GST implications on death of the proprietor

Introduction:

Transfer or succession of business is a normal business phenomenon which has been taken care by the various taxation laws also. Transfer or succession of business may take place in various cases such as merger, demerger, amalgamation or death of proprietor etc. In this article, we have discussed the provisions of GST in case of death of the proprietor. There can be two scenarios in case of death of proprietor, either the business is discontinued or the business is continued by the legal heir or successor. In this article, both the scenarios are discussed in details as below.

Options available with legal heir:

In the event of death of proprietor, the legal heir has the following two options:
Option-1: Legal heir closes down the business
Option-2: Legal heir continues the same business

Option-1: Legal Heir closes down the business

Firstly, the legal heir should arrange for the following documents/ information before applying for cancellation of GST registration:

Death Certificate of Proprietor
Identity Proof of Deceased person
Identity Proof of the legal heir to prove his/her relationship with the deceased proprietor
GST certificate of deceased proprietor
Return filing status of the proprietor

After the arrangement of the above documents, the legal heir shall make an application to the jurisdictional GST officer for the “Change of Authorised Signatory” so that pending returns could be filed and GST cancellation request be made. The GST officer will change the authorised signatory and send a temporary link for updation of details. Once the signatory has been changed, the process of cancellation can be started.

Step-1: File all pending GST returns and make payment of tax due till the date of death of the proprietor.

Step-2: File application for cancellation of registration in FORM GST REG-16, providing the following information:

Reason for cancellation- Show reason as “Death of proprietor”
Date from which cancellation is sought
Details of the value and the input tax/tax payable on the stock of inputs, inputs contained in semi-finished goods, inputs contained in finished goods, stock of capital goods
Details of last return filed by the taxpayer along with the ARN of such return filed.

The application should be submitted within 30 days of the death of the proprietor in FORM GST REG-16.

Step-3: If the application is found to be proper, the GST officer shall pass order for cancellation in FORM GST REG-19 with the effective date of cancellation being the date from which the applicant has sought cancellation. In any case, the effective date cannot be a date earlier to the date of application for the same.
In case of discrepancies in the application, the GST officer shall inform the applicant in writing and allow time period of 7 working days from the date of receipt of letter for removing discrepancies. On receipt of reply, the GST officer may approve the cancellation of registration in FORM GST REG-19. In case no reply is received within 7 days, the application shall be liable to be rejected by the GST officer.

Step-4: Filing of FORM GSTR-10

The legal heir is required to file the final return in FORM GSTR-10 electronically on GST portal. FORM GSTR-10 is required to be submitted within 3 months of the date of cancellation or date of order of cancellation, whichever is later.
In case, the legal heir doesn’t file the final return within the time stipulated, the GST officer shall issue a notice. If he doesn’t file return within 15 days of the receipt of notice, the GST officer will issue assessment order in FORM GST ASMT-13 under section 62 determining the tax liability as per section 29(5) on the basis of information available with him and if the return has been filed within 30 days of the date of service of assessment order, then the said order shall be deemed to have been withdrawn.

Important points:

The taxpayer seeking cancellation shall have to pay, by way of debiting either the electronic credit or cash ledger, the input tax contained in the stock of inputs, semi-finished goods, finished goods and capital goods.

Amount of GST to be reversed:
(a) Input tax relatable to such inputs or
(b) Output tax payable on such goods, whichever is higher

Similarly, the inputs tax credit attributable to capital goods shall be reversed/ paid. The amount of such reversal shall be computed proportionately as follows:
(a) ITC proportionate to remaining life (in months) of the capital goods taking useful life as 5 years or
(b) Output tax on the transaction value; whichever is higher

Reversal of input tax as above can also be done at the time of submission of final return in FORM GSTR-10.
Where a person liable to pay tax, interest or penalty under this Act, dies and the business is discontinued, his legal heir shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such person under the Act, whether such tax, interest or penalty has been determined before his death but has remained unpaid or is determined after his death.

Option-2: Legal heir continues the business

If the legal heir decides to continue the business after the death of proprietor, he shall follow the following procedure:

Application for Fresh registration: The legal heir will have to apply for fresh registration under GST in his name with effect from the date of succession.
(a) Application for registration to be made electronically on GST portal in FORM GST REG-01.
(b) The reason for obtaining registration shall be stated as “death of the proprietor”.
(c) Death certificate of the deceased will also be uploaded along with other documents required for GST registration.

Transfer of input tax credit:
(a)As per Section 18(3) of CGST Act, when there is a change in the constitution of the business as in case of death of proprietor, the legal heir shall be allowed to take credit of unutilized input tax credit in the electronic credit ledger of the deceased. However, such credit shall be allowed only when the legal heir also takes over all the liabilities of the firm of the deceased person.
(b) The procedure of transfer of unutilized credit is prescribed by Rule-41 of CGST Rules.
(c) According to Rule-41, the legal heir is required to file declaration in FORM GST ITC-02 electronically on GST portal requesting for transfer of unutilized input tax credit lying in the electronic credit ledger of deceased proprietor.
(d)He shall also be required to submit a certificate issued by a practising Chartered Accountant or Cost Accountant certifying the fact that the transfer of business has been done with a specific provision for the transfer of liabilities.
(e) On filing of FORM GST ITC-02, the unutilized ITC will be transferred to GST numbers of the legal heir.
(f) The legal heir shall login to his GSTIN and accept the details so furnished from GSTIN of deceased proprietor. Upon acceptance, the un-utilized ITC shall be credited in electronic credit ledger of the legal heir.
(g) There is no prescribed time limit for filing of FORM GST ITC-02.

Cancellation of registration of deceased:

The legal heir shall make an application to the jurisdictional GST officer for the “Change of Authorised Signatory” so that pending returns could be filed and GST cancellation request be made. The GST officer will change the authorised signatory and send a temporary link for updation of details. Once the signatory has been changed, the process of cancellation can be started.

Step-1: File all pending GST returns and make payment of tax due till the date of death of the proprietor.

Step-2: File application for cancellation of registration in FORM GST REG-16 stating the reason for cancellation as “Death of the Proprietor”.

(a) The GSTIN of the legal heir to whom the business has been transferred is also required to be mentioned to link the GSTIN of the deceased person with GSTIN of the legal heir.
(b) The application for cancellation should be submitted within 30 days of the death of the proprietor in FORM GST REG-16.
(c) Since the business of the deceased is continued by the legal heir, the inputs and capital goods are transferred to the legal heir. Therefore, there is no requirement of paying tax thereon (as was in case of closure of business.

Step-3: If the application is found to be proper, the GST officer shall pass order for cancellation in FORM GST REG-19. In case of discrepancies in the application, the GST officer shall inform the applicant in writing and allow time period of 7 working days from the date of receipt of letter for removing discrepancies. On receipt of reply, the GST officer may approve the cancellation of registration in FORM GST REG-19. In case no reply is received within 7 days, the application shall be liable to be rejected by the GST officer.

Step-4: Filing of FORM GSTR-10
After cancellation order is received, the legal heir is required to file the final return in FORM GSTR-10 electronically on GST portal. FORM GSTR-10 is required to be submitted within 3 months of the date of cancellation or date of order of cancellation, whichever is later.

Transfer of GST liabilities

According to section 93 of CGST Act, where a person liable to pay tax, interest or penalty under the CGST Act, dies, then the legal heir shall be liable to pay tax, interest or penalty on continuation of business after his death.

Important note:

The unutilized balance of electronic cash ledger of the deceased person can be claimed as a refund u/s 54 of CGST Act after adjustment of tax, interest or any other amount payable under the Act.

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