Converting a partnership into a corporation under the GST.
There is no provision under the GST Act to provide guidance on how to change a business entity from a sole proprietorship into a partnership. Similarly, there are several instances where the Act allows for the formation of partnership firms. It includes the various procedures involved in forming a partnership, transferring unused Input Tax Credit to a partnership firm, and the cancellation of proprietorship GST registration.
1. Requirements for New GST Registration.
It is essential to convert the proprietorship entity into a partnership firm, obtain partnership firm's official PAN and GST registration, and obtain partnership firm's bank accounts. In order to start a partnership, partners must enter an agreement called the Partnership Agreement which outlines all of the terms and conditions of the partnership. Once the partnership deed has been drafted by the taxpayer, the taxpayer must then file the tax return and apply for the GST number.
2. Obtaining GST registration for par-
Once the partnership firm's registry number is obtained, a GST registration form should be filled and submitted. The list of required documents to apply for GST.
- Employer ID card of the firm.
A partnership agreement.
- Passport for all partners.
The Aadhaar Card/passport/driving license/voter ID of all partners with the address that they are given in the partnership deed.
- Photos of each associate.
- Authorisation letter for a partnership to authorize another partner to register for GST.
A document attesting to a business's location and numbers.
A utility bill or property tax receipt from the business establishment.
- Bank statements/bank passbooks.
- A certified copy of one's registration certificate under any other Act.
After you obtain all of the required documentation, you are prepared to apply for GST registration.
3. Filing of Returns for a Proprietorship and Partnership.
When making the cancellation request for the proprietorship's GST registration for cancellation, the taxpayer must provide a date on which the cancellation is to be effective. Also, when registering for GST, the taxpayer has to register by the date they become liable to register. The taxpayer must verify both dates, and this will be the effective date of the GST return for the partnership.
Therefore, the home business corporation must file GST returns up to the day that the GST registration deadline is announced. For a partnership firm to become GST registered, the GST filing date must be after the date of registration.
4. Transfer of business to a separate firm.
The process of converting an existing proprietorship entity into a new partnership firm is exempt under GST, since the transfer of the stock or other assets occurs to keep the same business in operation. This is a Schedule II exemption, as specified in the CGST Act. The benefit is available when the existing firm ceases to be a taxable person after such conversion. Additionally, the transfer of a company is exempt from GST as stated in the CGST (Rate) notification dated 1/2017. Therefore, it is clear that a going concern (i.e., a business) is not subject to tax under GST.
5. An expansion of ITCs to Partnership.
At this point the taxpayer can transfer the deducted ITCs to the partnership firm. The process for transferring unused ITC to a partnership firm consists of:
1. Form GST T2 must be filed by the proprietorship business for the partnership firm to transfer unutilised GST to the proprietorship's electronic credit ledger.
2. The proprietorship entity is required to file a copy of their accountant's certificate that the business has been transferred with a provision for paying the outstanding liabilities.
3. The partnership shall accept the information provided by the proprietorship company on GST portal and shall credit the unutilised input tax credit specified in Form GST ITC 02 to the electronic credit ledger.
4. The inputs and capital goods shall be properly recorded in the partnership's books during the accounting period.
6. The treatment of transfer in the electronic cash ledger.
There is no provision within the GST code that allows for the transfer of credit money (i.e. electronic cash) from one financial entity to another. Therefore, all taxpayers have to file a Form RFD-01 with either “Refund of Excess Balance in Electronic Cash Ledger” to get the refund of balance in the electronic cash ledger, or “Refund on Account of Any Other Reasons” to get the refund on account of any other reasons.
7. The GST Registration of Proprietorship is revoked.
Once all of the tax dues were settled, the company requested the cancellation of the company's GST registration citing the ‘changing of legal framework' as the reason. It will require the GST number of the new partnership firm.
The company's transition from a proprietorship to a partnership is the entire process. As stated above, the same rules apply in any instance in which a legal form is converted into another legal form. To change a partnership firm into a private limited firm, a public limited firm, or a proprietary limited firm.
