GST has been considered the most significant tax reform in India in recent times. The common tax levied across the entire country brought uniformity and transparency to the indirect tax system. With the abolition of state barriers, a single market was created, providing a wider customer base and eliminating the cascading effect of taxes. The provision of input tax credits was the backbone of this tax system. With these various benefits, the popularity of GST has increased, and registrations have improved, with a substantial growth in the monthly collections. But sometimes, there may be certain circumstances that require a business entity to cancel their GST registration. The reasons can be varied, like change in constitution of the business due to death of a partner or proprietor, amalgamation, merger or transfer, closure, or sale of the business, etc. The tax authorities may also order the surrender of the GST registration of the business due to non-compliance. A taxable person whose GST registration has been cancelled or surrendered must file a return in Form GSTR-10, called the final return.
Closure or cancellation of GST registration
A business entity can opt to close or cancel their GST registration when the business is dormant for a long period or does not have the necessary turnover, apart from other factors like a change in constitution, amalgamation, merger, transfer, close, or sale of the business. The registration can also be cancelled by an officer authorized under GST when the business is non-compliant.
The following are the reasons for the voluntary closure or cancellation of GST registration:
- Closure of business
- Transfer, amalgamation, merger, de-merger, lease, etc.
- Change in the constitution of the business
- Decrease in turnover below the threshold limit
- Death of the proprietor or partners.
Cancellation by GST officer
A GST officer is authorized to cancel the registration due to various reasons like non-compliance, fraud, misstatement, etc. he will start the process by issuing a show-cause notice in Form No. GST REG-17. The following may be the reasons for cancellation authorized by GST officials:
- The taxpayer has failed to file GST continuously.
- The business registered under GST but did not start business operations within six months
- The GST registration was obtained by misrepresentation or fraud
- Non-adherence of GST laws
- Claiming ineligible input tax credit or non-payment of tax liability
- Supplying goods or services without issuing invoices or issuing invoices without supplying goods or services
Filing for closure of GST registration
The person who wishes to cancel the GST registration has to submit an application in the form GST REG-16 on the common portal within thirty days of the occurrence of an event warranting the cancellation. The taxpayer is required to pay an amount equal to the input tax credit in respect of the stock of inputs, plant, and machinery on the day immediately preceding the date of cancellation or the output tax payable on such goods, whichever is higher. The cancellation does not affect the liability of the taxpayer to pay the tax and other dues or to discharge any liability under GST prior to the date of cancellation, irrespective of whether the tax is determined before or after the date of cancellation.
After the application for GST registration cancellation is filed, the GST officer can ask for additional information or documentation. If he is satisfied that the information provided is sufficient, then a cancellation order will be issued by the department, and the registration will be cancelled within 30 days from the date of application. Before cancellation, the taxpayer must ensure that all pending GST returns are filed and all outstanding tax liabilities are settled.
Procedure for filing GST registration cancellation
The process for GST registration cancellation involves the following steps:
The first step is for the taxpayer to login to the GST portal with his valid user ID and password.
The next step is to navigate to services>registration.
Then choose cancellation of registration under the registration tab, then click on the ‘application for cancellation of registration’ option.
Then fill out the form GST-REG-16 with the required details, like the reason for cancellation, the required date of cancellation, and details of the authorized signatory.
The next step is to submit the application along with the required documents
After the application is submitted, the GST officials will verify and inform; if any deficiencies are observed, they may ask for additional information or documents. The applicant must respond without delay for early processing of the application.
After verifying the application, the GST officials will issue the cancellation order within 30 days from the date of the application.
Best practices for closure of GST registration
Apply for cancellation online in the GST portal
The taxpayer must ensure to apply online for cancellation of the GST registration within thirty days of the occurrence of the event that requires the cancellation of the registration.
Payment of dues
The taxpayer must pay the tax and other liabilities up to date before filing the application
Filing of returns
The taxpayer must have filed all the periodic returns before filing the application for cancellation of registration under GST.
The taxpayer, after filing the application for cancellation of registration, must obtain acknowledgement from the GST authorities. The acknowledgement serves as proof that the taxpayer has applied for cancellation of registration.
What is GSTR-10?
GSTR-10 is a final return that is required to be filed by the taxpayer whose registration has been cancelled or surrendered. it is basically consists of details of stock held by the taxpayer on the day immediately preceding the date when the cancellation is made effective. It is a mandatory return and must be filed within three months of the date of cancellation or the date of the order of cancellation, whichever is later. The objective of filing this return is to assess the input tax credit involved in the closing stock, including inputs and capital goods, that is required to be reversed and paid back to the government by the taxpayer. A NIL return must be filed in case there is no stock of inputs, semi-finished goods, capital goods, or plant and machinery held in stock on which input tax credit is required to be reversed or the amount of tax to be paid back to the government.
Also Read: What is GSTR-10?
Purpose of filing GSTR-10
The purpose of GSTR-10 is to determine the input tax credit pertaining to the closing stock, including inputs, semi-finished goods, capital, plant and machinery, on the day before the date on which the cancellation is made effective. This input tax credit or the tax liability, whichever is higher, is required to be paid while filing the final return in form GSTR-10
Accuracy in filing GSTR-10
GSTR-10 is a final return that ensures a smooth exit for the taxpayer from the GST regime. The details of the inputs, input services, and capital goods held by the taxpayer on the date of cancellation of registration must be accurately reported in the final return. The value of this stock and the applicable tax, along with the input tax credit related to the stock, must be calculated correctly at the time of filing GSTR-10. The liabilities, so calculated, along with any interest and penalty, if any, must be paid before filing the final return. Filing GSTR-10is important for a hassle-free closure of GSTIN for the taxpayer.
Best Practices under GSTR-10
Filing on time
Timely filing of returns is an important best practice under GSTR-10. It is mandatory to file the final return within three months from the date of cancellation of registration or the date of the order of cancellation, whichever is later. Non-submission of the mandatory return will result in notices, penalties, and other consequences.
Accurate basic details
It is important for the taxpayer to provide accurate basic information in the final return, such as name, trade name, and address. If there are any changes in the basic details, they must be updated before filing the application for cancellation.
Accurate stock details
The details of the stock remaining in the business, including the stock of inputs, the stock of semi-finished and finished goods, capital goods, and plant and machinery, must be accurately reported in the final return. Inaccuracies can lead to wrong calculations of input tax credits that have to be reversed or errors in the calculation of liabilities to be paid back to the government. This can result in inquiries, penalties, and other consequences.
Accuracy in calculating input tax credit
Before applying for cancellation of registration, the input tax credit availed must be properly verified. If any input tax credit is availed of on exempt supplies and zero-rated supplies, then they must be included in the liabilities that have to be paid before filing the final return.
Maintenance of Records
The records, documents, and returns pertaining to the financial transactions of the business must be properly maintained, and reconciliations must be done regularly so that when there are any inquiries, the records and documents can be produced for verification.
Accurate valuation and certification by CA
Proper valuation of the stocks for which invoices are not available must be done at the market rate prevalent at the time. This must be certified by a chartered or cost accountant, and the certificate must be uploaded while filing the return.
Filing of mandatory returns
Periodic mandatory returns like GSTR-3B and GSTR-1 must be filed on time. If any such return is pending, the portal will not allow the taxpayer to file the final return, GSTR-10.
Payment of tax and other liabilities
All pending dues must be cleared before filing the final return. Non-payment or partial payment of taxes is not allowed. The option to file the final return is enabled only after all the dues are cleared. Payment of liabilities can be done by utilizing the balance in the electronic cash and credit ledgers. If the balances in the electronic ledgers are not sufficient, then the taxpayer is required to pay the dues externally through other payment modes.
Submission of Nil returns
When there is no stock of inputs or capital goods on which input tax credit must be reversed or any tax that must be paid to the government, then the taxpayer is required to file a NIL return in form GSTR-10. Non-filing of the nil return can result in inquiries and notices from the department.
Cooperating with GST authorities
Cooperating with the GST authorities when there is an inquiry, including providing them with the books of account and other documents for their verification, is an important part of compliance and a best practice to follow for a taxpayer who has applied for closure from the GST regime.
Adherence to the regulatory guidelines and following best practices can ensure a smooth transition from the compliance procedures of the indirect tax system to a hassle-free exit from the GST regime. Understanding the closure process and filing GSTR-10 are crucial for taxpayers to avoid penalties and the legal consequences of non-compliance under GST. Businesses must consider the closure process as part of good governance that helps create a transparent and efficient business environment in the country.
Frequently Asked Questions
What is the input tax payable on capital goods and plant and machinery during the closure of GST registration?
Answer: The amount of input tax payable on capital goods or plant and machinery is the amount of ITC availed on the said capital goods reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery whichever is higher.
Can a taxpayer whose registration has been cancelled file returns for the past period during which his GSTIN was active?
Answer: Yes, the taxpayer can file the returns for the past periods during which the registration was active, until the effective date of cancellation of registration.