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September 17, 2020

GST impact on death of proprietor

by CA Shivam Jaiswal in GST

GST impact on death of proprietor

The main aim of introducing GST was to simplify the taxation process, reduce the burden of taxes and ensure compliance of tax payment. In any tax system, registration is the fundamental requirement for identification of tax payers ensuring tax compliance in the economy. Registration of any business entity under the GST Law implies obtaining a unique number from the concerned authorities for the purpose of collecting tax on behalf of the government and to avail input tax credit for the taxes on his inward supplies. Without GST registration, a person can neither collect tax from his customers nor claim any input tax credit of tax paid by him.

However, what will happen to the business of a sole proprietor on his death. Will the GST registration cease to exist or will the business continue under the same GSTIN?

The GST Authority has clarified that transfer or change in the ownership of business will include transfer or change in the ownership of business due to death of the sole proprietor.

In a circular, Central Board of Indirect Taxes and Customs, CBIC said, that the transferee or the successor will be liable to be registered with effect from the date of such transfer or succession, where a business is transferred to another person for any reasons, including death of the proprietor. 

Can a Legal Heir continue the business of Sole Proprietor under the GST Registration (GSTIN) of deceased proprietor?

No, a legal heir can’t continue the business under the GSTIN of deceased sole proprietor of business. The GST Registration is PAN based and in the unfortunate event of death of proprietor, the legal entity ceases to exist.

How will the death of an individual impact his/her GST Registration?

  • As per section 22(3) of the CGST Act, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession, where a business is transferred to another person for any reasons including death of the proprietor.
  • The registration process is very similar to taking the regular process, and it is done by filing Form GST REG-01, electronically.
  • While filing application in FORM GST REG-01 electronically in the common portal the applicant is required to mention the reason to obtain registration as “death of the proprietor”

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Can ITC and tax liability be transferred to the successor?

  • In case of death of sole proprietor, if the business is continued by any person being transferee or successor of business, it shall be construed as transfer of business
  • Section 18(3) of the CGST Act, 2017 allows the transfer of ITC where the business is being transferred as long as the liabilities of the business are also being transferred in the manner specified in Rule 41.
  • Section 85(1) holds both the transferor and the transferee jointly and severally liable to pay all tax, interest and penalty dues.
  • Further, section 93(1) states that if the person liable to pay tax, interest or penalty passes away, the individual who continues the business of the deceased person shall be liable to pay those tax dues.
  • If the successor intends to carry on the business of the sole proprietor and wishes to obtain the credit of input tax lying in the electronic credit ledger of the sole proprietor, he will also be liable to pay all the pending tax dues of the sole proprietor.

What is the procedure for transfer of ITC to the successor?

  • The process to transfer ITC should be as per Rule 41 of the CGST Rules.
  • In case of death of a taxpayer, legal heir or successor has to visit office of the Proper Officer (Jurisdiction Officer) and submit the Death Certificate of the sole proprietor along with the Succession Certificate before the Proper Officer as documentary evidence.
  • The proper officer will add the successor/legal heir as the authorized signatory for the deceased on the GST portal. If the successor is a minor, his legal guardian would be the authorized signatory.
  • Legal heir/successor has to apply for new registration.
  • Once the new registration is approved, legal heir/ successor has to apply for the transfer of ITC by filing FORM GST ITC – 02 to new entity.
  • Username and Temporary password reset will be communicated to the e-mail address of the newly added authorized signatory as entered by the Tax Officer in your jurisdiction.
  • The newly added authorized signatory needs to login to the GST Portal and login using the First time login link.
  • He/ She will be forced to change your username and password after first time login with the Username and Temporary password that was emailed on the newly added e-mail address of the Primary Authorized Signatory.
  • Legal heir/successor or his/ her authorized signatory has to submit the application for cancellation and select the “Death of Proprietor” as reason of Cancellation of Registration and attach sufficient proof.

Can the GST Registration be cancelled on death of the taxpayer?

  • Section 29(1) of the CGST Act, 2017 contains certain circumstances under which the taxpayer can apply for cancellation of registration. One such situation is the death of sole proprietor.
  • The application for cancellation can be filed using Form GST REG-16.
  • In FORM GST REG-16,reason for cancellation is required to be mentioned as “death of sole proprietor”.
  • The GSTIN of transferee to whom the business has been transferred is also required to be mentioned to link the GSTIN of the transferor with the GSTIN of transferee.

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