TRANSFER OF INPUT TAX CREDIT IN CASE OF DEATH OF SOLE PROPRIETOR ALLOWABLE WITH CERTAIN CONDITIONS
The Goods and Services Tax Act, 2017 came into force
in India with effect from 1.7.2017.
The Central Government has clarified that Input Tax
Credit is transferable from the Sole Proprietor concern in case of death of
Sole Proprietor to the transferee with the following conditions:
a. Registration liability of the transferee / successor: As per provisions
of sub-section (3) of section 22 of the CGST Act, 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. While filing application in FORM GST REG-01 electronically in the common portal the
applicant is required to mention the reason to obtain registration as “death of
the proprietor”.
b. Cancellation of registration on account of death of the proprietor: Clause (a) of sub-
section (1) of section 29 of the CGST Act, 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. In
FORM
GST
REG-16, reason for cancellation is required to be mentioned as “death of sole proprietor”. 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.
c. Transfer of input tax credit and liability: In case of death of sole proprietor, if the business is continued by any
person being transferee or successor of business, it shall be
construed as transfer of business. Sub-section (3) of section 18 of the CGST
Act, allows
the registered person to transfer the unutilized input tax credit lying in his electronic
credit ledger
to the transferee
in the manner prescribed in rule 41
of the CGST Rules, where there is specific provision for transfer of liabilities. As per sub-section (1) of
section 85 of the CGST Act, 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 cases
of transfer of business “in whole or in part, by sale, gift, lease, leave and license, hire or in
any other manner whatsoever”. Furthermore, sub-section (1) of section 93 of the CGST
Act provides that where a person, liable to pay
tax,
interest or penalty under the
CGST Act, dies, then the person who
continues business after his death, shall be
liable
to pay tax, interest or penalty due from such person under this Act. It is therefore clarified
that the transferee / successor shall be liable to pay any
tax,
interest or any
penalty
due from
the
transferor in cases of transfer
of business due to death
of sole proprietor.
d.
Manner of transfer of credit: As per sub-rule (1) of rule 41 of the CGST Rules, a
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. In case of transfer of
business on account
of death of sole proprietor, the transferee / successor shall file
FORM GST ITC-02 in respect of the registration which is required to be cancelled on account of death of the sole proprietor. 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.
The relevant Circular is given below for ready
reference:
F. No. CBEC-20/16/04/2018
– GST Government
of India
Ministry of Finance
Department
of Revenue
Central
Board of Indirect Taxes
and
Customs
GST Policy Wing
***
To,
New Delhi, Dated the 28th March, 2019
The
Principal
Chief
Commissioners / Chief
Commissioners / Principal Commissioners
/
Commissioners of Central Tax
(All)
The Principal Director
Generals / Director Generals (All) Madam/Sir,
Subject: Clarification in respect of transfer of input tax credit in case of death of sole
proprietor – Reg.
Doubts have been raised whether sub-section (3) of section 18 of the
Central Goods and Services Tax Act, 2017 (hereinafter referred to as „CGST Act‟) provides for transfer of input tax
credit which remains unutilized to the
transferee in case of death of the sole proprietor. As per
sub-rule (1) of rule 41 of the Central Goods and Services Rules, 2017 (hereinafter referred to as
„CGST Rules‟), 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. Further, clarification has also been
sought regarding procedure of filing of FORM GST ITC-02 in case of death of the sole
proprietor. In order to clarify
these
issues and to ensure uniformity in the implementation of the
provisions of the law, the Board, in exercise of its powers conferred by
section 168 (1) of the CGST Act,
hereby clarifies
the issues raised as below.
2. Clause (a) of sub-section (1) of section 29 of the CGST Act provides that reason of transfer of business includes “death of the proprietor”. Similarly, for uniformity and for the
purpose of sub-section (3) of section 18, sub-section (3) of section 22, sub-section (1) of section
85 of the CGST Act and sub-rule (1) of rule 41
of the CGST Rules, it is clarified that
transfer or change in the
ownership of business will include
transfer or change
in the ownership of business
due to death of the sole proprietor.
3. 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 –
a. Registration liability of the transferee / successor: As per provisions
of sub-section (3) of section 22 of the CGST Act, 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. While filing application in FORM GST REG-01 electronically in the common portal the
applicant is required to mention the reason to obtain registration as “death of
the proprietor”.
b. Cancellation of registration on account of death of the proprietor: Clause (a) of sub-
section (1) of section 29 of the CGST Act, 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. In
FORM
GST
REG-16, reason for cancellation is required to be mentioned as “death of sole proprietor”. 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.
c. Transfer of input tax credit and liability: In case of death of sole proprietor, if the business is continued by any
person being transferee or successor of business, it shall be
construed as transfer of business. Sub-section (3) of section 18 of the CGST
Act, allows
the registered person to transfer the unutilized input tax credit lying in his electronic
credit ledger
to the transferee
in the manner prescribed in rule 41
of the CGST Rules, where there is specific provision for transfer of liabilities. As per sub-section (1) of
section 85 of the CGST Act, 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 cases of transfer of business “in whole or in part, by sale, gift, lease, leave and license, hire or in
any other manner whatsoever”. Furthermore, sub-section (1) of section 93 of the CGST
Act provides that where a person, liable to pay
tax,
interest or penalty under the
CGST Act, dies, then the person who
continues business after his death, shall be
liable
to pay tax, interest or penalty due from such person under this Act. It is therefore clarified
that the transferee / successor shall be liable to pay any
tax,
interest or any
penalty
due from
the
transferor in cases of transfer
of business due to death
of sole proprietor.
d. Manner of transfer of credit: As
per sub-rule (1) of rule 41 of the CGST Rules, a 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. In case of transfer of
business on account
of death of sole proprietor, the transferee / successor shall file
FORM GST ITC-02 in respect of the registration which is required to be cancelled on account of death of the sole proprietor. 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.
4. It is requested that suitable trade notices may be issued to publicize the contents of this circular.
5 Difficulty if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version would follow.
(Upender Gupta)
Principal
Commissioner (GST)