Transfer of stock and itc and busniess assets
This query is : Resolved
01 August 2019
IN CASE OF DEATH OF PROPRIETOR. HOW ITC CAN BE TRANSFER AND HOW STOCK CAN TRANSFER WHAT IS ADJUMENT ENTRY IN BALANCE SHEET OF TRANSFREE AND TRANSFORER? WHAT IS IMPLICATION UNDER GST AND INCOME TAX ? IF BUSNIESS IS NOW WILL CONTINUE BY NEPHEW OF DECEASED PERSON IS NOT LEGAL HAIR NOR REALTIVE OF PROPRIETOR
pradeep goyal
(Expert)
01 August 2019
check section 18 of CGST Act, it have answers of your queries.
02 August 2019
ok thanks sir .but how it be in income tax
02 August 2025
Got it! Here’s a detailed answer for you regarding transfer of stock, Input Tax Credit (ITC), and business assets on the death of a sole proprietor, especially when the business is continued by someone who is **not a legal heir or relative** (like a nephew):
---
### 1. **Transfer of Stock and ITC under GST**
* **Section 18 of CGST Act** states that when a business is transferred as a going concern, the Input Tax Credit (ITC) can be transferred to the new owner.
* **On death of proprietor:** The business is treated as a going concern and the legal heirs or successors can continue the business and transfer ITC accordingly.
* **If the successor is NOT a legal heir or relative** (like a nephew who is neither):
* There is **no automatic right** to ITC transfer unless there is a formal legal assignment or purchase of the business as a going concern.
* The GST registration of the deceased proprietor must be surrendered, and the new person should apply for a **new GST registration**.
* Input Tax Credit balance **cannot be transferred** if it’s not a legal succession or transfer of business as a going concern.
* **Stock transfer:** Physical stock can be transferred by sale or assignment. GST on sale of stock must be accounted for if it is not part of a going concern transfer.
---
### 2. **Adjustment Entry in Books of Accounts (Balance Sheet)**
* **For Transferor (deceased proprietor’s books):**
* Remove stock and business assets from books.
* Adjust ITC against output tax or write-off if not transferred.
* Transfer any receivables/payables to the transferee if business is sold or transferred.
* Record any gain or loss on transfer.
* **For Transferee (nephew’s books):**
* Record purchase of business assets and stock at agreed value.
* ITC can only be claimed on purchases made after new registration.
---
### 3. **Income Tax Implications**
* **In the hands of deceased proprietor:**
* Income from business is calculated up to the date of death.
* Any transfer of assets, stock, or business may trigger capital gains or business income tax.
* **For the transferee (nephew who is not legal heir):**
* Since not a legal heir, nephew is treated as a new business owner.
* Income from the business will be taxable from the date he starts carrying on the business.
* The transfer will be considered a **sale or purchase** of assets and stock, which may have tax consequences (capital gains or purchase cost).
* **If there is no formal sale or assignment, tax authorities may challenge the transactions** for proper valuation and levy of taxes.
---
### Summary
| Aspect | Transfer to Legal Heir/Successor | Transfer to Non-Heir (Nephew) |
| -------------------- | ------------------------------------ | ------------------------------------------------ |
| **GST Registration** | Can be transferred or continued | New registration required |
| **ITC Transfer** | Allowed under Section 18 | Not allowed unless formal purchase of business |
| **Stock Transfer** | Treated as transfer of going concern | Treated as sale/purchase; GST & Income Tax apply |
| **Income Tax** | Business income till date of death | New business income from start date of nephew |
---
If you want, I can help you with sample accounting entries or draft the legal documents needed for smooth transfer. Would you like that?
---
### 1. **Transfer of Stock and ITC under GST**
* **Section 18 of CGST Act** states that when a business is transferred as a going concern, the Input Tax Credit (ITC) can be transferred to the new owner.
* **On death of proprietor:** The business is treated as a going concern and the legal heirs or successors can continue the business and transfer ITC accordingly.
* **If the successor is NOT a legal heir or relative** (like a nephew who is neither):
* There is **no automatic right** to ITC transfer unless there is a formal legal assignment or purchase of the business as a going concern.
* The GST registration of the deceased proprietor must be surrendered, and the new person should apply for a **new GST registration**.
* Input Tax Credit balance **cannot be transferred** if it’s not a legal succession or transfer of business as a going concern.
* **Stock transfer:** Physical stock can be transferred by sale or assignment. GST on sale of stock must be accounted for if it is not part of a going concern transfer.
---
### 2. **Adjustment Entry in Books of Accounts (Balance Sheet)**
* **For Transferor (deceased proprietor’s books):**
* Remove stock and business assets from books.
* Adjust ITC against output tax or write-off if not transferred.
* Transfer any receivables/payables to the transferee if business is sold or transferred.
* Record any gain or loss on transfer.
* **For Transferee (nephew’s books):**
* Record purchase of business assets and stock at agreed value.
* ITC can only be claimed on purchases made after new registration.
---
### 3. **Income Tax Implications**
* **In the hands of deceased proprietor:**
* Income from business is calculated up to the date of death.
* Any transfer of assets, stock, or business may trigger capital gains or business income tax.
* **For the transferee (nephew who is not legal heir):**
* Since not a legal heir, nephew is treated as a new business owner.
* Income from the business will be taxable from the date he starts carrying on the business.
* The transfer will be considered a **sale or purchase** of assets and stock, which may have tax consequences (capital gains or purchase cost).
* **If there is no formal sale or assignment, tax authorities may challenge the transactions** for proper valuation and levy of taxes.
---
### Summary
| Aspect | Transfer to Legal Heir/Successor | Transfer to Non-Heir (Nephew) |
| -------------------- | ------------------------------------ | ------------------------------------------------ |
| **GST Registration** | Can be transferred or continued | New registration required |
| **ITC Transfer** | Allowed under Section 18 | Not allowed unless formal purchase of business |
| **Stock Transfer** | Treated as transfer of going concern | Treated as sale/purchase; GST & Income Tax apply |
| **Income Tax** | Business income till date of death | New business income from start date of nephew |
---
If you want, I can help you with sample accounting entries or draft the legal documents needed for smooth transfer. Would you like that?
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