GST Procedure- In case of Death of proprietor
In this article we will discuss the legal aspect and its compliance part from GST Prospective in case of death of proprietor. What would be happen with respect to ITC? Who will be responsible for any unpaid taxes? These all issue can be solved by reading this article. There are two aspects when this event is taken place ie either one can transferred the business as going concern to legal heir or business may be discontinued.
- Business is discontinued or closed by legal heir-
In this case following procedure should be followed
- Cancellation of registration & payment of tax contained in the stock
- Filling of Final Return in Form GSTR-10
- Transfer of liability
1.Cancellation of registration & payment of tax portion-
a. A legal heir needs to apply for cancellation of registration but before applying registration one precaution needs to be taken care which is payment of taxes. This can be done either by way of debiting the electronic credit or cash ledger on the input tax contained in the stock of inputs, semi-finished goods, finished goods and capital goods or the output tax payable on such goods, whichever is higher.
b.the calculation for above purpose shall be taken as on the day immediately preceding the date with effect from which the cancellation has been ordered by the proper officer i.e. the date of cancellation of registration.
c. it is not mandatory to pay the taxes before applying for cancellation but it is additional requirement other than cancellation.
2. Filling of Final Return in Form GSTR-10 –
After calculating the amount payable as mentioned above, one needs to file Final return in Form GSTR-10 within a period of 3 months from the cancellation and pay the taxes failure to which may lead to notice in Form GSTR-3A from the department and cause extra amount in the form of interest and penalty.
- Transfer of liability –
According to section 93 (1), if a person was liable to pay any arrears like taxes, interest or penalty dies, then his legal representative shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the arrears.
- Business is continued by the legal heir
Following procedure needs to be followed by legal heir
- Obtaining the New Registration
- Transfer of input tax credit
- Cancellation of registration
- Transfer of liability
- Obtaining the new registration-
a.according to section 22 (3) of CGST Act, if there is any change in the constitution of the business of the taxable person, which is already registered in GST act, either on account of succession or otherwise, to another person as a going concern, 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.”
b. Death of proprietor is also covered in the above case, hence legal heir who is continuing the business is required to opt the new registration. He is required to file an application in FORM GST REG-01 electronically in the common portal by mentioning the reason as “death of the proprietor”.
c. obtaining new GST registration is same just one additional document is required which death certificate of the deceased.
2. Transfer of Input tax credit-
a. As per Sub-section (3) of section 18 of the CGST Act, it 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.
b. how to apportion unutilized ITC, which date should be taken etc these all thing are explained in our article “Different pertinent issues and its clarification under section 18(3) of CGST” one can refer it for detailed analysis.
c. other than above transferee on the common portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.
3. Cancellation of Registration-
a. As per 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 an application for cancellation of registration in FORM GST REG-16 electronically on the common portal on account of transfer of business for any reason including death of the proprietor. In FORM GST REG-16, the reason for cancellation is required to be mentioned as “death of sole proprietor”.
b. The GSTIN of the 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 the transferee.
4. Transfer of liability –
a. 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“.
b. Furthermore, subsection (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, 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 the death of the sole proprietor.
In this by checking which provision is applicable to you, one should follow the procedure relevant procedure and comply with law