GST Compliance after death of a Proprietor

If a person is running a proprietorship business and he dies by any reason, then it will be considered as a transfer of a business.

There can be 2 scenarios in case of death. Thus, we are trying to cover both of them with the help of a chart.

Scenario 1: Business is Continued by the Legal Heir.

Step 1: Obtaining the New Registration by Legal Heir.

1. Legal Heir or Successor will be liable to be registered w.e.f. the date of such transfer i.e. death in our case. (Section 22 (3) - CGST Act)
2. File application for registration in Form GST REG - 01.
3. Select reason to obtain registration as "Death of Proprietor".
4. The date on which liability of Registration arise => Date of Death of Proprietor.
5. Death certificate of deceased proprietor also need to be upload while filing REG - 01.

Step 2: Transfer of Unutilized Input Tax Credit (ITC).

1. The unutilized ITC lying in Electronic Credit Ledger of deceased can be transferred to successor.
2. The procedure to transfer unutilized ITC has been stated in Rule-41 (CGST Rules).

3. Procedure for Authorized Representative of Transferor (Deceased): -

• Form GST ITC - 02 to be furnished providing details of Transfer along with request for transfer of unutilized ITC.
• A copy of Certificate issued by practicing CA or CMA certifying transfer has been done according to the provision for transfer of liabilities shall also be submitted.

4. Procedure for Transferee (Successor): -

• Accept the details so furnished by Transferor on common portal.
• After acceptance, the unutilized ITC stated in ITC-02 will be credited to Electronic Credit Ledger immediately.
• Inputs and Capital Goods should be duly accounted in the books of accounts.

5. Imp. Point to be Noted: -

• ITC-02 to be filed only if there is any ITC.
• No time limit for filing ITC - 02.

Step 3: Cancellation of Registration.

1. Application for cancellation to be made in Form GST REG 16.
2. Following details to be provided in Form:
• Details of inputs, semi-finished, finished goods held in stock on date of cancellation or registration is applied.
• Liability (i.e. ITC on Stock / Capital Goods held) thereon.
• Details of the payment.
3. Form GST REG 16 to be filed within 30 Days from Death.
4. The proper officer has to issue order for cancellation in Form GST REG 19 within 30 days of application.

5. Imp. Point to be Noted: -

• As business is continued by legal heirs then the stock will be transferred to legal heir as shown in Step 2.
• Thus, there will no stock on date of application of cancellation and no ITC thereon.
• Thus, no need of payment of tax.

Step 4: - Transfer of Liability.

1. Section 93(1) - CGST Act states:
• When a person dies then,
• The person who continues the business
• Shall be liable to pay tax, interest or any penalty
• Due from transferor (i.e. Deceased person)

Scenario 2 : Business is Closed by the Legal Heir.

Step 1: Cancellation of Registration.

1. The procedure is same as given in Step 3 above.
2. In this scenario there is no transfer of business.
3. Thus, there will also be no transfer of stock.
4. This will result in arising of tax liability of amount equal to ITC on stock held.

Step 2: Payment of ITC contained in Stock / Capital Goods.

1. The ITC taken on stock / Capital Goods held at the time of application of cancellation to be paid.
2. The requirement to debit Electronic Credit Ledger / Cash Ledger is not prerequisite for applying Cancellation.
3. It can be done at time of submission of Final Return (Form GSTR - 10).

Step 3: Filing of Final Return (Form GSTR - 10).

1. Final return must be filed within 3 months from date of cancellation order.
2. Incase final return not filed within due date, then Notice in Form GSTR-3A to be issued to taxpayer.
3. If taxpayer still fails to file final return within 15 days of receipt of GSTR-3A, then an Assessment Order in GST ASMT-13 will be issued.

Step 4: Transfer of Liability.

1. Section 93(1) - CGST Act states:
• When a person dies and business is Discontinued then,
• Legal representative shall be liable to pay
• Tax, interest or any penalty
• Due from transferor (i.e. Deceased person)
• Out of the Estate of the deceased person.