Transfer of ITC in case of death of sole proprietor

Transfer of input tax credit in case of death of sole proprietor – Circular no 96/15/2019 dt 28/03/2019

Issue: Whether section 18(3) of the CGST Act 2017 provides for transfer of input tax credit which remains unutilized to the transferee in case of death of the sole proprietor. As per rule 41(1) of the CGST Rules, 2017, the registered person (transferor of business) can file FORM GST ITC-02 electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee. Also the procedure for filing of return in case of death of a sole proprietor needs clarity.

Clarification:-

In case of death of sole proprietor if the business is continued by any person being transferee or successor, the input tax credit which remains un-utilized in the electronic credit ledger is allowed to be transferred to the transferee as per provisions and in the manner stated below –

Registration requirements:- 

Sec 22(3) – Registration liability of the transferee / successor:

• The transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession, where a business is transferred to another person for any reasons including death of the proprietor.
• File an application in form GST REG -01 electronically in the common portal
• Mention the reason to obtain registration as “death of the proprietor

Sec 29(1) – Cancellation of registration:

• Allows the legal heirs in case of death of sole proprietor of a business, to file application for cancellation of registration in FORM GST REG-16 electronically on common portal on account of transfer of business for any reason including death of the proprietor
• Reason for cancellation also to be mentioned
• The GSTIN of transferee to whom the business has been transferred is also required to be mentioned to link the GSTIN of the transferor with the GSTIN of transferee

Input tax credit & liability

Transfer of credit – Sec 18(3) – Allows the registered person to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee as per rule 41 of the CGST Rules.

Person liable – Sec 85(1) – The transferor and the transferee / successor shall jointly and severally be liable to pay any tax, interest or any penalty due from the transferor in case of transfer of business “in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever

Liability to pay tax- Sec 93(1) – The person, who continues business after his death, shall be liable to pay tax, interest or penalty due from such person under this Act.

Manner of transfer –

Rule 41(1) – Registered person shall file FORM GST ITC-02 electronically on the common portal with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason.

FORM GST ITC-02 is required to be filed by the transferee/successor before filing the application for cancellation of such registration. Upon acceptance by the transferee / successor, the un-utilized input tax credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.