Proprietor Died: What to Do With GST Registration

What should the family do in the first few weeks?

Start with documents. Almost every office, whether bank, insurer, GST department or society, will ask for proof of death and proof that you are a legal heir. Running around for one copy each time wastes weeks.

Also look for any Will. Whether you need probate or some other court-backed document depends on what the person owned, where they lived and whether there is a Will. Do not guess this part.

• Get several certified copies of the death certificate.
• Collect PAN, Aadhaar, bank passbooks, cheque books, insurance policies, GST and Udyam papers, property papers and loan documents of the deceased.
• Search for a Will and note who is named as executor.
• Make a list of all assets, loans, staff, suppliers and customers connected with the business.
• Write down who will sign cheques, pay staff and speak to suppliers for now, so work does not stop.

Proprietor Died: What to Do With GST Registration?

A proprietorship is not a separate legal person. The business and the owner are one, and the GST registration is tied to the owner's PAN. So when the proprietor dies, the registration cannot simply carry on in the dead person's name as if nothing happened.

The GST law allows the legal heirs to apply for cancellation of the registration after the death of the registered person. The tax officer can also cancel it on his own once he comes to know of the death. Until cancellation is actually done, the registration stays live and returns remain due, so late fees and notices can build up.

If a family member wants to continue the shop, the usual route is that the heir gets a fresh registration in his or her own name and PAN, instead of using the old one. The exact steps depend on the facts, such as the type of business, stock in hand and who is continuing it.

• Keep filing returns, even nil returns, until the registration is cancelled.
• If the business is being closed, apply for cancellation and file the final return as required.
• On cancellation, tax on stock and capital goods may need to be dealt with as per the rules, so check the figures before applying.
• If the business will continue, plan the new registration so there is no gap in invoicing.
• Under the GST law, the legal representative can be made liable for dues of the deceased, to the extent of the estate. Clear the dues instead of ignoring them.

What happens to the bank account and the nominee?

Inform every bank and insurer in writing. Once the bank knows of the death, the account is usually frozen for withdrawals until the claim process is complete. A current account of a proprietorship is in the owner's name, so it will not keep working normally for the family.

Do not keep using the cheque book, signature or net banking of the deceased. That can create serious problems later.

A nominee is a person named to receive the money from the bank, insurer or other institution. It does not always mean the nominee becomes the final owner. In many cases, other legal heirs may still have a claim on the asset, depending on the law and the facts. If there is a family disagreement, take advice before claiming.

Probate, succession certificate or legal heir certificate: which one?

These three papers are often confused. Which one is needed depends on the assets and what the bank, company or authority asks for.

A probate is a court's approval of a Will and is relevant where there is a Will. A succession certificate is generally used for claiming debts and securities, such as bank deposits, when there is no clear nominee route or when the institution insists on it. A legal heir certificate is issued by a local authority and is used to show who the family members are. The rules and the issuing authority differ from state to state.

If there is no Will, the property passes under the personal law that applies to the family. For Hindus, this is the Hindu Succession Act. Different religions have different laws, so do not assume the rule is the same for every family.

Who handles income tax returns and pending notices?

The death of a taxpayer does not close his tax file. Returns for the year of death, earlier years that are still pending, and any notices or assessments need to be handled by a legal representative of the deceased. Income tax law makes the legal representative responsible, but generally only to the extent of the estate received.

The legal representative can register on the income tax portal to act for the deceased and respond to notices. Keep the documents ready, as the department may ask for proof of the relationship.

Also check other registrations that stood in the deceased's name, such as TAN and TDS filings, PF and ESI if there are employees, shop licence, FSSAI or other trade licences. Each one needs to be updated, transferred or closed.

• List every open return, notice and refund.
• Check whether any advance tax, TDS or GST amount is unpaid.
• Keep copies of everything filed and received.
• Do not ignore even small notices; reply within the time given.

How do we keep the shop running while papers are pending?

Staff salaries, supplier payments and customer dues cannot stop for months. Decide in writing who will manage day-to-day work, who will receive payments and in which account. Do this openly with the family, so there is no later dispute.

Udyam registration is linked to the proprietor, so it will also need to be updated or taken afresh in the name of the person who continues the business. Loans, overdraft limits and credit lines may need to be reviewed with the bank.

This is where a combined legal and tax view helps. A CA looks at GST, income tax and accounts. An advocate looks at heirship, Will, probate and family settlement. CGA's CA and Advocate team can help families with both sides together.

Frequently asked questions