GST and Income Tax in CIRP: Claims, Costs and Refunds

Tax issues arise at every stage of a CIRP: old dues that must be claimed, new taxes that must be paid as the business runs, GST registration and credits, attempts to recover through set-off, and the tax position of the company after resolution. Topic 116 dealt with the priority of government dues; this note covers the practical questions a resolution professional and a resolution applicant face with tax authorities.

1. The Law in Brief

Tax in a CIRP at a glance

Figure 1: Tax in a CIRP at a glance

Old dues. Tax payable to governments is operational debt; authorities file claims and cannot recover during the moratorium; unclaimed dues are extinguished on approval of a plan.
Current taxes. Taxes arising from running the business during the CIRP are insolvency resolution process costs, paid in priority.
Overriding effect. The Code prevails over inconsistent provisions of tax laws (section 238; Monnet Ispat, 2018)

2. What Are a Company's GST Obligations in CIRP?

Facts

AB Ltd, registered for GST in three States, is admitted into a CIRP on 1 July 2026, and Ms C is appointed interim resolution professional. The GST department demands ₹4 crore of pre-CIRP tax and threatens to cancel AB Ltd's registrations and block its input tax credit until paid. Ms C asks how to keep the business running lawfully. Advise.

Issue. AB Ltd's GST obligations during the CIRP, and the department's remedies for pre-CIRP dues.
Law. Under Notification 11/2020-Central Tax, from the appointment of the resolution professional the corporate debtor is treated as a distinct person and must obtain a new registration in each State where it was registered within thirty days, with special provision for input tax credit. Circular 134/04/2020-GST clarifies that pre-CIRP dues are to be claimed in the CIRP, that no coercive action should be taken for them during the moratorium, and that registrations should not be cancelled merely because of the CIRP. Section 14 bars recovery during the moratorium.
Application. Ms C was appointed on 1 July 2026. The ₹4 crore relates to the period before the CIRP.
Conclusion. Ms C should obtain new registrations in all three States within thirty days, file returns and pay GST for the CIRP period as process costs. The department must file a claim for the ₹4 crore and cannot cancel registrations or block credit to recover it.

3. Can a Tax Refund Be Set Off during the Moratorium?

Facts

During DE Ltd's CIRP, the income tax department determines that DE Ltd is entitled to a refund of ₹1.5 crore for an assessment year before the CIRP. Instead of paying it, the department adjusts the refund against an old tax demand of ₹2 crore. The resolution professional objects. Advise.

Issue. Whether a tax authority may adjust a refund owed to the corporate debtor against pre-CIRP dues during the moratorium.
Law. Section 14(1)(a) bars proceedings against the corporate debtor, including execution and recovery, and section 238 gives the Code overriding effect over inconsistent provisions of other laws (Monnet Ispat, 2018). Pre-CIRP dues are operational debts that must be claimed in the CIRP and paid only as the plan or the section 53 waterfall provides.
Application. Adjusting the refund against the old demand would allow the department to recover its pre-CIRP dues in full, ahead of other creditors, during the moratorium.
Conclusion. The better view is that the adjustment is impermissible during the moratorium; the refund should be paid to DE Ltd, and the department should file its claim for ₹2 crore. The resolution professional may seek directions from the NCLT under section 60(5)

4. How Are Taxes for the CIRP Period Treated?

Facts

FG Ltd continued its manufacturing business during a 270-day CIRP. GST of ₹3 crore and property tax of ₹40 lakh arose for that period, and remain unpaid when the plan is approved. The plan provides nothing for them, treating all tax dues as extinguished. The authorities object. Decide.

Issue. The treatment of taxes arising during the CIRP.
Law. Insolvency resolution process costs under section 5(13) include costs incurred in running the business of the corporate debtor as a going concern during the CIRP. A resolution plan must provide for payment of process costs in priority to other debts (section 30(2)(a)), and the extinguishment of claims under Ghanashyam Mishra applies to claims for the period before approval that are not provided for, not to costs the plan must cover.
Application. The GST and property tax arose from running the business during the CIRP. The plan treats them as extinguished.
Conclusion. The plan does not comply with section 30(2)(a) and should be sent back to the committee to provide for these taxes as process costs. If it is not cured, it cannot be approved.

5. Can Losses Be Carried Forward after a Plan?

Facts

HJ Ltd was acquired by a new investor under an approved plan, involving a complete change of shareholding. It had large accumulated losses and unabsorbed depreciation. In the first year after resolution it makes a profit. The tax officer disallows carry forward of the old losses because of the change in shareholding, and later raises a demand for an earlier year that was not claimed in the CIRP. Advise.

Issue. Whether accumulated losses survive a change of shareholding under a plan, and whether an unclaimed pre-plan demand survives.
Law. Income tax law ordinarily restricts carry forward of losses of a closely held company after a substantial change in shareholding, but since 2018 this restriction has not applied where the change takes place under a plan approved under the Code, after the tax authority has been heard; the corresponding provision should be checked in the Income-tax Act, 2025, which applies from 1 April 2026. Demands for the period before approval not provided for in the plan are extinguished (Ghanashyam Mishra, 2021; section 31(6))
Application. The change of shareholding occurred under an approved plan. The earlier year's demand was not claimed in the CIRP.
Conclusion. HJ Ltd may claim carry forward of its losses under the relief for plan-driven changes, subject to the conditions of the current Act. The demand for the earlier year is extinguished and must be dropped.

⚠ Exam trap

Separate the periods. Pre-CIRP taxes: claim in the CIRP, no recovery or set-off during the moratorium, extinguished if not provided for in the plan. CIRP-period taxes: process costs, paid in priority, and a plan that ignores them fails s. 30(2)(a). GST: new registration as a distinct person within thirty days of the RP's appointment. After the plan: losses relief for plan-driven ownership changes, under the 2025 Act's equivalent provision.

6. Frequently Asked Questions

Can the GST department cancel a registration because the company is in a CIRP?

Circular 134/04/2020-GST states that registrations should not be cancelled merely because the company is in a CIRP.

Does the Code override the Income Tax Act?

Yes, to the extent of inconsistency, under section 238 (Monnet Ispat, 2018).

Is there any minimum alternate tax relief for companies under the Code?

Yes. Book profits may be reduced by the aggregate of brought forward losses and unabsorbed depreciation, subject to the provisions of the current Act.

Who files returns and pays tax for the corporate debtor during the CIRP?

The resolution professional, who manages the debtor's affairs and must comply with tax laws for the CIRP period, paying the tax as process costs.

Can tax authorities assess pre-CIRP years during the moratorium?

They may quantify a demand in order to file a claim, but cannot enforce or recover it during the moratorium, and an unclaimed demand is extinguished once the plan is approved.

7. Related Topics

Topic 80: IBC, Income Tax and GST. Tax issues in insolvency.
Topic 116: Government Dues under IBC after 2026. Priority after 2026.
Topic 139: IBC Penalties after 2026. Offences and civil penalties after 2026.