With the death of the proprietor legally the business also ends with him, however the GST law provides a facility whereby the legal heirs can continue the business if they desire so and has provided with a detailed instructions on how such transfer shall take place. In the event of death of the proprietor its legal heirs have an option of either continuing the business or discontinuing.

2)If option exercised by the legal heirs is that they will continue the business of the deceased then the following will be applicable: As per Section 29 the registration of the deceased is still liable to be cancelled. Steps to be taken by the Legal Heirs: – 1. Apply for fresh registration citing reason as Death of Proprietor and Date on which liability arises as Date of death of deceased.

3)2. Section 29 allows legal heirs to file application for cancellation. Therefore, legal heirs will have to get themselves registered as Authorised Signatories in GSTIN of the deceased

. 3. To be added as Authorised Signatories Amendment in Registration will not be done by the legal heirs themselves but will have to approach the jurisdictional officer. (Section 28 read with Rule 19 allows only registered person to apply for amendment registration)

4. Legal Heirs will have to prove that they are the legal heirs of the deceased (Legal Heirs are defined in the personnel laws as enforced on the date).

5. Transfer the business 6. Transfer ITC in the credit ledger of the deceased to the new registration by filing ITC-02 7. Apply for cancellation of the registration of deceased within 30 days and file GSTR10

. In CIT v. Madhukant M. Mehta (supra) the case of the assessee was that on the death of sole proprietor the legal heirs forming partnership firm and issue was whether the firm succeeded in the business of sole proprietor, assessee is entitled to carry forward loss of sole proprietor and to set off against the income of the firm. The Gujarat High Court has taken the view as under :

"(i) that the presence of the three factors found by the Income Tax Officer was not necessarily destructive of the integrity or identity of the business so as to negative the idea of succession; (ii) that the facts showed that M had died intestate. Under section 8 of the Hindu Succession Act his property would devolve, firstly, upon the heirs being relatives specified in Class I of the Schedule. Son, daughter and widow are included in Class I. There was a clear recital in the partnership deed that the partners as heirs succeeded to the business of the deceased. The business of the deceased had been carried on even prior to the execution of the partnership deed and the partnership was brought into existence within a very short period after M's death. Having regard to all the circumstances there was succession by inheritance in this case. Merely because M's legal heirs brought into existence a firm and decided to carry on the same business under the firm name, the succession by inheritance was not lost or destroyed. The link or nexus between the business carried on by the deceased and after his death by his heirs previously as a body of heirs and subsequently as a collection of persons joined with each other by the bond of partnership was not lost either in substance or in form and the business, which the firm carried on, still remained the same business which was succeeded to by inheritance by the heirs who were partners. The assessee-firm was entitled to carry forward and set off the speculation losses of M against the income from speculation business earned during the relevant assessment years."

The view taken by the Gujarat High Court in (1981) 132 ITR 159 (Guj) (supra) has been upheld by the Supreme Court in case of CIT v. Madhukant M. Mehta (2001) 247 ITR 805 (SC).

If a sole proprietor dies, their legal heirs or representatives need to manage the business and handle the legal procedures, such as cancelling the GST registration or transferring the business to their name.

In the case of the death of a proprietor, the accounting treatment involves the valuation and recording of assets and liabilities, preparation of final accounts, and distribution of profits/losses among the legal heirs or representatives.

In case of the death of a sole proprietor, the business can either be cancelled or transferred to the legal heirs or a new owner. Transfer of business in case of death of a sole proprietor includes obtaining legal certificates, transferring assets and liabilities, and applying for the transfer of ITC.

This is because the legal heir will need to apply for a new GST registration in their own name and cannot continue the business in the name of the deceased sole proprietor due to the proprietor having a different PAN.

As per Section 29 of the CGST Act, the GST registration will need to be cancelled on the death of a sole proprietor, and the business can be transferred thereafter. 

They need to apply for the transfer of Input Tax Credit (ITC) by filing Form GST ITC-02 on the GST common portal.

As per Section 22 of the CGST Act, they need to apply for a fresh GST registration in Form GST REG-01 using their own PAN as they cannot use the existing registration of the deceased proprietor.

Section 18(3) of the CGST Act, 2017 allows the transfer of ITC where the business is being transferred as long as the business’s liabilities are also being transferred in the manner specified in Rule 41.

Further, section 93(1) states that if the person liable to pay tax, interest or penalty passes away, the individual who continues the deceased person’s business shall be liable to pay those tax dues.

- A sole proprietor is a person who is a sole owner of a business and who runs that business by itself, and in case of a sole proprietorship dies then his business will immediately come to an end. 

- Further, as per  the Indian Succession act, after the death of the sole Proprietor, his/her legal heirs do not automatically start to inherit the old business of the deceased, but they only get to inherit the assets.

- Further, the legal heirs of the deceased have the option of winding up the business after filling GST and Tax under section 29(1) and section 93(1)(b) of CGST Act, 2017.

1. The bank is under obligation to transfer the entire amount to the legal heirs either by way of Nominee claim procedure or after getting required winding up documents .  

2. In case of transfer of business on account of death of sole proprietor, the successor shall file FORM GST ITC-02 in respect of the registration which is required to be cancelled on account of death of the sole proprietor.

- Hence, you can apply for fresh registration citing reason as Death of sole Proprietor and then after the said registration you will have right to transfer the property /fund in the partnership firm. 

Dear Client,

Following your father's sudden demise, you face two primary challenges with his firms: the sole proprietorship and the partnership firm. For the sole proprietorship, bank accounts cannot be operated, and you must follow the nominee claim procedure, which results in account closure. However, FDRs maturing in the future and the need for debit facilities complicate matters. You may need to consult with the bank for a possible solution to keep the account active until all financial obligations are settled.

For the partnership firm, transferring assets and liabilities from the sole proprietorship to the partnership firm can help. This transfer allows the partnership firm to utilize the work experience and bid capacity of the sole proprietorship for tenders in PWD, RED, Zila Panchayat, etc. Additionally, re-registering bank accounts, GST, PAN, and other documents under your mother’s name ensures she can manage tax filings and receive payments for completed or in-progress works. Legal advice is essential to navigate the procedural intricacies and ensure compliance with relevant regulations.