Well, death is one of the most uncertain events in everyone’s life, but it is something that is inevitable. If a person has passed away and is a proprietor who has a GST Registration, certain compliance has to be done in GST for a smooth transition of the business to the legal heir.
In this article, we will discuss the compliance which needs to be done in the case of death of a sole proprietor in GST and how the business can be transferred to the legal heir, and if the business is not transferred, what course of action needs to be taken to avoid any legal issues at a later stage.
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Since GST is PAN based, we will divide our discussion based on two possibilities that can arise in case of the death of the sole proprietor.
- In case the business is continued by the legal heirs,
- In case the business is not continued by the legal heirs.
In BOTH cases, the liability to file the pending returns up to the date of death of the proprietor lies with the legal heirs.
1. In case the business is continued by the legal heir
In this situation, the legal heir of the proprietor intends to continue the business under a different PAN and also agrees to discharge any liability relating to the proprietor’s business which may arise due to any audit or any assessment by the GST officials at a later stage.
Procedure to be followed
1. The legal heir has to take a fresh GST registration with effect from the date of death of the proprietor by filing Form GST REG-1. In the form, the reason for registration should be selected as, “On account of the death of the proprietor”. Documents like the death certificate and some other documents required for registration need to be uploaded while obtaining registration. One important thing one has to note here is that the application for registration by the legal heir has to be made within 30 days of the death of the proprietor.
2. Once registration is granted; we have to transfer the balance of Input tax credit lying in the Electronic credit ledger of the proprietor to the legal heir by filing Form ITC-02 along with a certificate issued by a Chartered Accountant or Cost Accountant certifying the correctness of the amount of credit transferred.
3. Once Form ITC-02 has been filed, and the balance in the credit ledger is zero, we have to apply for cancellation of registration of the proprietor with effect from the date of death, and once the approval for cancellation is granted, we have to file a Final GST return in Form GSTR-10 within three months from the approval of cancellation. In this GST Return, one has to declare that there was no closing stock available in the proprietor’s business as the same has been transferred to the legal heir.
4. Once all the above procedure is done, we have to accept the amount of GST credit shown in Form ITC-02, in the legal heir’s GST account, which was filed from the proprietor account. Once accepted, the credit ledger will reflect the balance transferred.
It is important to note that any future liabilities of tax, interest, and penalty of the proprietor’s business will have to be discharged by the legal heir.
2. In case the business is not continued by the legal heir
In this situation, the legal heir of the proprietor doesn’t intend to continue the business of the proprietor and also doesn’t intend to carry any type of burden of GST liability which may arise at later stages due to audit or assessment.
First and Final Step: The legal heir must file all the pending GST returns till the date of the death of the proprietor. After filing all the pending returns, the legal heir should apply for cancellation of registration. Once the Application for cancellation is approved he has to file a final return in Form GSTR 10 within three months of approval. It is important to note here that the balances available in the Electronic credit ledger shall lapse and they cannot be claimed by the legal heir.
Similarities and differences between the above two situations
There are some similarities and differences in both situations. The registration needs to be canceled in both the situations, Form GSTR-10, i.e. A Final return needs to be filed and in both the cases all the pending returns need to be filed by the legal heir (GSTR-1, GSTR-3B, etc. up to the date of death and also GSTR-9, and GSTR-9C).
There is one major difference that we need to understand. The GST liability which arises at a future date. In case the business is NOT continued by the legal heir, there shall not be any kind of liability for payment of GST on the part of the legal heir. However, if the business is continued, the legal heir has to discharge GST liability of the proprietor’s business which may arise at a later stage due to any assessments/audits.
Which situation is better?
A doubt may come in one’s mind, which situation is better. Should I continue the business or not? Well, this depends on the facts and circumstances of the case. But a general view is, if the balances in the GST credit ledger are NIL or immaterial then it would be better not to continue the existing business, and in case the balances in the GST credit ledger are material or big enough, then one can continue the existing business.
The process in the case of the Death of a Proprietor is not very complex but one needs to be careful about time limits. The decision to continue or not would depend a lot on GST credits that have been accumulated and whether or not they are material.