A proprietor or sole proprietor is a person who is the only or sole owner of a business. This business will not only be owned by a single owner but also managed by that owner. Due to this, they will hold ultimate responsibility and authority for any aspects of the business that fall under their sole proprietorship. They will also be the sole recipient of any profit or gain that the company makes.
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 industry 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 company 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 event of a proprietor’s death, it is often the case that a legatee or successor takes over the tenancy. A particularly relevant point here is that GST registration and the GSTIN are based on the PAN of the assessee, as everyone is aware. Thus, the transfer of the business to a legal heir or successor will require a change in such registration, as the person will be holding a different PAN.
Therefore, the successor who has taken over the sole proprietorship will now need to obtain a new registration using their 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 held the PAN ABCDE1234F and GSTIN 22ABCDE1234F1Z5. In 2020, Lal Singh passed away, leaving his son, Mr. Santa Singh, as the sole legal heir, 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 the 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 the 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 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 their 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.
Based on this, a temporary username and password will be allocated to the successor, and the username should be entered in the first login link on the GST portal. The portal would now ask the taxpayer to change the user’s password, after 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 their registration, after the successful completion of which the cancellation of the deceased proprietor’s registration can be made.
Thus, with the completion of the processes above, the deceased sole proprietor’s and PAN are removed from the business records. 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 specific scenarios specified in Section 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. 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.
