Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
28 Jul 25
12 mins
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Liability to Pay in Certain Cases Under GST Sections 85 to 94
GST liability can extend to transferees, partners, directors, trustees, and legal heirs when the original taxpayer cannot fulfill dues.
In cases of business transfer, both the transferor and transferee are jointly liable for unpaid GST dues up to the date of transfer.
Directors, partners, and legal representatives can be held personally accountable for tax defaults if negligence or misconduct is proven.
GST arrears remain enforceable even during firm dissolution, business partition, amalgamation, or liquidation unless covered by IBC.
Only in cases of death with insufficient estate or insolvency proceedings can GST arrears potentially remain unpaid.
The provisions under Sections 85 to 94 apply when a certain amount is due under GST (Goods and Services Tax) in India, to prompt seamless business compliance.
This may include the tax amount, applicable interest rate or even a penalty charge, which cannot be recovered directly from the taxable person. This blog shall delve into the details of the liability to pay in certain cases under GST.
Here is the list of liabilities to oblige for an taxable person under GST:
1. Section 85: Liability in Case of Transfer of Business
The taxable person may decide to transfer their business, whether it is partly or wholly, to another. In such a case, the taxable person (or transferor) as well as the person under whom the business is being transferred (or transferee) shall be liable to pay GST, wholly/to the degree of said transfer.
Here is what the person liable will be needed to pay for:
Tax Amount
Interest amount
Penalty, if applicable; (may be due from the transferor up to the time of the transfer. It is not taken into consideration whether such interest, tax, or penalty was concluded before or after the transfer, given its unpaid status.)
Note that the transfer shall be made in the form of:
Gift
Lease
Sale
Leave and license
Hire, etc.
Other than the unpaid amounts, the transferee shall also be liable to pay GST, starting from the official transfer date. If the taxable person moves forward with the business with a new name, he will be required to apply for an amendment to the respective certificate of registration.
2. Section 86: Liability of Agent and Principal
In case an agent supplies/receives commodities that are taxable, on behalf of their principal – both, the agent as well as the principal are liable to meet GST obligations, severally and jointly.
3. Section 87: Liability in Case of Amalgamation or Merger of Companies
In case 2 or more separate companies happen to merge or amalgamate, owing to the order of a court or tribunal:
The order shall take effect starting from a date earlier than the order issue date;
The concerned companies should have supplied the goods and services to one another within that period (i.e. starting from the order date, up to the order effect date).
Note that the 2 separate companies that have merged/amalgamated together, are separately responsible for their taxes. These companies will be viewed as separate entities within the GST framework, up until the order date (not the order effect date). The respective registrations of the 2 companies shall finally be cancelled, effective from the order date.
4. Section 88: Liability in Case of Company in Liquidation
In case a company is wound up, a specific individual shall be appointed as the receiver of certain assets of said company. The appointed person shall be required to notify the Commissioner of their appointment within 30 days post-appointment.
The Commissioner, in turn, shall be required to inform about the amount which shall be enough to cover tax/other dues requirements of the company. This task must be completed within 3 months, starting from the date of receipt of the intimation.
Here is how the tax payment timeline works:
The concerned company will be liable to pay any dues within 3 months of receiving the intimation from the commissioner.
If they are unable to meet the deadline, the directors shall jointly and severally be liable to pay off the pending amounts.
In case certain directors are unable to cover the dues, the rest of the directors are liable to do so.
Finally, if the concerned persons are able to provide solid proof of the fact that the tax non-payment was not simply a result of personal negligence, they shall be exempt from the liabilities of clearing the company’s dues.
5. Section 89: Liabilities of Director of Private Company
Here are the provisions under Section 89:
There may arise a circumstance where taxes, interest amounts, or penalties are due from a private company for a specific period of time, which cannot be recovered. In that case, any individual who has ever been a director of said private company during that period, will be liable for the GST payment. This applies unless the persons are able to prove that their non-payment of GST is not a fault of neglect, breach of duty or misfeasance, in relation to the workings of the company.
If a private limited company is converted into a public company, the GST obligations pertaining to said company (before being converted to a public company) which were not recovered previously, will not be recovered via the channel of any past directors of the private company.
Note that the above-mentioned provisions do not apply in case any penalty on the personal level is imposed upon a director.
6. Section 90: Liability of Partners of Firm to Pay Tax
If a partnership firm is concerned, all the partners have unlimited liability to pay any GST arrears, jointly and severally.
On the other hand, in case a partner retires from the firm, they or the firm must make it a point to inform the commissioner in writing. This has to be done within 1 month of such a decision being taken.
As per the same, the partner who is set to retire shall be liable to pay up for the GST arrears (until the retirement date, regardless of whether such obligations are determined later or just then).
In case the intimation about retirement is not extended within the 1-month-long time period, the liabilities of the partner will continue up to the intimation date that is provided to the commissioner.
Note that the above-mentioned provisions will be applicable regardless of the existence of any other contractual arrangement/law.
7. Section 91: Liability of Guardians, Trustees, etc.
When a trustee, guardian, or agent conducts any type of business on behalf of and for the benefit of a minor or incapacitated individual, Section 91 enforces the provisions. Said business may owe taxes, interest or penalty liabilities under GST.
In any case, the trustee, guardian or agent, as well as the beneficiary (the minor or incapacitated individual) will be liable to pay under GST. The parties must take care of the pending amount.
8. Section 92: Liability of Court of Wards, etc.
The provisions under section 92 apply to the estate of the taxable individual who is the owner of a business. It shall be under the control of the Court of Wards, the Official Trustee, the Administrator General or a receiver/manager as appointed by a court of law.
In case the business owes dues under the GST Act, the Court of Wards, the Official Trustee, the Administrator General or the respective receiver/manager shall become liable to pay GST alongside the taxable individual.
9. Section 93: Special Provisions Regarding Liability to Pay Tax, Interest or Penalty in Certain Cases
Section 93 specifies liabilities that may accumulate in special cases, like the death of the individual heading a business, unexpected time of dissolution of the firm, partition of a HUF/AOP, etc.
This section discusses the provisions of Section 93 and subjects them to the provisions of the ‘Insolvency and Bankruptcy Code, 2016.
a. (Section 93(1)): In Case of the Death of an Individual
If the Business Operations Are Continued: A legal representative/any individual taking over the business of the deceased/incapacitated person will be liable to cover GST arrears.
If the Business Operations Are Discontinued: The legal representative of the business of the deceased individual will be liable to cover the GST arrears, from the assets of the deceased/the assets inherited by them.
In case the assets left behind by the deceased are not enough to meet the GST liabilities, the pending portion shall not be deemed payable.
b. (Section 93(2)): In case of Partition of HUF/AOP
If there is a case where the partition of HUF/AOP results, every member receiving the property share will be liable for GST arrear payments, severally and jointly.
Members/groups of members will become liable for the pending GST payments which may have accumulated up to the time of partition. This liability may be determined before/after the partition.
c. (Section 93(3)): In case of Dissolution of Firm (Including LLP)
Each individual who was ever a partner during the time of the dissolution of the firm shall be jointly and severally liable to pay the GST arrears. This will apply regardless of whether one has or has not received a share in the firm assets.
GST arrears may be determined prior to/after the firm dissolution takes place.
Partners may possibly be liable to cover the GST arrears in the ratio of the profits’ distribution within the firm. However, so is not mentioned in the provision particularly.
d. (Section 93(4)): On Termination of Guardianship/Trust
If the guardianship of the ward or trust is terminated, the ward or beneficiary will remain liable to meet the GST obligations up to the termination date. This applies regardless of whether the GST arrears are deducted before or after the termination date.
10.Section 94: Liabilities in Residual Cases
a. (Section 94(1) & Section 94(3)): On Discontinuance of a Business for Firms (Including LLP)/HUF/AOP
If the firm's (or HUF/AOP) operations are discontinued, the associated partners shall become liable to pay the outstanding GST amounts. The arrears can be determined at any point, pre/post the discontinuation.
b. (Section 94(2)): On Change of the Firm Constitution (Including LLP)/AOP
If a certain change takes place within the business constitution of a firm/AOP, associated partners of said firm and the members of the AOP before/after reconstitution shall be liable to cover GST arrears (prior to reconstitution), jointly and severally.
Conclusion
The relevant provisions are discussed above which prove that the GST arrears shall not go unpaid in any case. There is no lack of legal compliance requirements at present, as was the situation in the past. The information about the liability to pay in certain cases under GST shall help businesses avoid getting blindsided and stay on par with legal aspect of compliance.
In fact, the GST arrears may only remain unpaid under 2 circumstances. If the taxable individual of a sole proprietor, every member of a HUF/AOP, each partner associated with a firm, or every director of the company dies an unfortunate death or is an incapacitated person, the GST arrears may not be met. This is considering that the individual assets are not enough to meet the due tax/interest/penalty, if any.
The other condition which shall allow for the non-payment of GST arrears shall require the business to get sheltered under the ‘Insolvency and Bankruptcy Code, 2016’.
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FAQs
Who is liable to pay GST when a business is transferred to another person?
As per Section 85, both the transferor and the transferee are jointly and severally liable to pay any unpaid GST, including interest and penalty, up to the date of transfer. This liability applies whether the transfer is by sale, lease, gift, or any other arrangement. After the transfer, the transferee becomes solely responsible for ongoing GST compliance from the date of takeover.
Are company directors personally liable for unpaid GST?
Yes, under Section 89, if a private company fails to pay GST dues that cannot be recovered, any person who was a director during that default period can be held personally liable. However, directors can avoid liability by proving there was no negligence, breach of duty, or misconduct on their part. This protection does not apply in the case of penalties imposed personally.
What happens to GST dues if a company is under liquidation?
According to Section 88, when a company is being liquidated, the appointed receiver or liquidator must notify the Commissioner within 30 days. The Commissioner will estimate the tax dues, and if the company fails to pay, the directors become jointly and severally liable to clear the dues. Directors may be exempt if they can prove absence of fault or negligence.
How is GST liability handled during the dissolution of a firm or partnership?
As per Section 93(3), when a firm (including LLP) is dissolved, all partners active at the time of dissolution are jointly and severally liable to pay any GST arrears. This holds true whether the liabilities were determined before or after dissolution. Individual partners may need to pay even if they did not receive a share in the firm's assets.
Can GST dues be waived off in case of a taxpayer’s death or insolvency?
Yes, Section 93(1) allows partial relief. If a taxpayer dies and their estate lacks sufficient assets, the unpaid portion of GST dues may be waived. Similarly, under the Insolvency and Bankruptcy Code (IBC), 2016, dues may remain unpaid if the business is declared insolvent. However, legal heirs or successors may still be liable up to the value of inherited assets.
Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
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