Transfer of ITC on the death of proprietor, The Central Board of Indirect Taxes and Customs, vide Circular no 96/15/2019-GST has clarified regarding Change in the ownership of business due to death of the sole proprietor, in the registration form, GST REG-01 to be filed electronically in the common portal. The legal heir of the dead sole proprietor will be required to give application for cancellation of the existing registration.
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 as per provisions and in the manner stated below –
a. Registration liability of the transferee / successor:
As per provisions of sub-section (3) of section 22 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 the Proprietor”.
b. Cancellation of registration on account of death of the proprietor:
Clause (a) of sub-section (1) of section 29 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 on account of transfer of business for any reason including death of the proprietor. 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.
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. Sub-section (3) of section 18 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. As per sub-section (1) of section 85 of the CGST Act, the transferor and the transferee / successor shall jointly and severally be liable to pay any tax, interest or any penalty due from the transferor in cases of transfer of business “in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever”. Furthermore, sub-section (1) of section 93 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.
Manner of transfer of credit:
As per sub-rule (1) of rule 41 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.
Procedure for transfer of Input tax credit on the death of proprietor:
Transfer of ITC on the death of proprietor, Procedure for transfer of Input tax credit on the death of proprietor. this crucial topic is thoroughly addressed by CBIC vide circular no. 96/15/2019. the taxpayers were facing this issue as it was not clear how to take the ITC of the deceased proprietor in case of death. Let us go through this issue on detail.
Application for the new registration with the PAN of transferee:
Since GST is a PAN based system. but due to eath of a proprietor the PAN get changed. So the transferee need to take a fresh registration in his name to run the same business with some other PAN. This procedure is important to get the ITC transferred. If you dont have a GSTIN you cant be able to shift the ITC of deceased/transferor. choose the below mention option (as per relevance) as reason of registration.
Filing the Form GST ITC 02 from the dashboard of deceased proprietor:
First of all the transferee need to file the form GST ITC 02 from the dash board of the deceased proprietor then you may transfer the existing ITC to the new account (transferee) .at the time of filing the form ITC 02 you will find an option to fill the GSTIN where you want to transfer the ITC. You may transfer it to the transferee from that option.
Transfer of ITC on the death of proprietor