Managing GST Registration After a Sole Proprietor's Demise: Cancellation and Business Transfer Procedures

When a sole proprietor passes away, the associated business can either be shut down or legally transferred to their successors or a new owner. Business transfers involve securing necessary legal certificates, moving assets and liabilities, and managing the transfer of Input Tax Credit (ITC). Since a legal heir possesses a distinct PAN, they must acquire a new GST registration and cannot operate the business under the deceased proprietor's existing registration. This article outlines the essential GST compliance procedures for legal heirs following a sole proprietor's death, detailing the steps for GST registration cancellation or business transfer, along with the required documentation.

Choices Upon the Demise of a Sole Proprietor

Upon the death of a sole proprietor, the legal heirs or representatives have two primary options concerning the business's GST status:

• GST Registration Cancellation: Successors can apply to cancel the GST registration by submitting Form GST REG-16.
• Business Transfer: Legal heirs or representatives may initiate a GST registration transfer. This requires submitting an application to the jurisdictional Proper Officer to be designated as an authorised signatory and then completing further specified procedures.

Required Documentation for Legal Heirs Under GST

For cancelling a GST registration following a sole proprietor's death, the legal heir must provide the following proofs:

• An identity document (e.g., PAN, Aadhaar, or passport) showing details of both the deceased proprietor and the legal successor.
• Identification proof for the deceased proprietor.
• A succession certificate.
• The proprietor's death certificate.
• A No Objection Certificate (NOC) from other legal heirs, if applicable, authorizing the individual applying for GST cancellation to act as the authorised signatory.

Procedure for Cancelling GST Registration After a Proprietor's Death

To cancel a GST registration when a sole proprietor passes away, follow these steps:

1. Request Authorised Signatory Change: Apply to the jurisdictional GST officer to change the authorised signatory. This is necessary to file any outstanding GST returns and proceed with cancellation. Note that legal heirs must visit the proper jurisdiction officer's office with relevant documents for this change.
2. File Pending Returns and Pay Dues: All GST returns due up to the proprietor's death must be filed, and associated taxes paid. This includes GST equivalent to the Input Tax Credit (ITC) on stock, semi-finished goods, finished goods, capital goods, or plant and machinery held on the day before cancellation, or the output tax due on these goods, whichever amount is greater.
3. Submit Cancellation Application: File Form GST REG-16, detailing the reason for cancellation, the desired effective date, and information regarding inputs and taxes paid.
4. Receive Cancellation Order: If the application is deemed correct after verification, the GST officer will issue a cancellation order in FORM GST REG-19, with the cancellation effective from the date requested by the applicant.
5. File Final Return: Submit FORM GSTR-10 (final return) within three months of the cancellation date or the cancellation order date, whichever occurs later. Any ITC remaining in the electronic credit ledger will expire.
6. Address Non-Filing: If the final return is not filed within the specified timeframe, the GST officer will issue a notice and an assessment order in FORM GST ASMT-13 to determine the tax liability as per Section 29(5).

Steps for Business Transfer Following a Sole Proprietor's Death

According to Section 29 of the CGST Act, a sole proprietor's GST registration must be cancelled upon their death, after which the business can be transferred. Legal heirs or new owners should follow these steps for a GST registration transfer:

1. Obtain Legal Certificates: Acquire a legal heirship or succession certificate from the relevant authority to substantiate claims over the deceased proprietor's assets and liabilities.
2. Transfer Business Assets and Liabilities: Legally transfer the business's assets and liabilities into their name by executing the proper documentation.
3. Apply for Authorised Signatory Change: Request the jurisdictional GST officer to change the authorised signatory. This is essential for filing any pending GST returns and cancelling the deceased proprietor's GST registration. This change typically requires a visit to the proper officer's office with all necessary documents.
4. Seek New GST Registration: As mandated by Section 22 of the CGST Act, apply for a fresh GST registration using Form GST REG-01 under their own PAN, as the deceased proprietor's existing registration cannot be used.
5. Initiate ITC Transfer: Apply to transfer Input Tax Credit (ITC) by submitting Form GST ITC-02 via the GST common portal.
6. Confirm ITC Transfer: The successor must accept the ITC transfer using their newly obtained GST registration to finalize the process.
7. Proceed with Cancellation: Subsequently, file Form GST REG-16 to cancel the deceased proprietor's GST registration. It is important that any outstanding taxes are paid before the business transfer. However, in this scenario, there is no requirement to pay GST on ITC contained in inputs and capital goods.
8. Receive Cancellation Order: The GST officer will review the application and, if found in order, issue the cancellation order using FORM GST REG-19, with the effective date aligning with the applicant's request.
9. File Final GST Return: The successor needs to file the final GST return in Form GSTR-10 within three months from the date of registration cancellation.
10. Update Business Documents: Amend all business documents, including invoices and letterheads, to reflect the new GSTIN.

Input Tax Credit and Tax Liability Transfer

Under Section 18(3) of the CGST Act, 2017, Input Tax Credit (ITC) can be transferred when a business is handed over, provided the associated business liabilities are also transferred as per Rule 41. Moreover, Section 93(1) mandates that if a person responsible for tax, interest, or penalties dies, the individual continuing the business assumes responsibility for these outstanding tax obligations. Therefore, any successor planning to operate the sole proprietor's business and seeking to utilize the ITC available in the electronic credit ledger must adhere to the procedures outlined previously in the 'Steps for Business Transfer Following a Sole Proprietor's Death' section. The successor will also be accountable for settling all pending tax dues of the former sole proprietor.

Transferring Input Tax Credit to a Successor

The transfer of ITC must follow Rule 41 of the CGST Rules. Initially, the successor or legal heir must provide the sole proprietor's death certificate and a succession certificate to the jurisdictional GST officer as proof. The proper officer will then designate the successor as the authorised signatory for the deceased proprietor. If the successor is a minor, their legal guardian will serve as the authorised signatory. A fresh GST registration is mandatory for the successor to continue the business, as the deceased proprietor's GSTIN cannot be used.

The GST portal will issue a temporary username and password to the authorised signatory's email. These credentials, along with a first-time login link, allow the successor to access the sole proprietor's account, where they must immediately update the username and password. After a successful login, Form GST ITC-02 should be filed using the deceased sole proprietor's registration, providing all required information. To finalize the ITC transfer, the successor must accept it via their new GST registration. Once the transfer is complete, the successor can then proceed to cancel the deceased proprietor's registration.