How to do GST and Income Tax Compliance in case of death of sole proprietor

Compliance Issue to be tackled in case of death of sole proprietor

A GST registration is a PAN-based registration. In case of death of sole proprietor, if the business is intended to be carried on by the successor or legal heir, the successor cannot do so using the same GST registration since the successor will have a different PAN. Thus, the successor needs to take a new registration if not already registered and also ensure that the balance of ITC lying in the electronic credit ledger of the sole proprietor is transferred to him. Also, the successor has to file the application for cancellation of GST registration on account of death of sole proprietor.

On the other hand in Income tax in case of death of the assessee there is requirement of the legal hier to register himself on the efiling portal as legal heir of the assessee and file the return on behalf of the assessee. In this article we will discuss the various compliances to be considered after the death of sole proprietor.

GST Compliance to be made after death of sole proprietor

The following are the various processes to be followed by the successor after death of sole proprietor:

1. Transfer of ITC in case of death of sole proprietor:

In case of death of sole proprietor if the business is continued by any person being transferee or successor, the input tax credit which remains un-utilized in the electronic credit ledger is allowed to be transferred to the transferee.

What is the Manner of transfer of credit?

As per rule 41(1) of the CGST Rules, a registered person shall file FORM GST ITC-02 electronically on the common portal with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason. In case of transfer of business on account of death of sole proprietor, the transferee / successor shall file FORM GST ITC-02 in respect of the registration which is required to be cancelled on account of death of the sole proprietor. FORM GST ITC-02 is required to be filed by the transferee/successor before filing the application for cancellation of such registration. Upon acceptance by the transferee / successor, the un-utilized input tax credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.

For the purpose of sections 18(3), 22(3) and 85(1) of CGST Act and rule 43(1) of CGST Rules, 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

2. Cancellation of registration on account of death of the proprietor:

Section 29(1)(a) of the CGST Act, 2019 deals with Cancellation of registration on account of transfer of business for any reason including death of the proprietor. Section 29(1)(a) of the CGST Act, allows the legal heirs in case of death of sole proprietor of a business, to file application for cancellation of registration in FORM GST REG-16 electronically on common portal. In FORM GST REG-16, reason for cancellation is required to be mentioned as “death of sole proprietor”. At the time of filing for cancellation the transferee is required to upload the death certificate of the 

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.

3. Registration liability of the transferee /successor: 

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. 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 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.

4. Transfer of input tax credit and liability:

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, allows the registered person to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee in the manner prescribed in rule 41 of the CGST Rules, where there is specific provision for transfer of liabilities.

Section 93(1) of the CGST Act provides that where a person, liable to pay tax, interest or penalty under the CGST Act, dies, then the person who continues business after his death, shall be liable to pay tax, interest or penalty due from such person under this Act.

It is therefore clarified that the transferee / successor shall be liable to pay any tax, interest or any penalty due from the transferor in cases of transfer of business due to death of sole proprietor.

Income Tax Compliance to be made after death of sole proprietor

In accordance with the Sec. 159 of the Income Tax Law, if an assessee unfortunately dies before filing the income tax return of any year in which a filing requirement exists, it becomes the liability of the spouse/legal representative/executor to file the income tax return and pay-off any remaining tax dues of the deceased assessee. A deceased person is entitled to all the deductions and exemptions for the entire year, but tax is levied only on the income earned till his/her death. However, the return of the deceased would include income till the date of death of assessee, hereafter the income would be taxable in the hands of the legal heir and included in his return of income. On the death of the assessee, the income from his/her assets and the tax liability is transferred to his/her legal heirs. So the filing of tax returns becomes the responsibility of the Legal Heir (LH). This means the legal heir can file the tax returns on behalf of the deceased assessee.

In case of death of the assessee the legal heir has to register himself on the efiling portal as legal heir of the assessee and file the return on behalf of the assessee the following is the procedure to register as legal heir on e filing website:

Step 1: Log in to ‘e-Filing’ Portal www.incometaxindiaefiling.gov.in using Login Credentials of yours i.e. Legal Heir

Step 2: Now, Under “My Account” tab Select, “Register as Representative” Option

You will be redirected to Register as Representative page

Step 3: Now, Select, Request type as new request and Category to register as “Deceased (Legal Heir) and Click on “Proceed” button

Step 4: Now enter the below details:

a. Pan of the Deceased

b. Name and Date of Birth of the Deceased as per PAN

c. Bank details of the Legal Heir

d. Upload the relevant documents

Once the above details are filled and uploaded click on ‘Submit’ button. A Success Message will be displayed confirming the submission of Register as authorized signatory Request. Request will be sent to the e-Filing Admin for approval. The e-Filing Admin will check the authenticity of the request details and may Approve/Reject the request and Upon Approval/Rejection, an e-mail and SMS will be sent to the user who raised the request.

Note:

1. The registration of Legal Heir is for the purpose of filing income tax return on behalf of the deceased person.

2. Upload the following documents in PDF format (Maximum 1 MB) –

• Death Certificate.
• PAN card of the deceased,
• PAN card copy of Legal Heir and
• Legal Heir certificate

3. Following documents will be accepted a legal heir certificate.

• The legal heir certificate issued by court of law.
• The legal heir certificate issued by the Local revenue authorities.
• The surviving family members certificate issued by the local revenue authorities.
• The registered will.
• The Family pension certificate issued by the State/Central government.
• Letter issued by the Banking or Financial Institution in their letter Head with Seal and signature mentioning the particulars of nominee or joint account holder to the account of the deceased at the time of demise.
• To provide the Hindi/English Translation version of the will/Legal Heir certificate. duly notarised. along with copy of the original certificate.

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