Goods and Services Tax (GST) registration is mandatory for businesses meeting the prescribed turnover limits or falling under specific categories. However, there are circumstances where a taxpayer may need to cancel or surrender their GST registration. This guide provides a detailed understanding of GST cancellation, including voluntary surrender by the taxpayer and cancellation initiated by tax authorities.
| Basis of Difference | GST Cancellation (Normal) | GST Surrendered (Voluntary Cancellation) | GST Suo Moto Cancelled (By Department) |
|---|---|---|---|
| Who Initiates | Either the taxpayer or GST Officer | Taxpayer voluntarily applies | GST Officer initiates without taxpayer's request |
| Main Reason | Business closure, turnover below threshold, change in structure | Business closed, no longer required to be registered | Non-compliance like non-filing of returns, fake invoices |
| Process | Application through Form GST REG-16 | Same as normal cancellation using Form GST REG-16 | Department sends notice and cancels via Form GST REG-17/18 |
| Notice Issued? | Only if Officer has objections | Rarely (only if Officer questions the reason) | Yes, mandatory show cause notice issued |
| Opportunity to Reply | If Officer has doubts, taxpayer is asked for clarification | Usually not needed | Taxpayer must reply to show cause notice (Form GST REG-18) |
| Final Form Received | Order of Cancellation in Form GST REG-19 | Order of Cancellation in Form GST REG-19 | Suo moto cancellation order issued without taxpayer consent |
| Effect on Business | Must stop collecting GST and issuing GST invoices | Same — must stop GST activity | Registration becomes invalid; heavy penalty if business continues |
| Timeframe for Cancellation | Within 30 days from event causing cancellation (ideal) | Within 30 days from closure | Depends on Officer's action; immediate upon non-compliance |
| Revocation Possible? | Yes, within 30 days (Form GST REG-21) if cancelled by officer | Not needed (since taxpayer requested it) | Yes, but within strict time limit (after penalty payment) |
GST cancellation can occur in two ways:
A taxpayer can voluntarily apply for GST cancellation under the following conditions:
• Discontinuation or Closure of Business – When the business ceases operations permanently.
• Transfer, Amalgamation, or Merger – If the business is transferred to another entity due to a merger or acquisition.
• Change in Business Constitution – If a business undergoes restructuring leading to a new Permanent Account Number (PAN).
• Not Crossing the Threshold Limit – If a business’s turnover falls below the prescribed limit and does not require mandatory GST registration.
A tax officer may initiate cancellation of GST registration under the following circumstances:
• Contravention of GST Provisions – If the taxpayer violates GST laws or rules.
• Failure to File Returns – If a taxpayer fails to furnish returns for six consecutive months (for regular taxpayers) or three consecutive tax periods (for composition scheme taxpayers).
• Non-Commencement of Business – If a taxpayer who registered voluntarily does not commence business within six months.
• Fraudulent Registration – If registration was obtained through fraud, wilfull misstatement, or suppression of facts.
Sometimes, instead of outright cancellation, the GST department may mark a taxpayer’s registration as inactive if:
• Returns are not filed for an extended period.
• The department suspects non-compliance or fraud but has not completed an investigation.
• There are discrepancies in tax filings that require clarification.
In such cases, the taxpayer must resolve compliance issues to restore active GST status or face eventual cancellation.
A registered taxpayer can apply for cancellation through the GST portal by following these steps:
a. Log in to the GST Portal (www.gst.gov.in).
b. Navigate to Services > Registration > Application for Cancellation of Registration.
c. Provide the reason for cancellation and submit required details.
d. If the taxpayer has outstanding liabilities or input tax credit (ITC) on stock, Form GSTR-16 must be filed before cancellation.
e. The tax officer reviews the application and may issue a Show Cause Notice (GSTR-17) if further clarification is required.
f. The taxpayer must reply to the notice using Form GSTR-18 within seven days.
g. If satisfied, the tax officer will issue the Cancellation Order (GSTR-19).
If a tax officer initiates cancellation:
a. A Show Cause Notice (GSTR-17) is issued.
b. The taxpayer must respond within seven days using Form GSTR-18.
c. If the response is unsatisfactory, the tax officer will proceed with cancellation and issue GSTR-19.
When a GST registration is cancelled or surrendered, the taxpayer must address the Input Tax Credit (ITC) implications:
• The taxpayer must reverse any ITC on stock, capital goods, and input services held at the time of cancellation.
• The ITC reversal amount should be calculated as the higher of:
o ITC on stock (including raw materials, semi-finished, and finished goods) as per the latest balance sheet.
o 1% of the sale value of the stock.
• If capital goods were purchased and ITC was claimed, the taxpayer must reverse ITC based on the proportionate life of the asset.
• The final GSTR-10 (Final Return) must be filed within three months of cancellation to report ITC reversals and settle any outstanding tax liability.
Failure to reverse ITC or file the final return may lead to penalties and interest.
If a taxpayer’s GST registration is cancelled by the tax officer, they can apply for revocation within 30 days using Form GSTR-21. However, revocation is only possible if:
• The cancellation was not due to fraud or misrepresentation.
• The taxpayer has filed all pending returns and cleared outstanding liabilities, including interest and late fees.
• A business cannot charge GST on its supplies post-cancellation.
• Any unused Input Tax Credit (ITC) in the electronic credit ledger will lapse.
• The taxpayer is required to file final returns and settle any pending liabilities before closure.
With evolving tax regulations, staying compliant is essential. If you need assistance with GST cancellation or related services, professional support can ensure a seamless process. Stay updated with the latest GST regulations for smooth business operations.
For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.
