ITC Liability on Capital Goods on death of Proprietor (GTA)

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This discussion addresses the Goods and Services Tax (GST) implications for Input Tax Credit (ITC) on capital goods when a business proprietor passes away. Specifically, it concerns a Goods Transport Agency (GTA) whose proprietor died shortly after purchasing lorries. The query asks whether ITC on these lorries needs to be reversed, and if so, how. The advice clarifies that under GST rules, ITC on capital goods must be reversed upon business closure, with a 5% reduction per quarter from the purchase date. This means 65% of the availed ITC must be paid back.

Rakesh Sharma

Rakesh Sharma (Querist)

28 August 2025 Respected Sir,

One of our client GTA was providing services under forward charges @12% & having 5 Lorries which have purchased in May-2022. But Unfortunately, proprietor died in July-25, now we have applied for closure of this business as family don't want to continue.
Sir, my query is that : should we reverse the ITC taken on above lorries by reducing the ITC amount 5% per quarter basis and we have to pay 35% of ITC availed (ITC Availing time 3 years + 1 Quarter = 13 Quarter i.e. 65%)? Or we can avail any exemption in this exceptional case.

Kindly Advise.

Rakesh Sharma

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

07 September 2025 Under GST, when a registration is canceled, ITC on capital goods must be reversed using the formula under Rule 44 of the CGST Rules.
The formula requires reducing the ITC amount by 5% for every quarter or part thereof from the date of purchase.
Yes, you must pay back 65% of the availed ITC, and can retain 35% at closure.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

21 September 2025 Good luck....

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