In certain cases, death of a key member of the business leads to automatic closure of business such as death of sole proprietor, death of one of two partners, death of a partner when partnership deed provides for dissolution on death etc. On the contrary, in certain cases death does not affect the continuity of business such as Death of a partner when partnership deed provides for continuation of business, Death of director/shareholder of Company, LLP etc.
Where the legal entity of the business remains the same, remaining persons may continue the business after making certain compliance such as updating information about partners/directors on GST portal, formation of revised partnership deed etc.
However, in case of dissolution of business, legal identity of the business comes to an end and business is either taken over by the legal heir of the deceased proprietor or remaining partners or it comes to an end.
In this article, an attempt has been made to discuss GST on dissolution of business due to death of sole proprietor.
In case of the death of the Sole proprietor, the business is taken over by his legal heir of the deceased proprietor and they may decide to either continue the business in their name or close the business.
However, with death of sole proprietor, GST compliances do not come to an end, rather, provisions specified by GST law is required to be complied by the legal heir/successor of the deceased proprietor.
Therefore, In case of death of sole proprietor, GST implication shall vary in following cases:
In case where business is taken over and continued by legal heir, various provisions are given under Central Goods and Service Tax Act, 2017 (“CGST Act”) and different issues are also clarified by CBIC vide Circular No. 96/15/2019-GST dated 28th March, 2019.
As per Section 22(3) of CGST Act, 2017, where a business is transferred due to succession to any other person on going concern basis then the successor is liable to obtain GST registration from the date of succession.
Therefore, the legal heir of the deceased person is required to obtain separate GST registration with his PAN number and from such date onwards he shall be liable for all GST Compliances.
At the time of filing application for GST registration in Form GST REG-01, “Death of the Proprietor” should be selected as reason for obtaining GST registration.
In cases where the legal successor is already registered under GST then he may continue with his existing GST registration.
After death of the proprietor, all returns and documents on GST portal shall be filed by the legal heir on behalf of the proprietor.
For this purpose, legal heirs shall be first required to file a copy of the death certificate of the proprietor and succession certificate to the jurisdictional officer as documentary evidence.
Upon verification of all documents, the proper officer shall add such legal heir/successor as “Authorised Signatory” on GSTIN of deceased proprietor.
A temporary username and password shall be created by the proper officer for successor and he can login to the GSTIN of the deceased proprietor by using such login credentials.
Thereafter, all remaining returns and forms shall be filed and Cancellation proceedings of GSTIN shall be carried out by successor by using such login credential only.
As per Section 18(3) of CGST Act, 2017, in case of transfer of business where liabilities of the business is also transferred, transferor is allowed to transfer the unutilised balance lying in electronic credit ledger to the transferee.
In case of death of the proprietor, both assets and liabilities are transferred to the successor. Therefore, balance lying in the electronic credit ledger of the proprietor can be transferred to the successor/legal heir.
Following is the procedure to be followed for transfer of ITC as per Rule 41 of CGST Rules, 2017:
As per Section 93 of CGST Act, 2017, if business of a deceased person is continued by his legal representative or any other person then such legal representative shall be liable to pay tax, interest or penalty due from such deceased person.
In case of death, legal heirs shall be liable for filing of pending returns of the deceased person and upon filing of pending returns and completing other compliance such as filing of GST ITC-02, they may proceed to apply for cancellation of GST registration of deceased person.
Any sales made by the deceased person till the date of his death should be disclosed while filing GSTR-1 and GSTR-3B by the legal heir of the deceased proprietor on his behalf.k
However, any tax, interest or penalty due from such deceased person shall be paid by his legal heir only.
As per Section 29(1) of CGST Act, 2017, in case of death of any person, GST registration of deceased person shall be cancelled on an application made by legal heir. Application for cancellation of GSTIN shall be filed in Form GST REG-16 by stating the reason “”Death of the Proprietor”.
There can be cases where business is taken over by the legal heir for completing closure proceeds but legal heirs don’t continue the business of the deceased proprietor.
Following are the provisions need to be complied in such case:
Legal Heir shall appoint himself as authorised representative for the deceased proprietor by making an application to the jurisdictional officer for the purpose of filing of remaining returns and completing GST cancellation proceedings.
As per Section 29(5) of CGST Act, 2017, every registered person whose registration is cancelled shall pay higher of the following amounts:
Dicho impuesto deberá pagarse por las existencias o activos de capital mantenidos en la fecha inmediatamente anterior a la fecha de cancelación del registro de GST.
Dicho pago de impuestos puede realizarse utilizando el saldo disponible en el Libro de Crédito Electrónico o en el libro de caja.
Por lo tanto, se debe pagar el ITC aprovechado respecto a las existencias mantenidas en la fecha de cancelación del registro de GST del propietario fallecido, o el impuesto sobre las ventas devengado por dichas existencias.
De conformidad con la Sección 93(1)(b) de la Ley CGST de 2017, cuando se interrumpe el negocio de una persona fallecida, su representante legal será responsable del pago de los impuestos, intereses o sanciones adeudados por la persona fallecida. Dicha responsabilidad puede determinarse antes o después de su fallecimiento.
Los herederos legales realizarán el pago de la responsabilidad con cargo al patrimonio del fallecido, en la medida en que dicho patrimonio sea capaz de cubrir la responsabilidad.
Por lo tanto, el heredero legal del propietario fallecido será responsable del pago del GST sobre las existencias o bienes de capital mantenidos en la fecha de cancelación del registro de GST.
De conformidad con la Sección 18(3) de la Ley CGST de 2017, en caso de transferencia de un negocio con transferencia de pasivos, el cedente puede transferir el saldo disponible en el Libro de Crédito Electrónico al cesionario.
En el caso planteado, dado que no se transfiere ningún negocio al heredero legal/sucesor, el saldo disponible en el Libro de Crédito Electrónico no puede transferirse al heredero legal.
De conformidad con la Sección 22(3) de la Ley CGST de 2017, cuando un negocio se transfiere debido a una sucesión a cualquier otra persona como empresa en funcionamiento entonces el sucesor está obligado a obtener el registro de GST a partir de la fecha de la sucesión.
Sin embargo, cuando el heredero legal no continúa el negocio, no se requiere que el heredero legal de la persona fallecida obtenga un registro de GST por separado.
De conformidad con la Sección 29(1) de la Ley CGST de 2017, en caso de fallecimiento de cualquier persona, el registro de GST de la persona fallecida se cancelará mediante una solicitud presentada por el heredero legal. La solicitud de cancelación del GSTIN se presentará en el Formulario GST REG-16 indicando como motivo "Fallecimiento del propietario".
Respuesta: El GSTIN es un número de 15 dígitos basado en el PAN del contribuyente. Dado que el PAN del sucesor es diferente al de la persona fallecida, el sucesor debe solicitar un nuevo registro de GST o puede fusionar el negocio con su número de GST existente, si ya está registrado.
Respuesta: Si no hay cambios en la situación jurídica de la persona, es decir, si el número PAN de la persona no cambia, no es necesario solicitar un nuevo GSTIN. Por ejemplo, en caso de admisión de un socio, retiro de un socio, cambio de directores, cambio de accionistas, etc., no es necesario solicitar un nuevo GSTIN.
Mere cancellation of GST registration on death of sole proprietor is not enough. Legal Heirs are required to discharge GST on stock and capital assets held on the date of cancellation of GST registration of deceased proprietors. Alternatively, legal heir may take over the business of the deceased proprietor and transfer GST liability of deceased proprietor and ITC lying in his electronic credit ledger to their own GSTIN.
