# Amount Payable on Cancellation [Section 29(5) & (6) r/w Rule 44]

On cancellation, the registered person must debit the electronic credit/cash ledger with the higher of two amounts.

## Step 1: Compute for Inputs (incl. inputs in semi/finished goods stock)

Debit higher of:

(i) ITC in respect of inputs (and inputs contained in semi-finished/finished goods) held in stock on the day immediately preceding the date of cancellation, OR
(ii) Output tax payable on such goods.

### How is ITC on inputs computed?

Computed proportionately on the basis of corresponding invoices on which credit was availed.
If tax invoices are not available → reverse based on prevailing market price on the date of cancellation [Rule 44].

## Step 2: Compute for Capital Goods / Plant & Machinery

Debit higher of:

(i) ITC on capital goods/P&M reduced by prescribed percentage, calculated on remaining useful life basis, OR
(ii) Tax on transaction value of capital goods/P&M as per Section 15.

### Computing ITC for Capital Goods (Rule 44)

Useful life is taken as 5 years (60 months).
ITC attributable to remaining useful life in months is reversed, on pro-rata basis.
Part of a month is ignored.

### Formula:

> ITC to be reversed = ITC originally taken × (Remaining useful life in months / 60)

## Important Note

> The requirement to debit the electronic credit/cash ledger is NOT a prerequisite for applying for cancellation. It can be discharged at the time of submitting the Final Return (GSTR-10).

Worked example

### Example 1

Illustration (Capital Goods): A capital good was put into use 4 years, 6 months and 15 days ago. ITC taken on it = ₹60,000.

Step 1 — Useful life used: 4 years 6 months 15 days. Part of month is ignored → 4 years 6 months = 54 months used.

Step 2 — Remaining useful life: 60 − 54 = 5 months (ignoring 15 days).

Step 3 — ITC to reverse: ₹60,000 × 5/60 = ₹5,000.

This ₹5,000 must be compared with Tax on transaction value of the capital good — the higher is debited.

### Example 2

Example (Inputs): Inputs in stock on day before cancellation = 100 units. ITC originally availed on these inputs = ₹50,000 (from corresponding invoices). Output tax on these 100 units (at current GST rate × current value) = ₹55,000. Amount payable = higher = ₹55,000.

⚠️ Common exam mistakes

Forgetting that the higher of ITC vs output tax is payable — not whichever is lower.
Including a part-of-month in useful life calculation for capital goods. The Act says part of month is ignored.
Treating useful life as 10 years — Rule 44 prescribes 5 years (60 months).
Assuming the payment must be made before filing cancellation application. It can be paid at the time of Final Return (GSTR-10).
Using current market price as base for input ITC reversal when invoices ARE available — use the invoice value first.

Bare-Act text Section 29(5) & (6) read with Rule 44 · CGST Act, 2017 read with CGST Rules, 2017 · click to expand

Section 29(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. Section 29(6): The amount payable under sub-section (5) shall be calculated in such manner as may be prescribed.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Amount Payable on Cancellation of Registration [Section 29(5) & (6) read with Rule 44]

Worked example

⚠️ Common exam mistakes