When closing a business or surrendering a GSTIN, cancelling your registration does not wipe out past obligations. Taxpayers often assume that closing the shutters ends their compliance. Under Section 29(5) of the CGST Act, any input tax credit claimed earlier on assets still on hand must be returned to the government.
Statutory requirement for Section 29(5) reversal
Section 29(5) states that every person whose registration is cancelled shall pay an amount equivalent to the credit of input tax in respect of inputs held in stock, 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 cancellation, or the output tax payable on such goods, whichever is higher.
Before closing stock liabilities can be computed, the taxpayer must have verified their underlying inward tax credits against valid conditions for claiming ITC under Section 16. The reversal liability is settled through an electronic debit in the credit ledger or cash ledger.
Common mistake: Omitting the final return Form GSTR-10 after receiving the cancellation order in Form GST REG-19. Filing regular returns up to the cancellation date is mandatory, but Section 45 requires a separate final return in Form GSTR-10 to account for closing stock reversal.
Manner of computation under Rule 44
The calculation rules under Rule 44 of the CGST Rules distinguish between inputs and capital goods:
- Inputs in stock: Under Rule 44(1)(a), credit on raw materials, semi-finished goods, and finished goods in stock is calculated proportionately based on the corresponding tax invoices on which credit was originally availed.
- Missing invoices: Under Rule 44(3), where tax invoices related to inputs in stock are not available, the taxpayer must estimate the value based on the prevailing market price of the goods on the effective date of cancellation. Rule 44(5) requires this estimate to be duly certified by a practising chartered accountant or cost accountant.
- Capital goods formula: Under Rule 44(1)(b), for capital goods or plant and machinery held in stock, ITC involved in the remaining useful life in months is computed on a pro-rata basis, taking the useful life as five years (60 months). In the official illustration under Rule 44, part of a month is ignored.
Under Rule 44(4), details of the amount determined for cancellation of registration shall be furnished in Form GSTR-10.
Worked example: inputs and capital goods reversal
Consider a registered retail distributor whose registration is cancelled with effect from 1 October 2026. On 30 September 2026 (the day immediately preceding cancellation), the firm holds inputs and capital assets in stock.
| Asset description | Original invoice tax | Usage duration | Formula / method | Reversal amount |
|---|---|---|---|---|
| Raw materials in stock | ₹42,000 | Not applicable | Actual invoice ITC (Rule 44(1)(a)) | ₹42,000 |
| Finished inventory | ₹18,000 | Not applicable | Actual invoice ITC (Rule 44(1)(a)) | ₹18,000 |
| Packaging material (bills lost) | Not available | Not applicable | Market value tax estimate (Rule 44(3)) | ₹6,000 |
| Warehouse rack (capital asset) | ₹60,000 | 38 months and 12 days | Remaining 21 months: ₹60,000 × (21 / 60) | ₹21,000 |
Calculation details for the capital asset:
Total useful life = 60 months. Used duration = 38 months and 12 days. Part of a month is ignored per Rule 44 illustration, leaving completed use at 39 months or remaining life of 21 months (60 - 39 = 21 months). The pro-rata reversal is ₹60,000 × 21 / 60 = ₹21,000.
Total Section 29(5) reversal liability = ₹42,000 + ₹18,000 + ₹6,000 + ₹21,000 = ₹87,000. Under Section 170 of the CGST Act, all tax amounts are rounded to the nearest rupee.
Filing Form GSTR-10 and paying dues
Under Section 45 of the CGST Act read with Rule 81 of the CGST Rules, every registered person whose registration has been cancelled must furnish a final return in Form GSTR-10 within three months of the date of cancellation or date of order of cancellation, whichever is later.
If an officer initiates suo moto cancellation under Section 29(2), the taxpayer is served a notice in Form GST REG-17. The official GSTN Suo Moto Cancellation Guide explains that taxpayers have 7 working days to reply via the portal dashboard. Once cancellation is ordered, any outstanding tax on stock must still be discharged in Form GSTR-10.
Frequently asked questions
What is the due date for filing Form GSTR-10?
Under Section 45 of the CGST Act, Form GSTR-10 must be furnished within three months of the date of cancellation or date of the cancellation order, whichever is later.
How is capital goods ITC reversal calculated under Rule 44?
Under Rule 44(1)(b) of the CGST Rules, the credit reversal for capital goods held in stock is computed on a pro-rata basis taking total useful life as 60 months. Part of a month is ignored.
What happens if original purchase invoices for closing stock are missing?
Under Rule 44(3) of the CGST Rules, if tax invoices are not available, the reversal is estimated on prevailing market prices on the cancellation date and certified by a practising chartered accountant or cost accountant under Rule 44(5).
Reconcile your purchase register before closure
Before closing books and filing Form GSTR-10, verify your historical purchase register against GSTR-2B to ensure no unclaimed or mismatched credits remain unresolved. Your GSTR-2B and purchase register files are read in your browser and never uploaded to any server.
Last checked: 25 October 2026. Sources: CBIC Tax Information Section 29, CBIC Rule 44, GSTN Suo Moto Cancellation Guide.