CBIC prescribes Procedure for Transfer of Input Tax Credit on Death of Sole Proprietor [Read Circular]

The Central Board of Indirect Taxes and Customs ( CBIC ) has clarified the procedure for the transfer of input tax credit in case of death of sole proprietor.

The CBIC circular said that in such cases while filing an 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”. The legal heirs in case of death of sole proprietor of a business, to file an application for cancellation of registration in FORM GST REG-16 where the reason should be stated as “death of sole proprietor”. The GSTIN of the 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 the transferee.

The circular clarified that in case of death of sole proprietor if the business is continued by any person being a transferee or successor of business, it shall be construed as a 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.”

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 the death of the sole proprietor, the transferee / successor shall file FORM GST ITC-02 in respect of the registration which is required to be canceled on account of the 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.