Seeks to clarify issues in respect of transfer of input tax credit in case of death of sole proprietor.

Circular No.: 96/15/2019-GST
Date of Circular: 28th March 2019
Relevant Sections and Rules:

• CGST Act, 2017:
  • Section 18(3): Transfer of unutilized input tax credit (ITC)
  • Section 22(3): Registration in case of business succession
  • Section 29(1)(a): Cancellation of registration on death of sole proprietor
  • Section 85(1): Joint and several liability on business transfer
  • Section 93(1): Legal liability on successor upon death
  • Section 168(1): Power to issue instructions
• CGST Rules, 2017:
  • Rule 41(1): Procedure for transfer of ITC (FORM GST ITC-02)

Summary of Circular:

This circular provides detailed clarification regarding the transfer of unutilized input tax credit (ITC) in the case of death of a sole proprietor, including procedural steps for cancellation of old registration and linking of new registration by the successor.

1. Transfer of Business Due to Death of Sole Proprietor:

• “Transfer of business” includes transfer due to death of the sole proprietor under Sections 29(1)(a), 18(3), and Rule 41.
• The transferee/successor can claim ITC transfer using FORM GST ITC-02 on the common portal.

2. Registration of Transferee/Successor:

• As per Section 22(3), the successor must obtain registration effective from the date of succession (i.e., death).
• In FORM GST REG-01, reason must be selected as “Death of the proprietor”.

3. Cancellation of Registration of Deceased Proprietor:

• Legal heirs can file FORM GST REG-16 for cancellation of deceased person’s registration.
• In REG-16, the reason should be “Death of sole proprietor”, and transferee’s GSTIN must be entered to link both accounts.

4. Transfer of ITC and Outstanding Liabilities:

• As per Sections 18(3), 85(1), and 93(1):
  • Unutilized ITC can be transferred by filing FORM GST ITC-02.
  • The transferee/successor is jointly and severally liable to pay any tax, interest, or penalty due from the deceased.

5. Manner of ITC Transfer:

• FORM GST ITC-02 must be filed by the transferee before applying for cancellation of the deceased proprietor’s registration.
• On acceptance, ITC is credited to the transferee’s electronic credit ledger.

Source: Circular No.: 96/15/2019-GST