1. Why Section 87 matters
A merger can be legally effective from a date months before the date on which the court, tribunal or other competent authority actually passes the order. That creates a practical GST question: what happens to transactions between the companies during that gap?
For example, Company A and Company B may receive an amalgamation order in December, but the order may state that the amalgamation is effective from 1 April. Between 1 April and December, the two companies may have continued to purchase goods from each other, provide services to each other, raise invoices, claim ITC and report transactions in GST returns.
Section 87 prevents the retrospective merger date from automatically rewriting the GST treatment of those transactions for the period before the actual order.
2. What people actually search for
This article is deliberately written around the questions businesses, finance professionals and students actually face when searching for Section 87:
The aim is not merely to reproduce the statutory sentence. It is to explain what the sentence means when a real company has to close its books and GST compliance around a merger.
3. Section 87 in simple language
Suppose A Ltd and B Ltd are being merged.
The merger order is issued on 31 December 2026, but the order says the merger is effective from 1 April 2026.
There is therefore a nine-month period from 1 April to 31 December in which the companies may have continued to transact with one another.
Section 87 says that, for GST purposes, those companies are still treated as separate companies up to 31 December 2026, the date of the order.
Therefore, if A supplied taxable services to B on 15 August, the transaction cannot simply be erased because the merger is retrospectively effective from 1 April.
4. Complete statutory structure
Section 87 contains two subsections.
| Provision | What it does |
|---|---|
| Section 87(1) | Deals with supplies/receipts between amalgamating or merging companies during the period beginning on the retrospective effective date and ending on the date of the order. |
| Section 87(2) | For GST purposes, treats the companies as distinct companies up to the date of the order and provides for cancellation of their registration certificates with effect from the date of the order. |
The provision applies where two or more companies are amalgamated or merged pursuant to an order of a court or tribunal or otherwise, and the order is to take effect from a date earlier than the date of the order.
5. The most important date problem
Section 87 becomes relevant because there can be two different dates:
| Date | Meaning | GST significance under Section 87 |
|---|---|---|
| Retrospective effective date / appointed date | Date from which the merger is stated to take effect. | Starts the special Section 87 period. |
| Order date | Date on which the court/tribunal or other authority makes the merger order. | Ends the Section 87 period. Companies remain distinct for GST up to this date. |
The finance team should never assume that the appointed date and order date are interchangeable.
6. One complete merger example
Facts: A Ltd and B Ltd are amalgamated. The competent authority's order is dated 30 November 2026 and states that the amalgamation takes effect from 1 April 2026.
During April–November:
- A supplies goods to B.
- B supplies services to A.
- A pays GST on its outward supplies.
- B claims eligible ITC on invoices received from A.
- Both companies continue filing their GST returns.
Section 87 means that, for GST purposes, A and B remain distinct companies during the period up to 30 November 2026. The inter-company supplies and receipts during that period are included in the turnover of the respective companies and tax is paid accordingly.
Only from the order date does the statutory registration-cancellation consequence under Section 87(2) operate.
7. Understanding the retrospective period
The retrospective period is the period beginning on the date from which the merger order takes effect and ending on the date of the order.
Section 87 specifically addresses transactions between the companies during this period. The provision is therefore particularly important where the retrospective period is long.
The merger is stated to take effect from this earlier date.
The companies may continue to operate, invoice, receive supplies and file returns while the legal process is pending.
The court/tribunal or competent authority passes the merger order.
For GST purposes the companies were distinct up to the order date.
The relevant registrations are cancelled with effect from the order date.
8. Turnover treatment
Section 87(1) specifically states that supplies and receipts between the companies during the specified period are included in the turnover of supply or receipt of the respective companies.
This matters because turnover is used throughout GST for compliance and reporting purposes.
The practical working should therefore identify every inter-company transaction during the Section 87 period and map it to:
Do not simply remove inter-company entries from the GST reconciliation because the merger is retrospective.
9. Tax liability
The words “they shall be liable to pay tax accordingly” are important. The inter-company transactions during the Section 87 period are not ignored merely because the merger is ultimately effective from an earlier date.
The finance team should therefore reconcile:
| Area | Check |
|---|---|
| Output tax | Was GST correctly reported by the supplier company? |
| ITC | Was eligible ITC correctly claimed by the recipient? |
| Tax head | Was CGST/SGST/IGST correctly reported? |
| Returns | Do GSTR-1 and GSTR-3B agree? |
| Books | Do GST returns agree with both companies' ledgers? |
10. Why the companies remain distinct
This is one of the most important sentences in Section 87(2).
Even though the legal merger order may say that the amalgamation takes effect from an earlier date, the CGST Act specifically says that the two or more companies shall be treated as distinct companies for the period up to the date of the order.
This prevents a retrospective corporate-law event from creating an automatic retrospective GST collapse of the two registrations and their transaction history.
11. GST registration cancellation
Section 87(2) provides that the registration certificates of the amalgamating/merging companies are cancelled with effect from the date of the order.
This is different from saying that the registrations were cancelled from the retrospective appointed date.
| Incorrect assumption | Correct Section 87 approach |
|---|---|
| “Merger effective from 1 April, so GST registrations disappear from 1 April.” | Section 87 treats the companies as distinct for GST up to the order date and provides cancellation with effect from the order date. |
| “All April–November transactions are ignored.” | Covered transactions during the period are included in turnover and tax is paid accordingly. |
12. GST returns during the merger process
A merger may take months to obtain final approval. During that period, GST compliance does not stop merely because a scheme of amalgamation has been filed.
Until the Section 87 order date, the companies should maintain their separate GST compliance as required by the Act and Rules.
GSTR-1
Outward supplies should continue to be reported by the relevant registered company during the applicable period.
GSTR-3B
Tax liability and eligible ITC should continue to be reported in the applicable return.
GSTR-2B reconciliation
Invoices between the merging companies should be reconciled before the recipient claims ITC.
Annual return / reconciliation
The final annual-return and reconciliation work should preserve the transaction history rather than eliminating entries merely because the merger has retrospective effect.
13. ITC implications
Section 87 does not itself provide a special “automatic ITC transfer” mechanism. ITC must be examined under the normal provisions applicable during the relevant period and then under the provisions governing transfer/succession after the merger.
This creates two separate questions:
Can the recipient company claim eligible ITC on the supply received during the Section 87 period under the normal Section 16 framework?
How is unutilised ITC transferred as part of the merger? Examine Section 18(3), Rule 41 and the applicable ITC-02 procedure.
14. Invoices and documents
Invoices issued between the companies during the Section 87 period should not be casually cancelled merely because the merger order has a retrospective effective date.
The finance team should examine:
- Invoice date and tax period
- Supplier GSTIN
- Recipient GSTIN
- Nature of supply
- Place of supply
- Taxable value and tax
- Whether the recipient claimed ITC
- Whether any credit/debit note was issued
- Whether the transaction appears in both companies' books
15. Accounting and books
The merger may create accounting consolidation from the appointed date, but GST compliance must be examined under Section 87.
This means the finance team may have to maintain two parallel views:
| Corporate accounting view | GST compliance view |
|---|---|
| Merger accounting may be effective from the appointed date depending on the scheme and applicable accounting framework. | Section 87 treats the companies as distinct for GST up to the order date. |
| Consolidation entries may eliminate inter-company balances. | GST records should preserve the underlying supplies, tax and ITC trail. |
16. Inter-State and intra-State supplies
Section 87 does not say that all inter-company transactions become one kind of supply. The normal GST rules concerning place of supply, nature of supply and tax head continue to matter.
For every transaction, determine whether it is:
The fact that the two companies are ultimately merged does not by itself determine the tax head applicable to an individual transaction during the Section 87 period.
17. Distinct-person implications
Where the merging companies have different GST registrations or operate in different States, the transaction analysis can become more complex.
The team should map every GSTIN involved during the retrospective period. A corporate merger does not mean that every GSTIN across India can be treated as one registration before the statutory registration consequence takes effect.
18. Merger vs other business transfers
Do not confuse Section 87 with Section 85.
| Provision | Main subject |
|---|---|
| Section 85 | Liability when a taxable person's business is transferred in whole or part by sale, gift, lease, leave and licence, hire or other manner. |
| Section 86 | Liability of agent and principal for taxable goods supplied or received on behalf of principal. |
| Section 87 | GST treatment of supplies/receipts between companies during a retrospective amalgamation/merger period. |
| Section 88 | Liability in case of company in liquidation. |
The legal event determines which provision needs to be examined.
19. Court, tribunal/NCLT order and GST
Section 87 uses the expression “order of court or of Tribunal or otherwise”. The corporate-law approval process therefore needs to be connected with the GST compliance process.
When a merger order is received, the tax team should immediately extract:
The tax team should not rely only on the accounting department's merger date. Read the actual order and scheme.
20. Merger GST due-diligence checklist
Before finalising a merger, perform a dedicated GST review.
| Area | Questions |
|---|---|
| Dates | What is the appointed/effective date? What is the actual order date? |
| GSTINs | Which registrations belong to each company? |
| Inter-company supplies | What goods/services were supplied between the companies? |
| Output tax | Was GST discharged? |
| ITC | Was ITC claimed and is it eligible? |
| Returns | Are GSTR-1/GSTR-3B reconciled? |
| Notices | Are there pending scrutiny, audit, demand or refund matters? |
| Electronic ledgers | What are the cash and credit ledger balances? |
| ITC transfer | Is Section 18(3)/Rule 41 procedure required? |
| Registration | Which registrations must be cancelled after the order? |
21. Construction and infrastructure examples
Example — Two construction companies merge
A construction company and an infrastructure subsidiary merge with an appointed date of 1 April and an order date of 30 September. During April–September, the companies exchange equipment, materials, management services and project support services. Those transactions should be reviewed under Section 87 rather than simply deleted from GST records because the merger is retrospective.
Example — Project material transfer
Company A transfers taxable construction materials to Company B's project stores before the merger order. Determine the nature of the transaction, invoice, GST treatment and ITC separately.
Example — HAM/project entity merger
Two project companies with different GST registrations merge retrospectively. The finance team should reconcile project-wise invoices, subcontractor ITC, inter-company services and GST returns before cancellation/transfer actions.
22. Detailed practical cases
Case 1 — Order in December, effective from April
A and B merge by an order dated 31 December with effect from 1 April. Inter-company supplies from April to December remain relevant for Section 87.
Case 2 — No inter-company transactions
If A and B had no supplies or receipts between themselves during the retrospective period, the Section 87(1) turnover issue may be limited, but the registration and closing compliance consequences still require attention.
Case 3 — ITC claimed by B
B receives a valid taxable supply from A in August and claims eligible ITC. The later merger does not automatically mean the August transaction never existed for GST.
Case 4 — Service transaction
A provides management services to B during the retrospective period. Section 87 covers goods or services or both, so services are not excluded from subsection (1).
Case 5 — Inter-State transaction
A's Telangana registration supplies services to B's Karnataka registration. Determine place of supply and IGST independently; the later merger does not itself determine the tax head.
Case 6 — Credit note after order
A credit note may be required after the merger order for an earlier transaction. The finance team must preserve the original GST trail and examine the current credit-note rules.
Case 7 — Pending departmental notice
A has a pending GST notice when it merges into B. Section 87 should not be treated as a substitute for the separate provisions governing continuation/recovery of tax proceedings.
Case 8 — Different States
A and B operate through GST registrations in different States. The merger may change the corporate ownership, but State-wise GST registration and place-of-supply analysis remain important until the relevant registration consequences are implemented.
Case 9 — Accounting consolidation
The accounts department eliminates inter-company balances from the appointed date. The GST team should retain transaction-level records for the Section 87 period.
Case 10 — ITC transfer after order
After the order, unutilised ITC transfer should be examined under Section 18(3) and Rule 41 rather than treating Section 87 as an ITC-transfer provision.
Case 11 — Merger order delayed
If regulatory approval takes longer than expected, the companies should continue their GST compliance rather than assuming that the proposed appointed date has already cancelled their registrations.
Case 12 — Scheme changed
If the final order changes the effective date or scope of the scheme, redo the Section 87 date matrix and transaction reconciliation before closing the GST registrations.
23. Professional GST workflow for a merger
Do not work from an unsigned draft scheme.
Appointed/effective date and order date.
Company-wise and State-wise.
Prepare a transaction population for the period.
Match invoices, books and returns.
Confirm tax was reported and paid.
Confirm recipient eligibility and reporting.
Map pending proceedings and demands.
Apply Section 87(2) and related rules.
Examine Section 18(3)/Rule 41.
Preserve GST audit trail after consolidation.
Document all assumptions and unresolved items.
24. Internal controls for finance teams
| Control | Recommended action |
|---|---|
| Merger date control | Maintain one approved date matrix signed by legal, finance and tax teams. |
| GSTIN mapping | Map every registration of every merging company. |
| Inter-company reconciliation | Match both sides invoice-by-invoice. |
| ITC reconciliation | Check GSTR-2B, purchase register and GSTR-3B. |
| Tax-head check | Validate CGST/SGST/IGST classification. |
| Credit-note control | Track adjustments after the order date. |
| Proceedings register | Maintain notices, audits, assessments, refunds and appeals. |
| Registration closure | Coordinate cancellation with the actual order date. |
25. Documents to preserve
26. Common mistakes
- Using the appointed date as the GST registration-cancellation date without checking Section 87(2).
- Deleting inter-company invoices because the merger is retrospective.
- Ignoring services because the team thinks Section 87 covers only goods.
- Failing to reconcile both sides of inter-company supplies.
- Transferring ITC automatically without examining Section 18(3) and Rule 41.
- Ignoring State-wise GST registrations.
- Allowing accounting consolidation entries to destroy the GST audit trail.
- Stopping GST return filing while the merger approval is still pending.
- Failing to extract the exact effective date from the final order.
- Assuming a merger order itself settles all pending GST liabilities and proceedings.
- Not reviewing credit/debit notes issued around the merger date.
- Not reconciling electronic ledgers before registration closure.
27. Legislative position and current law
Section 87 was part of the original CGST Act framework and came into force on 1 July 2017. The current statutory text remains focused on the same two-part mechanism: transaction treatment during the retrospective period and separate-company/registration treatment up to the order date.
| Point | Current position |
|---|---|
| Effective date | Section 87 is in force. |
| Subsection (1) | Inter-company supplies/receipts during the specified retrospective period are included in respective turnover and taxed accordingly. |
| Subsection (2) | Companies remain distinct for GST up to the order date and their registration certificates are cancelled from the order date. |
| Scope | Goods or services or both can be covered under subsection (1). |
The current statutory text as in force in September 2026 confirms this structure.
28. Section 85 vs Section 86 vs Section 87 vs Section 88
| Section | Subject | Simple question |
|---|---|---|
| 85 | Transfer of business | What happens to tax liabilities when a business is transferred? |
| 86 | Agent and principal | Who is liable when an agent supplies/receives taxable goods for a principal? |
| 87 | Amalgamation/merger | What happens to GST transactions when a merger is retrospectively effective? |
| 88 | Company in liquidation | What happens to GST liability when a company goes into liquidation? |
This comparison is useful because all four provisions sit in the same liability chapter but address very different corporate events.
29. Section 87 GST FAQs
What is Section 87 of the CGST Act?
Section 87 deals with GST liability and treatment of supplies/receipts when two or more companies are amalgamated or merged and the merger order takes effect from a date earlier than the date of the order.
Is GST applicable on a merger of companies?
A merger itself should not be confused with a taxable supply. Section 87 primarily deals with supplies and receipts between the merging companies during the retrospective period and the GST registration consequences. The actual transfer/merger transaction should also be analysed under other applicable provisions.
What is the retrospective period under Section 87?
It is the period beginning on the date from which the merger order takes effect and ending on the date of the order.
Are two merging companies treated as separate for GST?
Yes. Section 87(2) specifically treats the companies as distinct companies for GST purposes for the period up to the date of the order.
What happens to inter-company supplies during the merger?
Supplies and receipts between the companies during the specified period are included in the turnover of the respective companies and tax is payable accordingly.
Does Section 87 apply to services?
Yes. Section 87(1) expressly covers goods or services or both.
When are GST registrations cancelled after a merger?
Section 87(2) provides for cancellation of the registration certificates with effect from the date of the merger/amalgamation order, not merely from the earlier appointed date.
Does the appointed date automatically cancel GST registration?
No. Section 87 specifically maintains the separate-company treatment up to the date of the order and provides cancellation from the order date.
Can inter-company GST invoices be ignored after a retrospective merger?
No. Section 87 specifically requires the relevant supplies and receipts during the retrospective period to be included in turnover and taxed accordingly.
Can ITC be transferred automatically because of Section 87?
No. ITC transfer should be examined under the separate provisions governing business reorganisation, including Section 18(3) and Rule 41 where applicable.
Does Section 87 apply only to NCLT mergers?
The wording covers amalgamation or merger pursuant to an order of court or tribunal or otherwise, subject to the conditions in the section.
What if the merger order is issued months after the appointed date?
That is precisely the situation Section 87 addresses. The inter-company transactions during the gap remain relevant for GST.
What should the finance team do first?
Obtain the final order, identify the appointed/effective date and actual order date, map all GSTINs and prepare an invoice-level population of inter-company transactions during the Section 87 period.
Does accounting consolidation remove GST transactions?
No. Accounting consolidation and GST reporting are different compliance questions. Preserve the underlying GST transaction trail.
What is the difference between Section 85 and Section 87?
Section 85 deals with liability following transfer of business; Section 87 deals specifically with amalgamation or merger where the order has an earlier effective date.
What is the difference between Section 87 and Section 18(3)?
Section 87 preserves the GST treatment of transactions during the retrospective merger period. Section 18(3) provides the statutory route for transfer of unutilised ITC in specified business reorganisations.
Why is the actual order date so important?
Because Section 87 uses the date of the order as the endpoint for the special period and for the registration-cancellation consequence.
31. Key takeaways
- Section 87 is mainly about the GST treatment of a retrospective merger period.
- The appointed/effective date and the actual order date can be different.
- Inter-company supplies and receipts during the Section 87 period remain relevant for GST.
- Those transactions are included in the turnover of the respective companies and tax is payable accordingly.
- For GST purposes, the merging companies remain distinct up to the date of the order.
- Registration certificates are cancelled with effect from the date of the order under Section 87(2).
- Section 87 covers goods, services or both.
- Do not confuse Section 87 with the separate ITC-transfer mechanism under Section 18(3) and Rule 41.
- Do not let accounting consolidation erase the GST audit trail.
- A merger GST review should be performed invoice-by-invoice, GSTIN-by-GSTIN and period-by-period.
Why this article is different: It is written as a practical merger-compliance guide rather than a bare reproduction of the statutory text. The objective is to answer the questions a finance team actually faces when a merger has a retrospective effective date.
Disclaimer: This guide is for practical educational use. Corporate reorganisations are fact-sensitive and may involve Companies Act, accounting, income-tax, stamp-duty and GST consequences. Review the final merger order, scheme, current CGST Act/Rules and applicable professional advice before implementation.