Introduction

In case of death of sole proprietor, there are two options available to his legal heirs. One is to discontinue the business and the second is to continue the business by transferring it. In this article we are going to discuss both options -

OPTION-1

Business is discontinued after death of proprietor-

In case of sole proprietor’s death, it is important to cancel their GST registration first. It involves a proper procedure laid down by GST laws.

1. Cancellation of registration-Apply for cancellation within 30 days. Mention the reason as death of proprietor. For this process legal heirs should register themselves as authorized signatory. For this legal heir may approach jurisdictional officer. Make sure that all the returns of deceased are properly filed till date. File GSTR-10 i.e. final return within 3 months from the date of cancellation order or date of cancellation whichever is later.
2. Input tax credit- Input tax credit which remained unutilized in electronic credit ledger will lapse.
3. Tax, interest and penalty- If the business is discontinued after death of proprietor, his legal representative shall be liable to pay, the tax, interest or penalty due from such person under this act, whether such tax, interest or penalty has been determined before his death but has remained unpaid or is determined after his death. Payment shall be done out of the estate of the deceased, to the extent to which the estate can meet the charge.

OPTION-2

Business is continued after death of proprietor-

Cancellation of GST registration- To cancel GST registration after demise of sole proprietor, it is important to inform GST department about death by submitting a written application along with a copy of death certificate. On receiving the application, the department will initiate its process which may take around 15 days to complete. A professional assistance can ensure proper completion of the process.

Documents required for cancellation application are as follows-

1. Written application for cancellation of GST registration along with death certificate
2. PAN of business
3. Bank account details (or cancelled cheque) for processing refund ITC if any

It is mandatory to mention reason for cancellation as “death of proprietor” and GSTIN of transferee is required to be mentioned for linkage between transferor and transferee.

1. Person liable for new registration in case of transfer of business-Where a business is transferred, due to death of sole proprietor, to another person as a going concern, the transferee is required to be registered from the date of such transfer. It is mandatory for successor of business to take new registration because GST registration is PAN based and PAN is different for successor. The process for new registration is usual i.e. submission of FORM GST REG-01. But it is necessary to mention “death of proprietor” as the reason for obtaining registration.
2. Transfer of input tax credit- Before applying for cancellation of GST registration Form GST ITC-02 is required to be filed on behalf of deceased person. Now the transferee has the option to accept or reject the information provided in the Form. After acceptance by transferee or successor, unutilized ITC shall be credited to his electronic ledger.

Steps to be taken by transferor are as follows-

1. Log in to www.gst.gov.in
2. Go on services>Returns>ITC forms tab
3. Open form GST ITC –02 and click on prepare online
4. Enter GST number of transferee and amount of ITC to be transferred (Maximum up to amount available)
5. Enter the details of CA/CMA under particulars of certifying chartered accountant or cost accountant
6. Now at last click on Save and file form with EVC or DSC

Now, transferee will take following steps-

• Log in to www.gst.gov.in
• Go on services>Returns>ITC forms tab>pending for actions
• A new page will be displayed, now use ARN link
• After clicking on that link, the amount of ITC will be reflected. Now transferee can accept or reject the application
• After acceptance a confirmation message will appear. Now transferee will file response with EVC or DSC and status will change to ACCEPTED

1. Tax, interest or penalty- If a business is carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act.
2. Taxability in case of transfer of business- Transfer of business is considered as supply under GST law and it is taxable. However, if all the assets and liabilities are transferred then it is exempt.

Important Sections