What is Cancellation of GST Registration? Simple explanation ahead!

Ever since GST was introduced in 2017, it has simplified indirect tax laws in the country. Although the implementation of GST was faulty, it is no doubt a helpful law. In this article, we will tell you why your GST Registration might be canceled by the department and we will tell you the circumstances in which you may opt for cancellation of your GST Registration. We will also update you about the concept of “Effective date”, things to take care of while canceling GST Registration and the brief process to cancel your GST Registration.

If you need assistance to cancel your GST registration, you can contact Business Guru here.

When can your GST Registration be cancelled by the department?

GST Registration may be cancelled by GST the officer due to Non-compliance of GST law/provisions. Here are some reasons when GST Registration can be cancelled by the GST Department: –

  • A person opting for the composition scheme has not furnished returns for a continuous period of 3 months.
  • A regular taxable person has not furnished returns for a continuous period of 6 months.
  • A person who has taken GST Registration voluntarily and not commenced business within 6 months from the date of registration.  
  • If registration has been obtained through fraud, willful misstatement or suppression of facts, the registration may be cancelled with retrospective effect.
  • When a person taking registration does not conduct any business from the declared i.e. Registered place of business.
  • When a registered person Issues an invoice or bill without supply of goods or services (i.e. Issuing fake invoices)

When do Businessmen voluntarily opt for cancellation of their GST Registration?
Sometimes, people on their own opt to cancel their GST Registration. Generally, due to the following reasons, people opt to cancel their GST Registration: –

  • Transfer (Sale) of business
  • Closure of Business.
  • Change in the constitution of business.

For example- Partnership Firm may be changed to Sole Proprietorship due to the death of one of the two partners, leading to a change in PAN.

What is the meaning “effective date” of GST Cancellation

As a businessman, when you cancel your GST registration, you must know from which date it has been Effectively cancelled. Where a Businessman has applied for cancellation of GST registration, the registration shall be deemed to be Cancelled from the date of submission of the application or the date from which the cancellation is sought, whichever is later.

Things to take care while cancelling GST Registration.

  • A registered person, whose registration has been suspended, shall not make any taxable supply i.e. Sale of Goods/Services during the period of suspension
  • The registration of a taxpayer is cancelled only upon passing of the cancellation order by the GST Officer.  A businessman is required to file Nil returns till the order of cancellation is passed.
  • Where the registration is cancelled, the person shall pay GST in respect of inputs held in stock and inputs contained in semi-finished and/or finished goods held in stock on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher. The payment can be made by way of debit in the electronic credit or electronic cash ledger. In simple words, one has to pay to the Government, the amount of input tax credit (ITC) taken on inputs held in stock and inputs inside semi-finished and/or finished goods.

An Example to understand better
If a businessman dealing in electric vehicles has a closing stock of Electric Vehicles costing Rs. 1,00,000 on which he has availed Rs. 12,000 as input tax credit The businessman then decides to cancel this GST Registration. He then has to pay Rs 12000 which is the Input tax credit (ITC) he has availed while purchasing the Electric vehicles to the GST Department.  

  • In case of capital goods i.e Fixed Assets, the businessman shall pay the input tax credit taken on the said capital goods reduced by 5% per quarter from the date of purchase of capital goods to the date of cancellation

Example-  Date of purchase of Capital asset- 12/01/2020.
Purchase cost –  ₹ 2,00,000 (Input tax credit taken at the time of PurchaseRs.24,000)
Date of cancellation of GST Registration – 25/10/2020

Amount to be paid to government = Input tax credit taken – Reduced by 5% per quarter=  24,000-20% of ₹ 24000 (4 quarters*5)=₹.24000-₹ 4800= ₹ 19200

Thus, ₹ 19200 is to be paid by the businessman to the GST Department.

A businessman must file all GST returns till his GST registration is NOT cancelled.

Order of Cancellation by the GST Department
Where a person who applies for the cancellation of his registration, the GST Department shall issue an order in FORM GST REG-19, within thirty days from the date of application submitted.

Final GST Return post-cancellation
Every Businessman whose registration has been cancelled shall furnish a final return within three months of the date of cancellation or date of order of cancellation, whichever is later, in FORM GSTR-10.

Brief Process to cancel GST Registration voluntarily

  • File an application for cancellation of GST Registration in Form GST REG 16 online
  • Pay tax on inputs, semi-finished and finished goods as explained below along with Form GST REG 16
  • The GST department will process your application and pass an order for cancellation within 30 days of application (Note: Keep filing GST Returns till the order of cancellation is not received)
  • Once the order for cancellation is passed, a Final Return will have to be filed by the businessman in Form GSTR 10 within 3 months of the order of cancellation.

Forms for Cancellation of Registration

GST FormsDescription
GST REG-16Application for Cancellation of Registration
GST REG-17Show Cause Notice for Cancellation of Registration
GST REG-18Reply to the Show Cause Notice issued for cancellation for Registration
GST REG-19Order for Cancellation of Registration
GST REG-20Order for dropping the proceedings for cancellation of Registration
GSTR-10Form for filing Final return post order of GST Cancellation

A lot of people start a business with a lot of energy to make it big. However, at times it may so happen that the Business is not successful and they have to shut their Business. The process of cancellation of GST Registration is easy but you have to be careful of timelines!