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A GST registration is a PAN-based registration. In case of death of sole proprietor, if the business is intended to be carried on by the successor or legal heir, the successor cannot do so using the same GST registration since he will have a different PAN. Thus, the successor needs to take a new registration if not already registered and also ensure that the balance of ITC lying in the electronic credit ledger of the sole proprietor is transferred to him. Also, the successor has to file the application for cancellation of GST registration on account of death of sole proprietor.
Section 22 of the CGST Act, 2017 states that when a business is transferred to another person due to the death of a sole proprietor, the successor shall be liable to be registered with effect from the date of succession. The registration process is very similar to taking the regular process, and it is done by filing Form GST REG-01 electronically. The complete process can be found here. At the time of filing, however, the reason to obtain registration should be “death of the proprietor”.
Section 18(3) of the CGST Act, 2017 allows the transfer of ITC where the business is being transferred as long as the business’s liabilities are also being transferred in the manner specified in Rule 41. Section 85(1) holds both the transferor and the transferee jointly and severally liable to pay all tax, interest and penalty dues. Further, section 93(1) states that if the person liable to pay tax, interest or penalty passes away, the individual who continues the deceased person’s business shall be liable to pay those tax dues.
Thus, the following can be summarised from a combined reading of the above sections:
Suppose the successor intends to carry on the sole proprietor’s business and wishes to obtain the credit of input tax lying in the electronic credit ledger of the sole proprietor. In that case, he will also be liable to pay all the pending tax dues of the sole proprietor.
As mentioned earlier, the process to transfer ITC should be as per Rule 41 of the CGST Rules. The successor or legal heir has to first submit the death certificate of the sole proprietor and the succession certificate to the jurisdictional GST officer as documentary evidence. The proper officer will then add the successor as the authorised signatory for the deceased sole proprietor. Note that in case the successor is a minor, his legal guardian would be the authorised signatory.
The GST portal will send a temporary username and password to the e-mail address of the newly added authorised signatory. Using these temporary credentials and the first-time login link, the successor can now log in to the account of the sole proprietor. He will be asked to change the username and password immediately. Upon successful login, he will have to file Form GST ITC-02 using the same registration, i.e. registration of the deceased sole proprietor. The form has to be filed after filling in the relevant details.
To complete the transfer of ITC, the successor has to accept such transfer using his registration. After the transfer is complete, he can now proceed with the cancellation of the registration of the deceased sole proprietor.
Section 29(1) of the CGST Act, 2017 contains certain circumstances under which the taxpayer can apply for cancellation of registration. One such condition is the death of the sole proprietor. The application for cancellation can be filed using Form GST REG-16. The complete process for cancellation can be found here. One has only to ensure that the reason for cancellation is mentioned as “death of sole proprietor”. Further, the GSTIN of the transferor and the transferee of the business will have to be mentioned.