Businesses in India, including retail shops, must comply with the Goods and Services Tax (GST). Once a business registers for GST and can take the tax from customers and return to the government, it is not always necessary for the business to continue owning a valid registration. In some cases, a retail shop owner may have sold all the items they purchased under GST and have no items left in stock for which they are eligible to claim Input Tax Credit (ITC). The owner may also wish to reduce the compliance burden of maintaining an active GST registration. In the following paragraphs, we will further explain whether a business can cancel its GST registration when all items purchased under GST have been sold, how legally to cancel an active GST registration, and what is the impact on a business owner when cancelling their GST registration.
Understanding GST Registration
Under the GST Act, the GST registration threshold is an indicator of whether a business meets the threshold for GST registration. As such, GST registration will be necessary for a business that exceeds the threshold. When a business has a valid GST registration it is:
• Complying with the GST Act by meeting its legal obligations.
• Authorized to collect GST on behalf of its customers and pass this tax on to the government.
• Entitled to claim ITC on purchases made using GST funds.
Generally, GST registration will be a requirement for a retail business, especially if the business is looking to expand its operations. However, in some instances, a retail store may be eligible to cancel its GST registration.
Can You Cancel GST Registration Without Closing the Retail Store?
Yes. The retailer can choose to cancel GST registration even if they are still operating their business. A GST registered taxpayer is permitted by legislation to cancel their registration when they are not required to retain their registration under the legislation. The following situations apply:
• The aggregate turnover of the account has fallen below the threshold limit; or
• The business has switched to supplying only exempt supplies; or
• The account holder chooses to operate their business without the benefit of a GST registration because they are not required to maintain one.
Thus, it is possible for a business to operate, and for tax purposes, not to require cancellation of GST registration, in India.
Condition 1: Turnover Must Be Below the GST Registration Threshold
Only a retail business that has an annual gross revenue less than:
• ₹40 Lakh - for Retailers (normal items)
• ₹20 Lakh - for special category states
• ₹20 Lakh - for Service Providers or Combined Suppliers
Can voluntarily cancel their GST Registration if they want to cancel GST Registration and your present gross sales are lower than these amounts, you could move ahead to submit for canceling your GST Registration by meeting all compliance requirements.
Condition 2: No Pending Liabilities or Dues
The GST portal will not permit you to submit a cancellation request until after you have:
After having complied with these conditions will your cancellation request be processed.
Condition 3: No Stock Left on Which ITC Was Availed (Your Current Situation)
In your case your retailer has sold all items he purchased via ITC, and there is no stock remaining for which Input Tax Credit was taken.
This situation is beneficial to your cancellation request in that, under Voluntary GST Registration Cancellation, it states that when cancelling registration taxpayers must pay (or reverse ITC on) any remaining stock or capital goods on the date of cancellation.
Since you do not have any remaining stock there is no associated ITC reversal. Thus, your cancellation application will be a smooth transition due to this fact.
Why Do Some Retailers Want to Cancel GST Registration While Still Running the Business?
There are many practical reasons:
1.Reduced Turnover
Some small retail stores have seen drops in sales (seasonally or long-term) that bring their turnover below the threshold for GST registration. Once they no longer qualify, they no longer have to continue complying with GST regulations.
2. Compliance Burden
Having to file multiple monthly and/or quarterly returns, as well as having to format invoices in a certain way, and keep records can be very difficult for small businesses to deal with.
3. Store Owner's Desire to Operate Without GST
Because small retailers sell directly to the consumer, selling direct to the end-user allows them to offer a lower price. This is true for retailers who are not required to charge GST on their sales.
4. Business Transitioning to Exempt Sales
If the retailer begins selling only goods that are 100% exempt from GST, they will not be required to register for GST.
Each of the above reasons is a valid reason outlined in the GST Act.
When Can a Business Apply for GST Registration Cancellation?
According to the GST legislation, a taxpayer may request the cancellation of their GST registration for one of the following reasons:
1. A business that ceases operations,
2. A business that has been sold or sold as part of a merger,
3. A change in the nature of the business,
4. The taxpayer no longer meets the criteria for GST registration, including:
5.If a taxpayer previously registered voluntarily and wishes to deregister.
The final reason is very important, as it applies to many retail store owners who fall into this category.
Circumstances for Considering GST Registration Cancellation
The cancellation of GST (Goods & Service Tax), can be advantageous for small retailers under certain scenarios. Some of those scenarios are:
1. Compliance Burden Exceeds: Smaller retailers can often find it challenging to comply with all of the GST regulations, complete the required filings, and keep the necessary files and records of the information they are required to keep for GST purposes.
2. All Merchandise Has Been Sold: If a retailer had claimed ITC (Input Tax Credits) on all the property purchased under GST, and all of the property has been sold and the retailer has no remaining stock from which ITC was claimed, it is a reason to cancel GST registration.
3. Business Model has Changed: If the retailer has switched to a business model that is below the GST Threshold and/or is now exempt from GST, there is justification to cancel GST registration.
4. Accounting Simplification: Cancelling a retailers GST registration will eliminate much of the complexity associated with maintaining the records and the accounting requirements of GST.
It should be noted that cancelling a retailer's GST registration does not necessarily mean that the retailer has to cease business activity; the law allows retailers to cancel their GST registration while continuing to operate under the tax threshold and/or in an exempt status.
Legal Provisions Governing GST Registration Cancellation
The GST Act, along with its rules, states how to cancel your GST registration, and this is covered by Section 29 of the CGST Act, which allows you to apply to have your GST registration cancelled voluntarily. Alternatively, your GST registration can be cancelled by the GST authorities.
Voluntary Cancellation of GST Registration
You may wish to cancel your GST registration voluntarily if:
• You no longer hold a GST registration because you do not sell as much as you did before.
• You have completed all grantable sales for your GST registration.
• You do not hold any unused or pending credits on your GST account.
Cancellation of GST Registration by GST Authorities
Your GST registration may also be cancelled by the GST authorities under certain circumstances, including:
• If the business has ceased to operate completely.
• If the business has failed to follow the rules of the GST, such as failing to file their returns.
• If they obtained their GST registration fraudulently or with inaccurate information.
If you run a retail business and continue to operate your business, but you have completed all of your sales from stock purchased under the GST, then voluntarily cancelling your GST registration is the appropriate route for you to take.
Process of Canceling GST Registration
The process of GST registration cancellation in India is straightforward but requires careful attention to compliance. Here’s a step-by-step guide:
1. Prepare Necessary Documents
Before applying for GST registration cancellation, ensure the following documents are ready:
2. File GST Cancellation Application
The retail store owner must file an application for GST registration cancellation on the GST portal. Key points include:
3. Verification by Authorities
Once submitted, the application is verified by GST authorities. They may:
4. Issuance of Cancellation Order
Upon successful verification, the tax authorities issue a GST registration cancellation order. The GSTIN becomes inactive, and the retail store is no longer required to collect GST on sales.
5. Maintain Records
Even after cancellation, the business must retain records for a period of six years as required under GST law. This ensures compliance in case of future audits or assessments.
Key Considerations for Retail Store Owners
It is possible to cancel a GST registration without closing a business, however, before making this decision, the business owner needs to consider:
Effects of Cancellation on Future Business
• If the retail store any time in the future exceeds the GST threshold, they will need to register again to collect and remit GST.
• Canceling GST registration will disqualify the business from claiming ITC (input tax credits) for VAT on future purchases.
Customer Perceptions
• Some customers, especially businesses, prefer vendors who are able to provide a GST-compliant invoice in order to claim ITC (input tax credits).
• Cancelling GST registration may restrict B2B (business to business) sales opportunities and revenue.
Costs Related to Compliance
• The costs of ongoing compliance with the GST (Goods and Services Tax Act) are likely to decrease if a business voluntarily cancels its GST registration.
• Businesses have to be diligent when filing their final returns and submitting the cancellation application. A business that fails to take proper steps could incur significant penalties.
Common Mistakes to Avoid When Canceling GST Registration
Retail store owners make common mistakes like:
1. Not selling all stock - Retailers must not cancel their GST registration if they have unsold stock that was purchased using GST and for which they claimed an input tax credit.
2. Unpaid taxes - Ensure that there are no outstanding taxes and that all GST liabilities have been settled before applying to cancel the registration.
3. Missing return filings - Before making application for cancellation, retailers must file the required pending returns (including final returns).
4. Not retaining records - Retailers must retain the necessary records for six (6) years after the date of cancellation to comply with applicable law.
Conclusion
If all goods that were purchased with GST have been resold, and there are no unsold goods on which ITC was claimed, then the owner of a retail store can cancel their GST Registration without having to shut down their business. In addition to simplifying compliance responsibilities and reducing ongoing reporting obligations for the business owner, voluntary cancellation of a GST Registration allows the business owner to formalize a business closure by cancelling their GST Registration in the prescribed manner. Before cancelling their GST Registration, however, business owners must ensure that any outstanding tax obligations are cleared, that final returns have been filed, and that proper business records are maintained to help avoid any future legal issues. For retail store owners contemplating cancelling their GST Registration, it is important to fully evaluate how cancelling would affect their business model, customer interactions, and the possibility of needing to re-register for GST in the future. Seeking assistance from a professional GST Cancellation Service would help provide the necessary guidance to navigate through the cancellation process effectively.
Frequently Asked Questions (FAQs)
1. Can I cancel my GST registration without shutting down my retail store?
Yes. If all goods purchased under GST have been sold and no stock remains for which ITC was claimed, a retail store owner can voluntarily cancel GST registration without closing the business.
2. Do I need to pay any GST before canceling registration?
Yes. Ensure all pending GST liabilities are cleared and all tax returns, including the final return, are filed before applying for cancellation.
3. How long does GST registration cancellation take?
The process usually takes a few weeks, depending on verification by GST authorities and completeness of submitted documents.
4. Can I re-register for GST in the future?
Yes. If your business exceeds the GST threshold or becomes liable for GST in the future, you can apply for GST registration again.
5. Is it mandatory to hire a GST registration cancellation service?
No, it is not mandatory, but hiring a professional service can simplify the process and ensure compliance, especially for retail store owners unfamiliar with GST procedures.
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