Introduction

In India, Goods and Services Tax (GST) is applicable to all businesses engaged in the supply of goods or services with an annual turnover exceeding specified limits. However, circumstances may arise when a business owner decides to cancel their GST registration. Whether you’re closing your business, downsizing, or making a transition to another tax regime, cancellation of GST registration is an essential step in the process.

But how do you go about it, and what should you consider before taking such a step? The process isn’t complicated but requires meticulous attention to ensure compliance and avoid unnecessary penalties.

In 2023 alone, over 4.2 lakh businesses in India applied for cancellation of GST registration, according to the Central Board of Indirect Taxes and Customs (CBIC). Cancelling your GST registration isn’t a simple exit, it has consequences, both immediate and long-term. Hence, it’s important to understand the procedures, documentation requirements, and potential repercussions.

This guide will walk you through the step-by-step process of GST cancellation, from the eligibility criteria to the impact on your business post-cancellation. We’ll break down complex terminology and provide examples for clarity, ensuring that you can make informed decisions.

Why Would a Taxpayer Cancel GST Registration?

Cancellation of GST registration doesn’t necessarily indicate business failure; it’s often a strategic decision. Below are the most common reasons why taxpayers opt to cancel their GST registration:

1. Business Closure

When a business ceases operations, it must cancel its GST registration. This is necessary to avoid any further GST liabilities and penalties. In cases of complete business shutdown, cancellation of GST registration is usually one of the final steps in the closure process.

Example: A small local bakery may decide to shut down due to insufficient profits or market competition. The bakery will need to file for GST cancellation to close its accounts with the tax authorities.

2. Turnover Below the GST Threshold

GST registration is mandatory for businesses whose annual turnover exceeds the prescribed limit. If the turnover falls below the limit, businesses can opt for GST cancellation.

• Services: The threshold is ₹20 lakh.
• Goods: The threshold is ₹40 lakh.

Example: A small e-commerce business selling apparel may see its turnover dip below ₹20 lakh, leading the owner to cancel their GST registration since the business no longer needs to comply with GST rules.

3. Change in Business Model

Businesses may change their operational structure and opt for the Composition Scheme, which is simpler and involves reduced tax rates. In such cases, cancelling the existing GST registration is necessary to switch to the Composition Scheme, as businesses need a separate GSTIN under this regime.

Example: A business initially registered under the regular GST scheme may opt for a Composition Scheme to reduce tax obligations. For this, they would need to cancel their regular GST registration and apply for the Composition Scheme.

4. Transfer or Merger of Business

If your business merges with another company or if it gets absorbed by a larger firm, the GST registration of the original business becomes redundant. A GST cancellation request must be submitted to ensure that the tax records are updated.

Example: A small tech startup merges with a larger firm. The smaller entity’s GST registration will be canceled as part of the merger process.

5. Voluntary Cancellation

As per the 2024 update, businesses can voluntarily cancel their GST registration even if their turnover exceeds the prescribed limit, provided they stop making taxable supplies. This could be applicable in cases of temporary business inactivity or restructuring.

Eligibility for GST Cancellation

There are two ways to cancel GST registration: voluntary cancellation and compulsory cancellation.

1. Voluntary Cancellation

A business can voluntarily apply for cancellation of GST registration under the following conditions:

• The business has ceased taxable supplies (i.e., no sales).
• The business no longer meets the threshold turnover for registration.

Who Can Apply:

• A sole proprietorship partnership firm, or company that is no longer engaged in taxable supplies.

Required Steps:

• File Form GST REG-16 online through the GST portal.
• Submit a reason for cancellation, such as business closure or change in operations.
• Ensure that the final return, GSTR-10, is filed within three months after cancellation.

2. Compulsory Cancellation

A GST officer may cancel a business’s registration under certain conditions:

• If returns are not filed for more than six consecutive months.
• If the business fails to pay taxes.
• If there is a violation of GST regulations, such as non-compliance or tax evasion.

Who Can Be Affected:

• Businesses that have been non-compliant with filing returns or tax payment.

Documents Required for GST Cancellation

For Cancellation of GST registration, you’ll need to submit the following documents:

1. PAN Card

A copy of the business or individual’s PAN Card for verification.

2. Proof of Business Closure

This can include documents like:

• Board Resolution (in the case of a company)
• Dissolution Deed (in the case of a partnership or firm closure)
• Affidavit confirming the cessation of business operations.

3. Final GST Return (GSTR-10)

The final return (GSTR-10) must be filed within three months of the GST cancellation application. This return reports closing stock and any outstanding tax liabilities.

4. Tax Payment Receipts

All pending taxes must be cleared before applying for cancellation. Ensure you have receipts or proof of payment for all dues.

5. Authorization Letter

If you’re using a tax consultant or professional, an authorization letter must be submitted for them to act on your behalf.

Pro Tip: Always keep digital copies of invoices for the past six months handy for future audits or scrutiny by the tax authorities.

Step-by-Step Process to Cancel GST Registration Online

Here’s a detailed guide on how to cancel your GST registration through the official GST portal.

Step 1: Log in to the GST Portal

1. Visit GST Portal.
2. Enter your username and password to access your GST account.

Step 2: Navigate to the Cancellation Form

1. Click on ‘Services’ in the top menu.
2. Select ‘Registration’.
3. Click on ‘Application for Cancellation of Registration’.

Step 3: Fill out Form GST REG-16

• Reason for Cancellation: Select the appropriate reason for cancellation (e.g., closure of business, cessation of taxable supplies).
• Details of Closing Stock: Declare the value of your closing stock and any applicable taxes payable.
• Verification: You must verify your application using DSC (Digital Signature Certificate) for companies or EVC (Electronic Verification Code) for other taxpayers.

Step 4: Submit and Track ARN Status

Once you submit your application, you’ll receive an Application Reference Number (ARN). Track your application status by visiting the ‘Track Application Status’ section on the portal.

Timeline: The GST officer will process your application within 30 days, provided there are no issues with the documents or outstanding dues.

Impact of GST Cancellation on Businesses

The following are some effects of GST cancellation on businesses:

1. No Ability to Collect GST

After cancellation, you are no longer authorized to collect GST from customers. All future invoices must exclude GST charges.

2. Loss of Input Tax Credit (ITC)

Once GST registration is canceled, your business can no longer claim the Input Tax Credit (ITC) on any goods or services purchased after the cancellation.

3. Penalties and Legal Repercussions

Failure to comply with the cancellation process or any outstanding tax liabilities could result in penalties. A penalty of ₹10,000 or 10% of unpaid tax, whichever is higher, may be levied if there is non-compliance.

Common Issues Faced During GST Cancellation

During the GST cancellation process, businesses may face certain issues. Here are the most common ones:

1. Pending Returns

• Fix: Ensure all pending returns, such as GSTR-3B and GSTR-1, are filed before applying for cancellation.

2. Discrepancies in GSTR-10

• Fix: Reconcile closing stock figures with the purchase and sales registers to avoid discrepancies during filing of GSTR-10.

3. Officer Queries

• Fix: Respond promptly to any notices or queries from the GST officer through the ‘View Notices’ tab on the GST portal within 7 days.

4. DSC Expiry

• Fix: Renew your Digital Signature Certificate (DSC) before submitting the cancellation request to avoid submission delays.

5. Bank Account Mismatch

• Fix: If your bank account details have changed, update the information in Form GST REG-14 before applying for cancellation.

How to Check GST Cancellation Status

After submitting your cancellation request, you can easily track the progress of your application by following these steps:

1. Visit the GST Portal.
2. Go to the ‘Track Application Status’ section.
3. Enter the ARN (Application Reference Number) to check the status.

The status will appear as:

• Pending: The application is under review by the officer.
• Approved: The GSTIN is marked as inactive.
• Rejected: The officer has rejected the cancellation request. Rectify the errors and reapply.

After approval, don’t forget to file GSTR-10, your final return, within three months of cancellation to avoid penalties.

Conclusion

Canceling your GST registration can be a vital step in the process of closing your business, restructuring, or shifting to a different tax regime. While the process is relatively straightforward, it’s essential to follow the right steps to ensure that your cancellation is processed smoothly and without penalties.

Remember, the RegisterKaro team of experts is always here to help you navigate GST cancellations, filings, and other compliance matters. Our team ensures that your cancellation process is efficient and hassle-free.

Contact Us Today:

• Email: support@registerkaro.in
• Call: +918447746183

Frequently Asked Questions (FAQs)

1. How can I cancel my GST registration?
Log in to the GST portal, fill out Form GST REG-16, and submit the application.

2. Is there any fee for closing GST?
No, the cancellation is free of charge. However, outstanding dues and final returns need to be cleared to avoid penalties.

3. What is the time limit for GST registration cancellation?
Apply for cancellation within 30 days of business closure or cessation of taxable supplies.

4. What is the final return after cancellation of GST registration?
The final return is GSTR-10, filed within three months to settle your GST liabilities.

5. Can I suspend my GST registration instead of canceling it?
No, GST suspension is not allowed. You can cancel or continue filing nil returns.

6. What happens if GST returns are not filed for 6 months?
The officer may issue a show-cause notice or cancel your GST registration.

7. Can I cancel GST if I have pending dues?
No, all dues must be cleared before applying for cancellation.

8. How do I track my GST cancellation status?
Use the ARN number on the GST portal to check the status.

9. Can I cancel GST if my business is merged?
Yes, you can cancel your GST registration if your business is absorbed in a merger.

10. What are the penalties for not canceling GST properly?
A penalty of ₹10,000 or 10% of unpaid tax may be imposed for non-compliance.