Compliance Requirements for Continuation of Business After Proprietor’s Demise

[Preeti Gupta]

Dear Sir/Madam,

The proprietor of a jewellery shop passed away in the month of April 2025. At the time of death, the business held a gold jewellery stock of approximately 1.5 kg. There is no balance available in the GST credit ledger.

Out of the three legal heirs—two sons and one daughter—one heir intends to take over and continue the business along with the existing stock and other assets.

We seek your guidance on the applicable compliance requirements under GST and other relevant laws to ensure a smooth transition and continuation of the business.

[YAGAY andSUN]

LEGAL NOTE ON GST COMPLIANCE & SUCCESSION OF BUSINESS ON DEATH OF PROPRIETOR

Upon the demise of the sole proprietor in April 2025, and considering the intent of one legal heir to continue the business along with the existing gold jewellery stock (approx. 1.5 kg) and other assets, the following compliance steps are mandated under the GST regime and relevant laws:

1. Cancellation of GST Registration:

Under Section 29(1)(a) of the CGST Act, 2017, the GST registration of the deceased must be cancelled. The legal heir shall file Form GST REG-16 citing “Death of Proprietor” as the reason. Supporting documents such as the death certificate and legal heirship proof must be attached.

2. New Registration by Legal Heir:

The legal heir intending to continue the business is required to obtain a new GST registration under Rule 8 of the CGST Rules, 2017 via Form GST REG-01. The application should indicate succession of business.

3. Transfer of Business as Going Concern:

As per Section 18(3) and Rule 41, the business succession amounts to a transfer as a going concern. Accordingly, such transfer is not treated as supply under Schedule II, Entry 4(c) of the CGST Act, provided it includes business assets and liabilities. Since no ITC is available in the electronic credit ledger, filing of Form ITC-02 is not required in this case.

4. Intimation to Authorities:

Formal intimation of the death and business succession must be made to the jurisdictional GST officer. Necessary updates must also be made with local authorities, professional tax, shops and establishments, hallmarking registration (if applicable), and other regulatory bodies.

5. Income Tax Compliance:

Under Section 159 of the Income-tax Act, 1961, the legal heir is required to file the final return of income for the deceased up to the date of death. Any tax liabilities of the deceased shall be recoverable from the estate in the hands of the legal heirs.

6. Banking and Documentation:

A new bank account must be opened in the name of the successor. Closure of the old account and update of KYC with regulatory and financial bodies is necessary. Succession documentation—such as family settlement deed or affidavit—should be retained.

[Sadanand Bulbule]

Plz also refer the following:

Special provisions regarding liability to pay tax, interest or penalty in certain cases.

93. (1) Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016 (31 of 2016), where a person, liable to pay tax, interest or penalty under this Act, dies, then––

(a) if a business carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act; and

(b) if the business carried on by the person is discontinued, whether before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such person under this Act,

whether such tax, interest or penalty has been determined before his death but has remained unpaid or is determined after his death.

[Sadanand Bulbule]

The following is worth reading:

2025 (7) TMI 1609 - BOMBAY HIGH COURT - Sunil Thampy Nair Versus State of Maharashtra.

Demand on the petitioner’s deceased wife - Recovery proceeding against immovable properties of the deceased - Section 93 of the Central Goods and Services Tax Act, 2017 (CGST) - HELD THAT:- The impugned order dated 22 December 2023 is set aside with liberty to proceed against the legal representatives in the above terms. Consequential Form GST DRC-16 order dated 30 July 2024 will not survive and is set aside.

Petition disposed off.

AI Summary

Legal Heir Must Cancel Deceased's GST and Register New One for Business Succession Under GST Rules Following the death of a sole proprietor, the legal heir intending to continue the business must cancel the deceased's GST registration and obtain a new one indicating succession. The transfer of business as a going concern is not treated as a taxable supply, and no input tax credit transfer is needed if none exists. Formal intimation to GST and other regulatory authorities is required. The legal heir must file the deceased's final income tax return and is liable for any outstanding tax, interest, or penalties from the estate. A new bank account should be opened in the successor's name, and relevant succession documents maintained. Legal provisions hold the successor liable for tax dues if the business continues, or the estate liable if the business discontinues. A relevant court ruling affirmed that recovery proceedings may be initiated against legal representatives for unpaid GST liabilities of the deceased.