Think of GST registration like a licence. Section 29 tells you when and how that licence can be cancelled — either because you want to close shop, or because the GST officer forces it on you. This is a frequently tested topic in 4-mark and 6-mark questions, especially the ITC reversal rule on the day of cancellation.
Who can apply for cancellation? The registered person themselves (or legal heirs if the proprietor has died) can apply when: the business is discontinued, fully transferred, merged, demerged, or sold; there is a change in the constitution of the business (e.g., a partnership firm converts to a private limited company); or the person's turnover has dropped below the registration threshold and they are no longer liable under Section 22 or 24. This is called voluntary cancellation. While this application is pending, the officer may suspend the registration temporarily — meaning you can't make taxable supplies in that period.
When can the officer cancel suo motu (on his own)? Under sub-section (2), the proper officer can cancel registration — even with retrospective effect — if: the taxpayer has violated prescribed provisions; a composition dealer hasn't filed returns for 3 consecutive tax periods; any other registered person hasn't filed returns for 6 continuous months; a person who took voluntary registration hasn't commenced business within 6 months of registration; or registration was obtained by fraud, wilful misstatement, or suppression of facts. Crucially, the officer must give the person a chance to be heard (principles of natural justice) before cancelling — except suspension can happen while proceedings are ongoing.
Two golden rules to always remember: First, cancellation does NOT wipe out your past tax liability. You still owe all GST dues for periods before cancellation — the taxman doesn't forget. Second, on the day before cancellation, you must reverse ITC on closing stock (inputs, semi-finished goods, finished goods) and capital goods. The amount to reverse is: ITC on such goods OR the output tax payable on them, whichever is higher. For capital goods specifically, it's ITC taken minus a prescribed reduction percentage, OR tax on transaction value under Section 15, whichever is higher. This reversal is debited from your electronic credit ledger or electronic cash ledger.
Example 1 — ITC Reversal on Cancellation of Registration
Rajesh & Co. Pvt. Ltd. gets its GST registration cancelled on 1st March 2026. On 28th February 2026 (the day immediately preceding cancellation), their closing stock position is:
- Raw material inputs: ITC availed = ₹1,20,000; Output tax if sold = ₹95,000
- Finished goods: ITC availed = ₹2,50,000; Output tax if sold = ₹2,80,000
- Capital goods (machinery): ITC availed = ₹5,00,000; Prescribed reduction = ₹1,50,000; Transaction value under Sec. 15 = ₹18,00,000; GST @ 18% on transaction value = ₹3,24,000
Working:
| Item | ITC / Reduced ITC | Output Tax | Amount to Reverse (Higher) |
|------|-------------------|------------|---------------------------|
| Raw material | ₹1,20,000 | ₹95,000 | ₹1,20,000 |
| Finished goods | ₹2,50,000 | ₹2,80,000 | ₹2,80,000 |
| Capital goods | ₹5,00,000 − ₹1,50,000 = ₹3,50,000 | ₹3,24,000 | ₹3,50,000 |
Total ITC to be reversed = ₹1,20,000 + ₹2,80,000 + ₹3,50,000 = ₹7,50,000
This ₹7,50,000 must be paid by debiting the electronic credit ledger or electronic cash ledger.
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Example 2 — Suo Motu Cancellation
Ms. Iyer is registered under the composition scheme (Section 10). She fails to file returns for April–June 2025, July–September 2025, and October–December 2025 — that's 3 consecutive tax periods.
The proper officer issues a show-cause notice in January 2026. Ms. Iyer does not respond. The officer cancels her registration with retrospective effect from 1st April 2025.
Key takeaway: Even though her registration is now cancelled from April 2025, Ms. Iyer must pay all GST dues (including interest and penalties) from April 2025 onwards. Cancellation ≠ amnesty. Liability survives.
📖 Bare Act text — Section 29, CGST Act 2017
(click to expand)
(1) The proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where,–
(a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or
(b) there is any change in the constitution of the business; or
(c) the taxable person, other than the person registered under sub-section (3) of section 25, is no longer liable to be registered under section 22 or section 24.
[Provided that during pendency of the proceedings relating to cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed.]
(2) The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,––
(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
(c) any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:
Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard: [Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.]
(3) The cancellation of registration under this section shall not affect the liability of the person to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.
(4) The cancellation of registration under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be deemed to be a cancellation of registration under this Act.
(5) Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed: Provided that in case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.
(6) The amount payable under sub-section (5) shall be calculated in such manner as may be prescribed.