A Comprehensive Guide to Cancelling GST Registration and ITC Transfer by the Legal Heir The death of a sole proprietor brings uncertainty for both the family as well as business, since the proprietorship ends with the proprietor's death, but the successor will given option to continue the business or shut down the business and to perform any of these two options the legal heir has to undergo all the legal procedure that had been laid down under the GST law. This article covers all on how to cancel the old GST registration, apply for a new one, and transfer Input Tax Credit (ITC) to the legal heir to stay compliant with tax rules and ensure a smooth way of executing the closure of the business or transfer of the business.
Choices for Legal Heir after the death of the business owner The death of a business owner is uncertain, and the death of a proprietor can affect the business landscape. The legal heir (successor of the business) has two options them which are as follows :
1. Shut down the business: The business is shut down, the legal heir needs to cancel the GST registration and pay all the dues up to the deceased's death
2. To continue with the same business: In this case, the legal heir needs to apply for the new GST registration and the whole transfer of business, like ITC, liability, assets and cancel the old registration.
How can a legal Heir Cancel the GST registration? When a business sole proprietor dies, the legal heir has an option to cancel the GST electronically in FORM GST REG-16 on the GST portal , under Section 29 of the CGST Act. In the form GST REG-16, the reason for cancellation must be clearly stated as “death of sole proprietor. Below is detailed information from prerequisites, like the document submission, to the steps needed to follow for cancellation. Documentation & Paperwork: The legal heir has to arrange documents, papers and certificates before requesting for cancellation of GST.
1. Death certificate of the deceased owner
2. Identify proof of both the deceased and the legal heir (Aadhar card, Pan card, Passport)
3. Succession certificate
4. GST Registration Certificate of the deceased owner’s business
5. Status of GST Return Filing
6. No objection certificate (NOC ) (mandatory document in case of multiple heirs)
7. Evidence of the closure of the bank account of the deceased’s business
Steps for Cancellation of GST 1. Apply for 'Change of Authorised Signatory': The legal heir must visit the GST office along with the relevant documents mentioned above to apply for a change of authorised signatory with the GST officer, as this is required to file pending GST returns and proceed with GST registration cancellation.
2. Cover Pending GST Returns: The legal heir needs to cover pending GST returns and pay taxes which are due till the date of the proprietor's death, which includes GST on input tax credit like the stock, semi-finished goods, finished goods, or capital goods/plant & machinery or output tax payable on those goods, whichever is higher on the day of cancellation
3. File Form GST REG-16: To cancel, the legal heir is required to fill Form GST REG-16 .In the form, it is mandatory to fill out the reason for cancellation, the date of initiating the cancellation request, details of inputs and taxes paid.
4. Verification and issuance of cancellation order: If the GST officer is satisfied with the application, they will issue a cancellation order in the form GST REG-19, which includes the date of cancellation as requested by the legal heir. The proper officer will change the authorised signatory and send a temporary link for updating details.
5. File Final GST Return: The legal heir must file the final GST return in Form GSTR-10 within three months of the cancellation date or the date of the order, whichever comes later. In the case of not paying the penalty on time, the GST officer will send a notice and an assessment order (Form GST ASMT-13) to determine the tax liability
Forms involved in the process of GST cancellation Actions Form File GST Cancellation GST REG-16 Cancellation Order Issuance GST REG-19 File the final GST return Form GSTR-10 Penalty for Delay in Final Return GST ASMT-13 (Notice and Assessment Order)
Read more on Types of GST return
Effect of Cancelling GST registration 1. No GST on sales: Once your GST registration is cancelled, you can’t charge GST on the goods or services you sell anymore.
2. No input tax credit (ITC): One will not be able to claim the ITC anymore
3. GST liabilities: Even if the GST registration is cancelled, one still needs to pay any taxes they owe till the proprietor's death and also any ITC on closing stock(inventory) may need to be reversed.
4. Business dealings may get affected: If you cancel your GST registration, it may become hard to deal with the registered suppliers and clients, as they may prefer to work with a GST-registered business; this may impact your business reputation.
How does Legal Heir Transfer the Input Tax Credit (ITC)? Under Section 18(3) of the CGST Act, the legal heir or successor can transfer the unutilized ITC from the deceased proprietor’s account to their own if wanted to continue the business; the process of transferring the same is mentioned in Rule 41 of the CGST Rules and the transfer can only be done only when the legal heir is ready to accept all the liabilities of the deceased i.e. the sundry creditors and all other liabilities owed by the deceased proprietor. Below are the steps mentioned on how the legal heir transfers the ITC.
Steps for Transfer of the ITC 1. Submit document: The successor must provide the death certificate of the deceased or the succession certificate to the GST officer, as they act as proof of the relationship between them
2. Add successor as an authorised signatory: The GST officer will then make the successor the authorised signatory for the deceased’s GST account. If the successor is a minor, their legal guardian will be the authorised signatory.
3. Apply for new GST registration: Since the successor cannot use the deceased's GSTIN, they need to apply for new GST registration under their own name to carry out the business. The procedure on how to apply for a new GST registration is mentioned below
4. Receive Temporary Credentials: The GST portal will send a temporary username and password to the legal heir's email. Using these credentials, the successor can log in to the deceased’s GST account. And they need to change the username and password right away.
5. File form GST ITC-02: Once successfully logged in, the heir will file the form GST ITC-02 of the deceased's GST registration, and the form will include all important details of transferring the ITC
6. Accept ITC Transfer: The successor will then need to accept the new registration using their new GST registration
7. Cancel the Deceased’s GST Registration: After the transfer is successful, the legal heir can proceed with cancelling the deceased's sole proprietor’s GST registration and the ITC is credited to the legal heir’s electronic credit ledger
Learn more about the Treatment of ITC on Disposal or Transfer of Business
How can a Legal heir apply for a new GST registration? To continue with the same business, the legal heir has to perform all these steps to get a new GST registration, as they cannot use the deceased's GSTIN
1. Apply online on the portal: The legal heir must apply online for a fresh GST registration using FORM GST REG-01 in their own name (using their own PAN )
2. Mention the reason for the transfer: while filling the form, they should clearly mention the reason as the death of the proprietor
3. Date of responsibility: The legal heir also became liable to take GST registration from the date the business is transferred because of the proprietor’s death.
Conclusion When a sole proprietor passes away, the legal heir must take the right legal and GST procedures based on whether they want to shut down or continue the business. GST clearly mentions the rules for cancellation, ITC transfer, and new registration so that the process is smooth and hassle-free. By following these procedures carefully, the heir can clear dues, prevent penalties and manage the future of the business with ease.
FAQs 1. What happens to proprietorship after the death of the business? When the proprietor dies, the business ends, but under GST rules, the legal heir gets two choices — they can either close the business or continue running it, as long as they follow the procedure
2. How to add a legal heir in GST after the death of the proprietor? After the death of the proprietor, the legal heir must submit the death and succession certificate as they act as proof of the relationship between the legal heir and the deceased owner to the GST officer, who will add them as an authorised signatory. If the heir is a minor, a guardian will be the signatory.
3. How do you write NOC for a legal heir? A legal heir NOC should include the following sections: heir’s declaration with their relationship to the deceased, details of the deceased and assets, a clear statement giving up rights, a no-objection to transfer of assets, and an affirmation that the information is true.
4. What is the timeline for cancellation of GSTIN? The application for cancellation of the GSTIN must be filed within 30 days of the proprietor’s death.
5. What is the legal transfer of the business to the legal heir? The business is transferred to the legal heir, and the transfer is exempt from GST, provided all assets and liabilities are taken over by the heir.
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