Last updated: November 27th, 2019 3:12 PM

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 28^th 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 –

1. 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
2. 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

1. The transferee / successor is required to obtain a GST registration by filing an application in FORM GST REG-01.
2. 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’.
3. 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.

4. The application for cancellation of registration of deceased sole proprietary firm is to be filed by the legal heirs in FORM GST REG-16.
5. 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.