What Are the Valid Reasons for GST Cancellation?

The Goods and Services Tax (GST) is an essential part of the Indian taxation landscape. Every business with a turnover above a specific threshold, as prescribed, or engaged in specific activities, must register for GST. However, there may be situations where a business or the tax authorities may decide to cancel the GST registration. This blog explains the valid reasons for GST cancellation in simple language, helping businesses stay informed and compliant.

What is GST Cancellation?

GST cancellation means deactivating the GST registration of a taxpayer. Once the GST is cancelled, the taxpayer is not required to collect GST from customers, file GST returns, or claim input tax credit. Cancellation can either be initiated by the taxpayer or by the tax officer.

Who Can Apply for GST Cancellation?

GST cancellation can be requested by:

1. The taxpayer themselves (voluntary cancellation)
2. The tax officer (Suo-moto cancellation)

Let’s understand the valid reasons for GST cancellation under both cases.

Reasons for Voluntary GST Cancellation by the Taxpayer

1. Closure of Business: If a business is permanently closed or shut down, the taxpayer can apply for GST cancellation, as they are no longer conducting taxable activities.
2. Change in Constitution of Business: When there is a change in the structure of the business, such as from a proprietorship to a partnership or private limited company, a new GST registration is required, and the old one must be cancelled.
3. Transfer of Business: If the business is sold, merged, demerged, or otherwise transferred to another person or entity, the existing GST registration needs to be cancelled.
4. No Longer Liable to Pay GST: If a taxpayer’s turnover falls below the prescribed threshold limit (e.g., ₹40 lakhs for goods or ₹20 lakhs for services), and they are not voluntarily registered, they may cancel their GST registration.
5. Opting Out of Voluntary Registration: A person who has taken GST registration voluntarily (despite being below the turnover limit) can cancel it after one year, if they no longer wish to be registered.
6. Change in Place of Business: If the place of business is shifted to a different state, a new GST registration is required in the new state, and the old registration must be cancelled.

Reasons for GST Cancellation by the Tax Officer

1. Non-Filing of Returns: If a taxpayer fails to file GST returns for a continuous period (typically 6 months for normal taxpayers or 3 months for composition dealers), the officer may cancel the registration.
2. Obtaining Registration by Fraud or Misrepresentation: If it is found that a business obtained GST registration by submitting false documents or information, the officer can cancel the registration.
3. Non-Commencement of Business: If a person who obtained GST registration fails to start the business within a reasonable period, the registration can be cancelled.
4. Violation of GST Rules: If the taxpayer violates GST provisions, such as issuing fake invoices, not maintaining proper records, or claiming fraudulent input tax credit, the registration may be cancelled.
5. Composition Scheme Misuse: If a composition dealer crosses the turnover limit or starts supplying goods or services not allowed under the scheme, the officer can cancel their registration.

Process of GST Cancellation

1. Application by Taxpayer:

• The taxpayer must file Form GST REG-16 on the GST portal.
• Details such as stock held, liabilities and reason for cancellation must be provided…!

2. Suo-moto Cancellation by Officer:

• The officer issues a show cause notice in Form GST REG-17.
• The taxpayer must reply in Form REG-18 within 7 working days.
• After considering the response, the officer may cancel the registration by issuing Form GST REG-19.

Consequences of GST Cancellation

• The taxpayer can no longer collect GST or claim input tax credit.
• All GST obligations up to the cancellation date must be fulfilled.
• If cancellation was done by mistake, a revocation request can be filed within 30 days in Form GST REG-21.

Conclusion

GST cancellation is a remarkable step in the lifecycle of a business. Whether it is due to voluntary reasons like business closure or legal reasons like non-compliance, it must be done carefully and in a lawful manner. Understanding the valid reasons for the GST cancellation can help businesses take timely action, avoid penalties, and stay compliant with the law.

If you are unsure about your GST registration status or cancellation process, it’s always a good idea to consult a tax professional or use the official GST Portal for accurate guidance.