A proprietor or sole proprietor is a person who is the only or sole owner of a business. This business not only will be owned by such a single owner but also managed by him or her. Due to this, they will be holding the ultimate responsibility and authority with respect to any aspects associated with the business coming under his or her sole proprietorship and also is the sole recipient of any profit or gain which is made by the business.
For anyone who would want to set up a business with a small investment, a sole proprietorship will be a good option as the proprietor need not pay any separate tax on the income earned by the business as it will be clubbed with all other incomes earned by the person, along with the reporting and claiming of any loss made by the business also. Simply speaking, the PAN owned by the sole proprietor will also be applicable to the business as it does not have a separate legal standing before the GST law or any other law in force.
Death of Proprietor and GST Registration
In the case of the death of a proprietor, we can see that often the business will be taken over by a legal heir or a successor. And a particular point of relevance here is that GST registration and the GSTIN are based on the PAN of the assessee as everyone is aware of. Thus, the taking over of the business by a legal hire or a successor will require a change in such registration as the person will be holding a different PAN.
So, the successor who has taken over the sole proprietor’s business will now have to acquire a new registration utilizing his or her PAN. For example, XYZ and Associates was an entity owned and operated by Mr. Lal Singh, who was the sole proprietor of the entity and was holding the PAN ABCDE1234F and GSTIN 22ABCDE1234F1Z5. In 2020, Lal Singh passed away and is now left with a legal heir, his son, Mr Santa Singh, who holds the PAN BGHIJ5678K. So now, to continue GST registration for the business and avail himself of any ITC (Input Tax Credit) or pay GST, he should take a new registration under GST law using his PAN.
For this purpose, section 22 of the CGST Act 2017 states that when a business is transferred to a successor on account of the death of a sole proprietor, the successor shall be held liable to take registration under the GST Law from the date of succession by filing the Form GST REG-01 in an electronic form. The one point that is to be taken care of is that, while taking the new registration, the reason that is to be selected will be “death of proprietor”.
Transfer of Input Tax Credit and any Tax Liability
Input Tax Credit or ITC, for the matter of understanding, can be stated as nothing but claiming of the credit of the GST, which was paid on the purchase of Goods and Services which are used for the furtherance of business, that can be adjusted against the GST liability arising on any output or sale of Goods or Services such that the person will need to pay only the net tax amount instead of the gross tax amount or liability.
As per section 93(1) of the CGST Act, it has been clearly stated that if a person who is liable to pay the tax, interest, or any penalty as per the GST Law, passes away, the individual who is continuing the business or is the successor of the same shall be liable to pay any such tax or other dues pending for payment.
Section 18(3) of the CGST Act, also states that the ITC or Input Tax Credit of a taxpayer can be transferred as long as all the liabilities associated with the same taxpayer are also being transferred in the manner specified in Rule 41.
Hence, we can simply conclude that the successor who is carrying on the business of the deceased sole proprietor can obtain the credit of the Input Tax in the electronic credit ledger of the deceased proprietor if he is ready to take in the liability to meet any pending tax or other dues in the name of the same person.
Transferring ITC to the Successor
As per Rule 41 of the CGST Rules, the legal heir who is the successor of the business of the deceased sole proprietor should first submit the death certificate of his or her predecessor along with the succession certificate to the jurisdictional GST Officer for maintaining the same as documentary evidence. After this, the officer to whom the documents were submitted shall enter or add the name of the legal heir or the successor as the authorized signatory for the deceased sole proprietor, provided that in case of a minor legal heir or successor, the legal guardian of such person shall function as the authorized signatory.
On the basis of this, a temporary username and password will be allocated to the successor, and the username should be entered in the first login link in the GST portal. The portal would now ask the taxpayer to change the user’s name and password, on which a successful login attempt can be made. Upon this, Form GST ITC-02 should be filed by the successor, which should be filed using the deceased sole proprietor’s registration and filed after filling in all relevant details. The successor then has to accept such transfer using his or her registration after the successful completion of which the cancellation of the deceased proprietor’s registration can be made.
Thus, with the completion of the above-said processes, the deceased sole proprietor’s name and PAN get aborted with respect to the business, and the successor shall now be held liable under the GST Law for the payment of any tax pertaining to the business of the deceased sole proprietor, along with any past tax due, fine or penalty and for availing any ITC also.
Cancellation of GST registration in the event of the death of the Sole Proprietor
There are certain scenarios specified in Sec.29(1) of the CGST Act, 2017, where the taxpayer can apply for cancellation of GST registration. These scenarios include the death of the Sole Proprietor as well, where an application for cancellation shall be made in Form GST REG-16, and it is to be ensured that the reason for cancellation is opted as “death of the Sole Proprietor”. It is also to be noted that the GSTIN of both the transferor and transferee of the business shall be mentioned in the application.
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