Treatment Of Input Tax Credit In Case Of Death Of Sole Proprietor

As per the provisions of section 41 (1) of the Central Goods and Service Tax Act, 2017, the transferor needs to file FORM GST ITC-02, electronically, along with a request to transfer unutilized input tax credit lying in the electronic credit ledger of the transferee. However, in case of sole proprietor, when there is death of sole proprietor and the transferee / successor is willing to continue the business, in such case question would emerge with regard to transfer of unutilized

input tax credit lying in the electronic credit ledger of the deceased proprietary firm since as per procedure prescribed under section 41 (1) the FORM GST ITC-02 is to be filed by the transferor. In order to clarify the above issue and to safeguard the uniformity in the implementation of the provisions of the GST law, the CBIC has issued a circular no. 96/15/2019-GST dated 28th March, 2019 and the same is taken up and explained in the present article. Vide the above referred circular, the Board has clarified that the transfer / change in the ownership of the business will also include the transfer / change in the ownership of the business due to the death of the sole proprietor. Following are the list of applicable section and rules –

Section 18 (3) of the Central Goods and Service Tax Act, 2017 – Transfer of unutilized input tax credit lying in electronic credit ledger of the transferor; and
Rule 41 of the Central Goods and Service Tax Rules, 2017 – Procedure to be followed for transfer of the unutilized input tax credit;

Steps to be Followed by Transferee

The transferee / successor is required to obtain a GST registration by filing an application in FORM GST REG-01.
While filing the registration application in FORM GST REG-01, the transferee / successor is required to mention the reason for obtaining registration as the ‘death of the proprietor’.
In case of transfer of business on account of the death of the sole proprietor, the transferee / successor is required to file FORM GST ITC-02.

It is important to note that the transferee / successor is required to file FORM GST ITC-02 before filing the application for

cancellation of GST registration of the deceased proprietary firm. The transferee / successor is required to accept the same and on acceptance the unutilized input tax credit as mentioned in FORM GST ITC-02 shall be credited to the electronic credit ledger of the transferee / successor.

The application for cancellation of registration of deceased sole proprietary firm is to be filed by the legal heirs in FORM GST REG-16.
While applying for cancellation of registration in FORM GST REG-16, the reason for the cancellation of registration is to be mentioned as the ‘death of the sole proprietor’.

Further

GSTIN (obtained by applying for new GST Registration refer to step 1 above) of the transferee, to whom the business is being transferred, is to be provided so that the GSTIN of the transferor with the GSTIN of the transferee.

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Frequently Asked Questions

Common questions about Input Tax Credit Transfer on Sole Proprietor's Death.

In case of the death of a sole proprietor, the transferee/successor is required to obtain a new GST registration by filing an application in FORM GST REG-01, mentioning the reason for registration as "death of the proprietor". The transferee/successor must then file FORM GST ITC-02 before applying for cancellation of the deceased proprietor's GST registration. Upon acceptance of FORM GST ITC-02, the unutilized ITC will be credited to the transferee/successor's electronic credit ledger.

Yes, the legal heirs of the deceased sole proprietor can transfer the business along with the unutilized Input Tax Credit (ITC) to a transferee/successor. The transferee/successor must follow the prescribed process, including obtaining a new GST registration, filing FORM GST ITC-02, and accepting the transfer of unutilized ITC before applying for cancellation of the deceased proprietor's GST registration.

Yes, it is mandatory for the transferee/successor to file FORM GST ITC-02 before applying for cancellation of the deceased sole proprietor's GST registration. The unutilized ITC will be credited to the transferee/successor's electronic credit ledger only after FORM GST ITC-02 is filed and accepted.

While applying for cancellation of the deceased sole proprietor's GST registration in FORM GST REG-16, the legal heirs must mention the reason for cancellation as "death of the sole proprietor". Additionally, they must provide the GSTIN of the transferee/successor to whom the business is being transferred.

No, the legal heirs cannot continue the business without transferring it to a transferee/successor. The circular issued by CBIC clearly states that the transfer/change in ownership of the business will include the transfer/change due to the death of the sole proprietor.

The CBIC circular no. 96/15/2019-GST dated 28th March, 2019, aims to clarify the process and safeguard uniformity in the implementation of provisions related to the transfer of unutilized Input Tax Credit lying in the electronic credit ledger of a deceased sole proprietor. It provides guidance on the steps to be followed by the transferee/successor in such cases.

No, the circular specifically mentions that the transfer of unutilized ITC is applicable in cases where the transferee/successor is willing to continue the same business of the deceased sole proprietor. It does not provide for the transfer of unutilized ITC to a new business entity.

The legal provision regarding the transfer of unutilized Input Tax Credit in case of the death of a sole proprietor is covered under Section 18(3) of the Central Goods and Service Tax Act, 2017, and Rule 41 of the Central Goods and Service Tax Rules, 2017.

Yes, upon acceptance of FORM GST ITC-02 filed by the transferee/successor, the entire unutilized Input Tax Credit as mentioned in the form shall be credited to the electronic credit ledger of the transferee/successor.

Mentioning the reason for obtaining registration as "death of the proprietor" in FORM GST REG-01 is crucial because it signifies that the new registration is being obtained for the purpose of transferring the business and unutilized ITC from the deceased sole proprietor to the transferee/successor. This reason is essential for the proper implementation of the provisions related to the transfer of unutilized ITC.