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Death And Dissolution – GST Implications

The payment of GST does not stop with the death of the taxpayer or the dissolution of the business. In this article, we will understand the implications of GST in case of death and dissolution and the associated liabilities.

Liability In Case Of Death

If the taxpayer dies before clearing his/her unpaid taxes, interest, or penalty, the following points have to be considered to decide as to who has to pay the due GST liabilities –

  • If the business is continued:
    If the business of the deceased taxpayer is continued after his/her death by the legal heir/s or the legal representative/s or any other person, then, the person continuing the business is liable to pay the unpaid dues.
  • If the business is discontinued:
    If the deceased taxpayers business is discontinued, the legal heir/s or legal representative/s are liable to pay the unpaid amount. The payment has to be made with the wealth/property of the deceased. At no point, the legal heir/s or legal representative/s are expected to pay the dues from their personal assets.

Note: The liability to pay GST dues will arise only if the unpaid tax, penalty, or interest was declared before the death of the taxable person, but was not paid or determined after death.

Example:
Rohan, a retail seller who sells readymade clothes in his shop, is liable to pay INR 1,50,000 as GST. However, due to his untimely death, he was unable to pay the GST dues.

Case 1: After Rohan’s death, Riya, his daughter, takes over the business. In this situation, Riya is liable to pay the pending amount of INR 1,50,000.

Case 2: Riya, Rohan’s daughter, chooses to close down her father’s shop after his death. Rohan has left behind assets worth INR 70,000 for Riya. In this case, Riya is liable to pay only INR 70,000 to settle the GST dues. She will not be held personally liable for the balance INR 80,000 as it is beyond the inherited amount.

Liability In Case Of Partition Of HUF/AOP

When a Hindu Undivided Family (HUF) or Association of Persons (AOP) is dissolved/liquidated, and the property of the HUF or AOP is divided amongst its members, each member is jointly and individually liable to pay the unpaid tax, interest, or penalty. In other words, all members are personally liable to pay the outstanding dues.

In cases of reconstitution, all the members/partners of the HUF/AOP who were there before the reconstitution will be held liable jointly and individually to clear all the dues before the date of reconstitution.

Note: The liability to pay the GST dues will arise only if the unpaid tax, penalty or interest was declared before the partition, but was not paid or determined after partition.

Liabilities In Case Of Dissolution Of A Firm

  • In case a Partnership Firm is dissolving, and there are unpaid GST dues (tax, interest, or penalty), then, every partner is jointly and individually liable to pay the unpaid tax, interest, or penalty due, at the time of the firm’s dissolution.Note: The liability to pay the GST dues will arise only if the unpaid tax, penalty or interest was declared before the dissolution of the firm, but was not paid or determined after the dissolution.

Liabilities In Case Of Liquidation Of Company

  • If a Private Limited Company is at the verge of liquidation and it does not pay its tax dues, then, the directors of the company are jointly and individually held liable for the payment of dues. Only the directors who held office during the period when the tax was due will be liable. However, if a director proves that non-payment was not due to any negligence of his/her duty, then he/she will not be held liable.
  • Example:
    Saraswati Enterprise Private Limited (with 4 directors A, B, C, D) decided to wind up the company on 1 July 2020 after undergoing heavy losses. The company appointed Mr Rajesh as a liquidator on 5 July 2020 who, as per law, informed the Commissioner regarding his appointment within 30 days (by 5 August 2020).
  • On 20 September 2020 (within 3 months), the Commissioner informed the liquidator that Saraswati Enterprise Private Limited owes INR 3,00,000 as GST for the years 2018-19 & 2019-20 to the Government. Saraswati Enterprise Private Limited was given 3 months to pay the dues (till 20 December 2020).
  • Now, if the company fails to pay the GST dues within the allotted time, then, the 4 directors A, B, C, D will be liable to pay the full amount. If A, B, C fail to pay their share, then D alone has to bear the liability to pay the due amount of INR 3,00,000.
    However, if D proves that the non-payment of taxes was not due to his personal negligence, he may be exempted from paying the company’s tax liability.

Liability In Case Of Termination Of Trust/Guardianship

  • In cases where a taxable person carries out a business as a trustee/guardian under a Trust/Guardianship contract for a beneficiary/ward and the agreement is terminated, then, the beneficiary/ward is liable to pay the due taxes.