Managing Business Transition After the Death of a Proprietor: A GST Compliance Guide

Introduction

When a sole proprietor passes away, the business faces a critical transition period requiring careful attention to GST compliance. As an accounts professional, you need to understand the procedures and obligations to ensure smooth handling of this sensitive situation.

• Legal Options Available: Legal heirs can either continue the business by transferring it as a going concern or discontinue it permanently 

• Documentation Required: Death certificate and succession certificate (or legal heir certificate) 

• GST Implications: Various compliance requirements under CGST Act need to be addressed promptly 

• Liability Considerations: Both the deceased's estate and successor may have ongoing obligations

INITIAL STEPS FOR LEGAL HEIRS/SUCCESSORS

1. Ascertain Current Status of GST Compliance

• Review Pending Returns: Identify if GSTR-1, GSTR-3B, refund applications, etc. are pending 

• Information Sources:

• Consultant/office staff records

• GST Portal through taxpayer search (GSTIN-based or PAN-based)

• Check details of jurisdictional offices and filing status

2. Add Legal Heir as Authorised Signatory on GST Portal

• Why Required: GST returns/applications can only be filed by an authorised signatory 

• Documentation Needed:

• Death certificate of proprietor

• Succession certificate/Legal heir certificate

• Personal documents of successor (PAN, Aadhaar, etc.)

• Procedure to Add Authorised Signatory:

• Visit jurisdictional GST officer with required documents

• Provide details for REG-1 Sl. No. 22 (mobile, email, PAN, etc.)

• Proper officer will add successor as Authorised signatory

• Username and temporary password will be sent to new signatory's email

• Login and reset credentials on first access

3. Complete Pending Compliance Requirements

• File any pending returns immediately after gaining portal access 

• Address any pending notices or communications

Situation #1: Business Transferred as Going Concern

Registration Requirements for Transferee/Successor

• New Registration Requirement: Transferee needs a new GST registration if not already registered 

• When to Register: Effective from the date of transfer/succession (Section 22(3) of CGST Act) 

• Registration Process:

• Apply in Form GST REG-01

• In Sl. No. 8, mention date of transfer/succession

• In Sl. No. 14, select "Death of proprietor" as reason

• Important Notes:

• Fresh registration required due to different PAN of transferee

• Cannot continue under deceased's GSTIN

• Transfer of business as going concern is exempt from GST (Notification No. 12/2017-CT (Rate))

Transfer of Unutilized Input Tax Credit (ITC)

• Legal Basis: Section 18(3) of CGST Act allows transfer of unutilized ITC

• Process for ITC Transfer:

• File Form GST ITC-02 electronically on common portal

• Submit CA/CMA certificate confirming transfer with provision for liabilities

• Transferee must accept details on portal to receive credits

• Account for transferred inputs/capital goods in books of account

• Practical Points:

• ITC-02 required only if electronic credit ledger has balance

• No time limit prescribed for filing ITC-02

• CA certificate must certify transfer with specific provision for liabilities

• Credit transfers immediately upon acceptance

Cancellation of Registration Procedure

• Filing Application: Legal heirs can file for cancellation in Form GST REG-16 

• Reason for Cancellation: Select "death of sole proprietor" 

• Key Information Required:

• GSTIN of transferee

• Future correspondence details

• Effective date of cancellation

• Particulars of last return filed

• Details of stock and tax liability (if any)

• Time Limit:

• 30 days from event warranting cancellation

• Liberal interpretation of deadline in complex situations (Circular No. 69/43/2018-GST)

• Processing of Application:

• Proper officer reviews application

• If complete, issues order in Form GST REG-19

• If incomplete, asks for additional information within 7 working days

• Cancellation effective from date requested in application

Submission of Final Return

• Legal Requirement: Section 45 requires filing final return within 3 months of cancellation 

• Form to Use: GSTR-10 to be submitted electronically 

• Consequences of Non-Filing:

• Notice in Form GSTR-3A requiring filing within 15 days

• Assessment under Section 62 if still not filed

• Assessment order can be withdrawn if return filed within 30 days of order

• Liability for interest and late fee continues
   

Tax Liability and Obligations

• Joint Liability: Section 85 creates joint and several liability between transferor and transferee 

• Special Provisions for Deceased Person: Per Section 93(1)

• If business continued: Legal heir/successor liable for deceased's tax dues

• If business discontinued: Legal heir liable to extent of estate's capacity to pay

• Liability in Special Cases:

• HUF: Members jointly liable up to time of partition

• Partnership: Partners jointly liable up to time of dissolution

Situation #2: Business Closure

• Tax Implications: Per Schedule II, Para 4(c) of CGST Act:

• Any goods forming part of business assets deemed supplied immediately before closure

• Exception if business transferred as going concern or carried on by personal representative

• Process Steps:

1. Application for cancellation of registration

2. Submission of final return

3. Payment of tax liability on closing stock

4. Discharge of other obligations

• Liability Limitations: Legal representative liable to pay dues only to the extent the estate can meet the charge

Key Takeaways for Finance Professionals

• Act Promptly: Timely action is essential after proprietor's death 

• Maintain Compliance: Continue GST compliance during transition 

• Documentation: Ensure all transfers are properly documented 

• Liability Management: Understand extent of liability for legal heirs

This guide provides a structured approach to handling GST compliance during business transition after a proprietor's death. Always consult with a GST professional for specific situations requiring detailed guidance.