This circular provides clarification on the transfer of unutilized input tax credit (ITC) and related procedural aspects in cases where a sole proprietorship business is transferred due to the death of the proprietor.

The circular clarifies that transfer of business on account of death of a sole proprietor is to be treated as a transfer or change in ownership of business for the purposes of the CGST Act. Accordingly, the unutilized ITC lying in the electronic credit ledger of the deceased proprietor is allowed to be transferred to the transferee or successor, provided the business is continued.

It is explained that the transferee or successor is required to obtain GST registration with effect from the date of transfer by selecting “death of the proprietor” as the reason for registration. The legal heir is required to apply for cancellation of the registration of the deceased proprietor in FORM GST REG-16, mentioning the reason as “death of sole proprietor” and quoting the GSTIN of the transferee.

The transfer of ITC is to be carried out through FORM GST ITC-02, which is required to be filed by the transferee or successor before cancellation of the old registration. Upon acceptance, the unutilized ITC is credited to the electronic credit ledger of the transferee. The circular also clarifies that the transferee or successor shall be liable to pay any tax, interest or penalty due from the deceased proprietor in accordance with the law.

These clarifications aim to ensure a smooth transition of business and credit in cases of death of a sole proprietor