GST cancellation refers to the process of terminating a business’s registration under the Goods and Services Tax (GST) regime in India. Once cancelled, the business is no longer considered a registered taxable person and is relieved from the obligations of collecting GST, filing returns, and claiming Input Tax Credit (ITC).
There are two main ways a GST registration can be cancelled
Voluntary Cancellation (By the Taxpayer)
A registered person can apply for cancellation of their GST registration if they meet certain criteria. This is usually done by filing Form GST REG-16 on the GST portal.
Common Reasons for Voluntary Cancellation
Discontinuation of Business / Closure of Business
The business has permanently stopped operations.
Turnover Falls Below Threshold Limit
If your aggregate annual turnover from supplies falls below the mandatory registration threshold (e.g., ₹20 lakhs for services, ₹40 lakhs for goods in most states), you can apply for cancellation.
Change in Constitution of Business Leading to Change in PAN
For example, a sole proprietorship converting into a partnership firm or a company. Since GST registration is PAN-based, a new PAN (and thus a new GSTIN) would be required for the new entity.
Transfer of Business (Amalgamation, Merger, Demerger, Sale, Lease, etc.)
If a business is transferred to another entity, the transferor’s registration may be cancelled (provided the transferee is already registered or will get a new registration).
Death of Sole Proprietor
The legal heirs of a deceased sole proprietor can apply for cancellation.
No longer liable to pay tax
If a business was voluntarily registered but no longer requires GST registration for any reason.
Process for Voluntary Cancellation (Key Steps)
Login to GST Portal
Access the official GST portal (www.gst.gov.in) using your credentials.
Navigate to Cancellation Application
Go to “Services” > “Registration” > “Application for Cancellation of Registration.”
Fill in Details (Form GST REG-16)
- Provide the reason for cancellation (select from the dropdown list).
- Specify the effective date from which you want the registration to be cancelled.
- Provide details of the inputs, semi-finished goods, finished goods, and capital goods held in stock on the day immediately preceding the date of cancellation. You’ll need to calculate the tax liability on this stock, and this amount needs to be paid.
- Provide details of any pending tax liabilities.
- If applicable (e.g., in case of transfer/merger), provide the GSTIN of the transferee entity.
- Update address for future correspondence.
Verification and Submission
- Check the declaration box.
- Select the authorized signatory.
- Submit the application using Electronic Verification Code (EVC) or Digital Signature Certificate (DSC) (mandatory for companies/LLPs).
- An ARN (Application Reference Number) will be generated.
Officer’s Review
The proper officer will review your application and the documents. They may seek clarifications if needed (in Form GST REG-17).
Issue of Cancellation Order
If satisfied, the officer will issue an order for cancellation in Form GST REG-19 within 30 days from the date of application (or from the date of receiving clarification). The cancellation will be effective from the date specified in the order.
File Final Return (GSTR-10)
After the cancellation order is issued, the taxpayer must file GSTR-10 (Final Return) within three months from the date of cancellation or the date of the cancellation order, whichever is later. This return declares the closing stock and settles final tax liabilities.
Suo-Moto Cancellation (By the GST Officer)
The GST authorities can cancel a registration on their own motion if a taxpayer fails to comply with certain provisions of the GST Act or Rules. Before cancelling, the officer typically issues a show-cause notice.
Common Reasons for Suo-Moto Cancellation
Non-filing of Returns
- Regular Taxpayers: Failure to furnish GSTR-3B for a continuous period of six months.
- Composition Dealers: Failure to furnish statements (CMP-08) for three consecutive tax periods (quarters).
- Business Not Commenced: If a person obtains voluntary registration but does not commence business within six months from the date of registration.
Registration Obtained by Fraud
If the registration was obtained by means of fraud, willful misstatement, or suppression of facts.
Violation of Act/Rules
- Issuing invoices or bills without actual supply of goods or services (i.e., fake invoicing).
- Taking Input Tax Credit (ITC) in violation of the provisions of Section 16 of the CGST Act or the rules made thereunder (e.g., claiming ITC on non-existent supplies).
- Utilizing ITC from the electronic credit ledger to discharge more than 99% of tax liability if the value of taxable supply (excluding exempt supply and zero-rated supply) in a month exceeds ₹50 lakhs (certain exceptions apply).
- Not conducting business from the declared place of business.
- Failure to pay tax, interest, or penalty to the government within three months from the due date.
Process for Suo-Moto Cancellation (Key Steps)
Show-Cause Notice (Form GST REG-17)
The proper officer issues a show-cause notice to the taxpayer, asking why their registration should not be cancelled, and specifying the grounds for cancellation.
Taxpayer’s Reply (Form GST REG-18)
The taxpayer must furnish a reply to the show-cause notice within 7 working days, explaining why their registration should not be cancelled. They can also rectify the non-compliance (e.g., file pending returns, pay dues) during this period.
Officer’s Decision
- Drop Proceedings (Form GST REG-20): If the officer is satisfied with the taxpayer’s reply and compliance, they will drop the cancellation proceedings and issue an order in Form GST REG-20.
- Cancellation Order (Form GST REG-19): If the officer is not satisfied, they will issue an order for cancellation of registration in Form GST REG-19 within 30 days from the date of receiving the reply (or expiry of the 7-day period if no reply is furnished).
- File Final Return (GSTR-10): Similar to voluntary cancellation, the taxpayer whose registration is cancelled by the officer must file GSTR-10 within three months from the date of cancellation or the date of the cancellation order, whichever is later.
Impact and Consequences of GST Cancellation
No more GST Compliance
Once cancelled, the business is no longer required to collect GST, file regular GST returns (GSTR-1, GSTR-3B), or claim ITC.
ITC Reversal/Payment on Stock
Any ITC claimed on inputs, semi-finished goods, finished goods, and capital goods held in stock on the date of cancellation must be reversed or paid (as declared in GSTR-10).
No Issuance of Tax Invoices
The business cannot issue tax invoices and cannot charge GST on its outward supplies from the effective date of cancellation.
Loss of Input Tax Credit
The business cannot claim ITC on its purchases after the effective date of cancellation.
Outstanding Dues
Any outstanding tax, interest, or penalty liabilities must be cleared.
Legal Consequences for Non-Compliance
If a business continues to operate and collect GST without a valid registration, it can face significant penalties and legal action.
GSTR-10 Mandatory
As highlighted, filing the final return GSTR-10 is mandatory for almost all cancelled registrations. Failure to file GSTR-10 can lead to heavy penalties and best judgment assessments by tax authorities.
Revocation of Cancellation (If applicable)
If the cancellation was initiated by the officer, the taxpayer might have the option to apply for revocation of cancellation within a specified timeframe (Form GST REG-21) by fulfilling all pending compliances and providing a valid reason.
GST cancellation is a significant event for a business, marking its exit from the GST tax net. It is crucial to follow the prescribed procedures and fulfill all final compliance requirements to avoid future complications. get help from our experts.