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GST

Tax on closing stock when GST registration is cancelled

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Yes. Under Sec 29(5), when registration is cancelled you pay an amount equal to the ITC on inputs held in stock, semi-finished and finished goods, or the output tax on them, whichever is higher. This is reported in REG-16 and finally settled in GSTR-10.

Provisions

Sec 29(5), CGST Act 2017; Rule 20, CGST Rules 2017; Sec 45, CGST Act 2017

Analysis

The law stops you keeping credit on goods that will now be sold outside the GST net. Say your stock cost ₹3,00,000 and you took 18 percent ITC of ₹54,000, while its market value is ₹2,80,000, so output tax would be ₹50,400. You pay the higher figure, ₹54,000. You can pay from the electronic credit ledger if balance is available, or in cash. If you did not take ITC on part of the stock, for example goods bought from unregistered dealers, that part needs no reversal on the ITC basis.

Close

  1. Take a physical count of stock on the closure date and value it at cost and at market value.
  2. List the ITC actually taken on that stock from purchase invoices.
  3. Compute both figures and pick the higher one.
  4. Enter the stock and tax in REG-16 and pay it through GSTR-10.

Leaving stock as nil in REG-16 when stock exists is a common reason for notices after closure.

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