Transfer of ITC In Case of Death of Sole Proprietor: In case of the death of the sole proprietor, the ITC or Input Tax Credit remaining in their account can be utilised by the transferee under Section 18 (3) of the CGST Act of 2017. According to the CGST rule 41 (1) f 2017, the person who is a relative can file Form number ITC-02 GST online on their official portal and request to transfer the deceased person’s input tax credit in the electronic credit ledger to the successor’s account.
The successor or the transferee who wishes to transfer the Input Tax Credit left in the account of a deceased relative will have to visit the official site of GST and fill up an application with their request.
- Provisions that mention the transfer of ITC in case of death
- Guidelines for the Transfer of ITC in case of Death of the Sole Proprietor
- Input Tax Credit and Liability
The following sections say the successor or transferee’s terms must follow to get the unutilised credit and continue or discontinue the business.
- Section 18 (3): It provides transfer of input tax credit remaining in the account.
- Section 29 (1) (a): It provides why a person wants to transfer the business.
- Section 22 (3): It provides the transferee or the successor be liable to get the Registration.
- Section 85 (1): It mentions who is liable if there is a business transfer from one owner to another.
- Rule 41 (1): It states that the registered person can file Form GST ITC 2 online on the portal and place a request to transfer the remaining ITC lying in the electronic credit ledger to the transferee.
- After the death of the sole proprietor, any person who is a transferee or a successor can continue the business. They can transfer the remaining input tax credit in the electronic credit ledger as per the rules, which are as follows.
- The transferee or successor will be liable to register the succession from the date of transfer or shift. The reason for transfer to another person many include any reason including death of the proprietor.
- They have to file an application in form GST REG 01 in the online portal.
- They have to mention the reason to obtain the Registration as the death of the proprietor.
For Cancellation of Registration
- If the legal heirs of the departed do not wish to continue with the ITC, they can apply for cancellation as per Section 29 (1).
- The legal heirs can apply for cancellation of the Registration online by filling up Form GST REG 16 on the official portal to transfer the business.
- They can mention the reason for cancellation as the death of the proprietor.
- The reason for cancellation is compulsory.
- The transferee’s name who acquires the business must mention their GSTIN and the GSTIN of the transferor.
- They can link their GSTIN on the site.
- Credit Transfer: Section 18 (3) allows a person with registration to transfer the unutilised input tax credit lying in their electronic credit ledger to the transferee under rule 41 of the CGST Rules.
- Liable Person: Section 85 (1) allows the transferor and the transferee or the successor to jointly be liable to pay any interest, tax, or penalty that may be due in the case of the business transfer. In such a case, the business transfer may be in whole, part, by sale, gift, lease, license, hire, leave, or any other means.
- Liability to pay Tax: Section 93 (1) states that the person who takes over the business after the owner’s death will have to pay the tax, penalty or interest that is due from the previous person.
- Manner of transfer: Rule 41 (1) states that the registered person will have to file Form GST ITC 2 online through the common portal and place a request for the transfer of the tax credit in the electronic credit ledger to their account. They can get the credit if there is a sale, de-merger, merger, amalgamation, lease or transfer in the ownership of the business for any reason, including the death of the original owner.
- Requirement for credit transfer: The successor or transferee has to fill Form GST ITC 2 before applying to cancellation of the Registration. After the authorities have accepted the transfer, they will credit the unutilised input tax credit to the new owner according to the Form GST ITC 2 in their electronic credit ledger.