the GST portal using their login credentials.
    • Once logged in, go to the ‘Services’ tab on the GST portal and select ‘Returns’ from the drop-down menu.
    • When filling out the GST TRAN-1 form, you will be asked to indicate whether you have filed the previous six-month returns under the old laws before implementing GST. You can choose either ‘Yes’ or ‘No’ based on your filing status. Specific options will be provided in the Tran-1 form, depending on your selection.
    • Fill in the necessary information in each field of the table and then proceed to click the ‘Save’ button. In case of any validation error, the system will alert you. Otherwise, your form will be saved successfully.
    1. Start by entering your information, including the GSTIN, legal name, trade name, etc., and save it.
    2. Provide information regarding the credit that must be carried to the GST.
    3. Enter the information about capital goods that were not eligible for credit under previous laws but are now eligible to be carried forward to the GST.
    4. Enter the details of input stock to receive credit for taxes and duties that were previously paid under previous laws and are now eligible under the GST regime.
    5. Enter the details of credit transfer for registered persons with centralised registration under previous laws.
    6. Provide details about goods delivered to the job worker and held in their inventory on behalf of the principal, which includes information from both the job worker and the principal business.
    7. Provide details about goods held in stock by agents on behalf of the actual owner and their eligibility for Input Tax Credit (ITC).
    8. Provide details about transition credits available on transactions where tax, including service tax and VAT, was paid under previous laws and is also applicable under the GST.
    9. Finally, provide details about goods that were sent on an approval basis six months before the scheduled date.
    • After entering the necessary details, click the ‘Submit’ button to save and submit the Tran-1 form. It’s important to double-check the information before submitting it since the form cannot be modified afterwards.
    • If the Tran-1 form is successfully submitted, the transition credit claim will be posted to the applicant’s e-credit ledger. However, the credit can only be used after signing the Tran-1.
    • To file the form, click the ‘File’ button and use either a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). After filing, a message will be generated if the process is successful. You can access the acknowledgement by downloading it.

    How To File TRAN 2 under GST

    Form GST TRAN-2 is available for dealers and traders who have registered for GST after being previously unregistered. If a dealer does not possess a VAT or excise invoice for the stocks they held on June 30, 2017, they may use TRAN-2 to claim a tax credit on those stocks. However, it’s important to note that manufacturers or service providers are not permitted to file GST TRAN-2.

    To claim an input tax credit, a dealer or trader must file TRAN-2 at the end of each month when they sell their stock and provide all necessary details. To be eligible to file TRAN-2, the dealer must satisfy certain requirements.

    • The goods must not have been unconditionally exempt from excise/VAT or considered nil rated under Excise/VAT (Value Added Tax).
    • There must be documentation available that demonstrates the acquisition of such goods.
    • The goods for which credit is being claimed must be stored in a way that makes them easily identifiable.

    Important Information That Must Be Filled In TRAN 2

    • Your GSTIN (Goods and Service Tax Identification Number)
    • The name of the taxable person
    • The month and year for which this form is being submitted must be included.
    • Details of inputs held in stock on July 1st, for which there is no invoice or document available as proof of tax payment that can be carried forward to the electronic credit ledger.

    If you are holding stock without any documentation to support the payment of Excise Duty (Central Tax), you will be required to provide the following information: You need to fill in the stock information in the specified format:

    • Enter the HSN code of the opening stock in column 1.
    • In column 2, enter the unit of measurement for the opening stock.
    • Enter the opening stock amount for the month in column 3.
    • In column 4, enter the total number of goods sold during the month.
    • Column 5 shows the taxable value of goods sold for the month.
    • If goods are sold within the state, enter the CGST amount in column 6.
    • If the goods are sold interstate, the IGST paid must be stated in column 7.
    • Enter the claimed central tax credit (CGST input credit) in column 8.
    1. In case the CGST paid, as shown in column 6, equals or exceeds 9%, the input tax credit (ITC) that can be claimed is 60% of the CGST amount. Otherwise, the ITC is limited to 40% of column 6.
    2. If the IGST amount in column 7 equals or exceeds 18%, the allowable ITC is 30% of the IGST amount. If it is below that threshold, the ITC can be claimed up to 20% of column 7.
    3. To calculate the opening stock quantity for the applicable tax period, subtract the value in column 4 from the value in column 3 and enter the result in column 9.

    How to claim ITC on old stock? Which form to choose?

    Taxpayers must meet specific conditions to claim Input Tax Credit (ITC) on old stock when transitioning to GST. The stock should be intended for taxable supplies under GST, and the taxpayer must possess relevant invoices not older than 12 months before July 1, 2017.

    The form used depends on the type of taxpayer:

    1. Regular taxpayers can claim ITC on old stock using Form TRAN-1 within the prescribed time limit.
    2. If the invoices are unavailable, the taxpayer can claim ITC at a reduced rate using Form TRAN-2.

    It is essential to keep detailed stock records and ensure that all information is accurate while filing these forms. Failure to comply with conditions or filing within the deadline may result in loss of ITC on old stock.

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    Broad aspects of the transition to GST

    The transition to GST brought significant changes to India’s indirect tax structure. It subsumed multiple state and central taxes like VAT, Excise Duty, and Service Tax into one unified system. This aimed to simplify tax compliance and foster a seamless credit mechanism across the supply chain.

    One key aspect was the carry-forward of unutilized ITC from pre-GST regimes. Taxpayers were allowed to claim credit on closing stock under certain conditions, documented using TRAN forms. Another critical element was the treatment of ongoing contracts and pending invoices under the old tax regime.

    GST introduced the concept of HSN codes, requiring businesses to align their goods/services classification with this system. Job workers, agents, and e-commerce operators also faced revised compliance rules. The anti-profiteering mechanism ensured that the benefits of reduced tax incidence were passed on to consumers.

    A smooth transition required adapting to the GST Network (GSTN) portal for filings and integrating new invoicing formats. Awareness programs and training helped businesses understand the new processes, ensuring compliance during this major tax reform.

    Things to remember for transition to GST

    1. Stock Documentation: Maintain records of closing stock, including purchase invoices, as they are critical for claiming ITC.
    2. Form Filing: Use TRAN-1 or TRAN-2 forms to transition unutilized ITC from the previous tax regime.
    3. Time Limit: File transitional forms within the specified deadlines to avoid credit loss.
    4. Classification: Ensure goods and services are classified correctly under the HSN and SAC codes introduced in GST.
    5. Pending Transactions: Address pending invoices, contracts, and advances under the old tax system as per GST rules.
    6. Input Credit Conditions: ITC is available only for stocks meant for taxable supplies and backed by valid documentation.
    7. Job Work Compliance: Declare goods sent to job workers in Form ITC-04 to claim applicable credit.
    8. GSTN Registration: Ensure timely registration on the GST portal for smooth compliance.
    9. Invoice Format: Update to the GST-compliant invoice format for all transactions.
    10. Training: Stay informed about GST rules to minimize errors during the transition.

    Unavailed ITC w.r.t. capital goods

    Unavailed ITC on capital goods pertains to the credit not fully utilized under the pre-GST regime. If conditions were met, Taxpayers could carry this ITC into the GST framework.

    To claim such credit, it was essential that the capital goods were used for taxable supplies under GST and valid invoices for their purchase were available. Taxpayers must file TRAN-1 within the prescribed time limit, disclosing details of unutilized ITC on capital goods.

    However, only the proportion of ITC that remained unavailed under the pre-GST tax laws was eligible for transition. For example, if ITC on a machine was partly claimed under the Excise Duty regime, the remaining portion could be transitioned.

    The GST framework ensured that businesses could continue benefiting from investments made in capital goods without financial loss due to the shift in tax systems. Proper documentation and timely filing were critical for claiming such credits effectively.

    Stock held being sent or received for job work

    Proper reporting was required for goods held as stock and sent for job work during the GST transition period. If ITC was claimed earlier, taxpayers needed to declare these goods in Form TRAN-1. The recipient must return the processed goods within six months to retain ITC eligibility. Non-compliance could lead to reversal of credit.

    Goods sent to agent or consignment dealer for sale

    Goods sent to agents or consignment dealers for sale during the GST transition must be declared in Form TRAN-1. The agent or dealer must also be registered under GST. If all GST conditions are met, the principal can claim ITC on the stock held with agents, ensuring continuity in tax credit benefits.

    Conditions to claim ITC

    To claim ITC, taxpayers must:

    1. Possess a valid tax invoice.
    2. Have received the goods or services.
    3. Ensure the supplier has filed returns and paid taxes to the government.
    4. Use the goods or services for business purposes.
    5. File timely GST returns, ensuring no mismatches.

    Goods sent to agent or consignment dealer for sale

    Goods sent to agents or consignment dealers for sale during the GST transition must be declared in Form TRAN-1. The agent or dealer must also be registered under GST. If all GST conditions are met, the principal can claim ITC on the stock held with agents, ensuring continuity in tax credit benefits.

    Conditions to claim ITC

    To claim ITC, taxpayers must:

    1. Possess a valid tax invoice.
    2. Have received the goods or services.
    3. Ensure the supplier has filed returns and paid taxes to the government.
    4. Use the goods or services for business purposes.
    5. File timely GST returns, ensuring no mismatches.

    Conditions to claim credit of Central Tax and State Tax (Tax on MRP Scheme)

    In states following the Tax on MRP Scheme, taxpayers must:

    1. Maintain detailed stock records with valid purchase invoices.
    2. Ensure goods are labeled with MRP and comply with GST labeling rules.
    3. File TRAN-1 within the specified deadline to claim credit.
    4. Utilize the credit only for taxable supplies under GST.

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    Conclusion

    Understanding the TRAN 1 and TRAN 2 forms is important for businesses that have transitioned into the Goods and Services Tax (GST). While the TRAN 1 form is used to claim transitional credits for taxes paid under the previous regime, the TRAN 2 form is used to claim credits for taxes paid on stock acquired after the GST rollout. Both forms have specific guidelines that must be followed, and accurate and timely filing is essential to ensure compliance with GST regulations. By following this guide, businesses can successfully navigate the process of filing these forms and claim the tax credits they are entitled to.

    Frequently Asked Questions

    • What is the purpose of TRAN 1 form?
      TRAN 1 form allows taxpayers to carry forward unutilized Input Tax Credit (ITC) from the pre-GST regime to GST. It covers ITC on closing stock, transitional credits for capital goods, and tax paid under earlier laws for claiming under GST.
    • What is the purpose of TRAN 2 form?
      Dealers or traders use TRAN 2 form without valid invoices for their closing stock. It enables claiming ITC at reduced rates under GST by disclosing details of stock held on June 30, 2017, provided the goods are taxable under GST.
    • Can TRAN 1 and TRAN 2 forms be filed online?
      Yes, TRAN 1 and TRAN 2 forms can be filed online through the GST portal. Taxpayers must log in, access the TRAN forms section, fill in the required details, and submit them electronically within the prescribed timeline.
    • What is the deadline for filing TRAN 1 and TRAN 2 forms?
      The deadlines for filing TRAN 1 and TRAN 2 forms were initially set within 90 days of GST implementation on July 1, 2017, but extensions were granted. Taxpayers must adhere to revised deadlines as the government has notified them.
    • What details need to be provided in TRAN 1 form?
      TRAN 1 requires details of unutilized ITC, including tax invoices, credit on capital goods, closing stock held, and tax liability on pending transactions. Taxpayers must disclose pre-GST credits and relevant documentation to claim benefits under GST.
    • What information must be included in TRAN 2 form?
      TRAN 2 includes details of closing stock without valid invoices. Taxpayers must provide HSN codes, quantity, value, tax rate, and the amount of ITC claimed. This form is primarily for traders who purchased stock under the pre-GST regime.
    • Can taxpayers revise TRAN 1 or TRAN 2 forms after submission?
      Revising TRAN 1 or TRAN 2 forms after submission is not permitted. Taxpayers should review and verify all details before filing, as inaccuracies could result in loss of ITC or compliance issues under GST.
    • What happens if TRAN 1 or TRAN 2 forms are not filed within the prescribed timeline?
      Failure to file TRAN 1 or TRAN 2 forms within the deadline results in the forfeiture of transitional ITC. Taxpayers cannot claim pre-GST credits, leading to increased tax liability and financial loss under the GST regime.
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