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Cancellation of GST Registration or Transfer of Business in Case of Death of a Sole Proprietor

By AJ

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Updated on: Apr 21st, 2023

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16 min read

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In case of the death of a sole proprietor, the business can either be cancelled or transferred to the legal heirs or a new owner. Transfer of business in case of death of a sole proprietor includes obtaining legal certificates, transferring assets and liabilities, and applying for the transfer of ITC. This is because the legal heir will need to apply for a new GST registration in their own name and cannot continue the business in the name of the deceased sole proprietor due to the proprietor having a different PAN.

In this article, we explain the steps that the legal heir has to follow in the event of the death of a sole proprietor in the context of GST compliance. Find out the steps for cancellation of GST registration or transfer of business in the case of death of a sole proprietor and the documents required for it.

Options Available in The Event of Death of a Sole Proprietor 

In the event of the death of a proprietor in GST, the legal heirs or representatives of the deceased person have two options:

  • Cancellation of GST registration: The legal heirs or representatives can apply for the cancellation of GST registration in case of death of a sole proprietor. In this case, the legal heirs or representatives need to apply for the cancellation of the GST registration by submitting Form GST REG-16.
  • Transfer of business: The legal heirs or representatives can apply for a transfer of GST registration in case of death of a sole proprietor by submitting an application to to the office of the Proper (Jurisdiction) Officer for becoming an authorised signatory and completing the necessary procedures detailed below. 

Documents Required as Proof By The Legal Heir Under GST

Here are the documents required for cancellation of a GST registration in case of death of a sole proprietor:

  • Identity card (such as PAN, Aadhaar, or passport) with the names of both the deceased proprietor and the legal heir
  • Identification proof of the deceased proprietor
  • Succession certificate
  • Death certificate of the proprietor
  • No objection certificate (NOC) if there are multiple legal heirs in favour of the person (authorised signatory) who is applying for the GST cancellation on the death of the proprietor 

Steps for Cancellation of GST Registration in Case of Death of a Sole Proprietor

Here is a step-by-step guide on how to cancel a GST registration in case of death of a sole proprietor:

  1. Apply for ‘Change of Authorised Signatory’ with the jurisdictional GST officer to file pending GST returns and cancel the GST registration. (Please note that in this case, the legal heir can apply for a change in authorised signatory only by visiting the  office of the proper jurisdiction officer with the relevant documents.)
  2. File all pending GST returns and pay the taxes due until the date of the proprietor's death. This includes GST equivalent to the input tax credit contained in inputs held in stock/semi-finished/finished goods or capital goods/plant and machinery on the day immediately preceding such cancellation, or the output tax that is payable on such goods, whichever is higher.
  3. File Form GST REG-16 to cancel the GST registration, providing details such as the reason for cancellation, the date from which it is sought, and information on inputs and taxes paid.
  4. If the application is found proper on verification, the GST officer shall pass the cancellation order in FORM GST REG-19 with the effective date of cancellation being the date from which the applicant has sought cancellation.
  5. File FORM GSTR-10, the final return, within three months of cancellation or the date of the order of cancellation, whichever is later. Note that the ITC that is available in the electronic credit ledger will lapse.
  6. If the final return is not filed within the stipulated time, the GST officer will issue a notice and an assessment order in FORM GST ASMT-13, determining the tax liability as per Section 29(5).

Steps for Transfer of Business in the Case Of Death of a Sole Proprietor 

As per Section 29 of the CGST Act, the GST registration will need to be cancelled on the death of a sole proprietor, and the business can be transferred thereafter. 

Here are the steps to transfer the GST registration in case of the death of a sole proprietor that are needed to be undertaken by a legal heir or new owner:

  1. They need to obtain a legal heirship or succession certificate from the appropriate authority to prove their claim on the assets and liabilities of the deceased proprietor.
  2. They need to transfer the assets and liabilities of the business to their name by executing proper documents.
  3. They will need to apply for a ‘Change of Authorised Signatory’ with the jurisdictional GST officer to file pending GST returns and cancel the GST registration of the deceased sole proprietor. (Please note that the legal heir can apply for a change in authorised signatory only by visiting the  office of the proper jurisdiction officer with the relevant documents.)
  4. As per Section 22 of the CGST Act, they need to apply for a fresh GST registration in Form GST REG-01 using their own PAN as they cannot use the existing registration of the deceased proprietor.
  5. They need to apply for the transfer of Input Tax Credit (ITC) by filing Form GST ITC-02 on the GST common portal.
  6. The successor must confirm the transfer of ITC using their new registration to complete the transfer.
  7. Next, they can proceed to cancel the GST registration by filing Form GST REG-16. Note that the successor will need to pay any outstanding taxes before transferring the business. However, in this case, there is no requirement to pay GST on ITC contained in inputs and capital goods.
  8. The GST officer shall verify the application and, if found to be in order, shall pass the cancellation order in FORM GST REG-19, with the effective date of cancellation being the date from which the applicant has sought cancellation.
  9. The successor will need to file the final GST return in Form GSTR-10 within three months from the date of cancellation of registration.
  10. They need to update their invoices, letterheads, and other documents with the new GSTIN.

Transfer of Input Tax Credit and Tax Liability

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. 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.

Hence, if 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, they will need to follow the steps mentioned above in the section ‘Steps for Transfer of Business in the Case of Death of a Sole Proprietor’. They will also be liable to pay all the pending tax dues of the sole proprietor.  

How to Transfer ITC to Successor

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 successor will also need to apply for a fresh GST registration for themselves to carry on the business as the business cannot be continued using the GSTIN of the deceased sole proprietor.

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 new GST registration. After the transfer is complete, he can now proceed with the cancellation of the registration of the deceased sole proprietor.

Frequently Asked Questions

What do you do in case of the death of a proprietor? 

Legal heirs or representatives of the sole proprietor may cancel the GST registration of the business or apply for a transfer of the business to their name.

What happens if the sole proprietor dies? 

If a sole proprietor dies, their legal heirs or representatives need to manage the business and handle the legal procedures, such as cancelling the GST registration or transferring the business to their name.

What is the legal status of a proprietorship firm after the death of a proprietor? 

The proprietorship firm ceases to exist, and the legal heirs or representatives may have to take appropriate legal steps to continue or terminate the business.

What are the documents required for cancellation of GST registration in case of death of proprietor? 
The documents required for the cancellation of GST registration in the event of the death of the proprietor may include the proprietor's identification proof, death certificate, legal heir's proof of identity, and succession certificate, amongst others that may be called for by the GST officer. 

What is the procedure for the transfer of ITC in case of death of the proprietor? 

In case of the death of the proprietor, the legal heirs or representatives will need to apply for a new GST registration to continue the business. They will also need to be added as authorised signatories and file Form ITC-02 using the sole proprietor’s GST registration to initiate the transfer of ITC. Finally, the successor will need to accept this transfer of ITC using their own GST registration.  

What is the accounting treatment in the case of the death of a proprietor?

In the case of the death of a proprietor, the accounting treatment involves the valuation and recording of assets and liabilities, preparation of final accounts, and distribution of profits/losses among the legal heirs or representatives.

How to change proprietorship from father to son in GST after death?

To change proprietorship from father to son, the son needs to present the death certificate and succession certificate at the office of the proper officer as proof, along with other requisite documents, and complete the necessary procedures for the transfer of the business.
 

Related Articles

GST Registration Online – ClearTax

Cancellation of registration under GST- Why & How?

Treatment of ITC on Transfer of Business

How to file ITC-02 on the GST portal?

 

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About the Author

DVSR Anjaneyulu, known by the name AJ, I've got a vast experience in accounting, finance, taxes and audit. I'm always keen to simplify laws for the readers and learn about the Indian finance ecosystem. I also love listening to music, travelling, and, most importantly, conversing with people to better understand the world.. Read more

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