Section 29 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Cancellation is not an exit. It is a settlement, and the settlement is computed on what you are still holding.
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, inputs contained in semi-finished or finished goods held in stock, and 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, calculated in the prescribed manner. Rule 44 prescribes it, and it treats stock and capital goods differently.
The higher-of test
Two amounts for each category, and the higher is payable:
Amount A — the credit. Computed under Rule 44.
Amount B — the output tax payable on the goods, on their value.
For stock, Amount A is usually higher, because the goods are held at cost and the output tax on a distress or nil value would be lower.
For capital goods, Rule 44(6) applies the same higher-of test used in s.18(6): the credit reduced by five percentage points per quarter or part thereof from the invoice date, against the tax on the transaction value. Selling a capital good →
Rule 44: the computation
Rule 44(1)(a) — inputs. The amount is calculated proportionately on the basis of the corresponding invoices on which credit was availed.
Rule 44(1)(b) — capital goods. The amount is calculated by taking the useful life as five years, pro rata for the remaining useful life in months.
Rule 44(3) — where the invoices are not available, the amount for inputs may be estimated on the basis of the prevailing market price of the goods on the relevant date, certified by a practising chartered accountant or cost accountant.
Rule 44(4) — the amount determined forms part of the output tax liability, and the details are furnished in FORM GST REG-16 where the person applies for cancellation, or in FORM GST ITC-03 in a s.18(4) case.
Rule 44(5) — the details furnished must be duly certified by a practising chartered accountant or cost accountant.
Worked example
A trader whose registration is cancelled with effect from 31 March 2027.
Stock: goods with invoices showing credit availed of ₹3,20,000. Market value of the stock ₹15,00,000; output tax at 18% would be ₹2,70,000. Higher: ₹3,20,000 — the credit.
Capital goods: a machine invoiced 01.07.2025, credit ₹5,40,000, 21 months used, 39 months remaining.
- Amount A = 5,40,000 × 39/60 = ₹3,51,000
- Amount B = tax on the transaction value; if the machine is worth ₹12,00,000, at 18% = ₹2,16,000
Higher: ₹3,51,000.
Total payable: ₹6,71,000, by debit in the credit ledger or, if the balance is insufficient, the cash ledger.
Note that a large credit ledger balance is not simply forfeited under s.29(5) — unlike s.18(4), which expressly makes any remaining balance lapse. Section 29(5) requires payment of a computed amount; whether a residual balance is refundable is a separate question, and in practice it is not refunded because s.54(3) permits refund of unutilised credit only for zero-rated supplies and inverted duty.
GSTR-10: the final return
Section 45: every registered person required to furnish a return under s.39(1) whose registration is cancelled shall furnish a final return within three months of the date of cancellation or the date of the cancellation order, whichever is later, in FORM GSTR-10.
What GSTR-10 requires:
- details of the closing stock held — inputs in stock, inputs in semi-finished and finished goods, and capital goods;
- the input tax credit involved;
- with and without invoices separately, the latter requiring the CA or CMA certificate under Rule 44(3);
- the amount payable and the payment particulars.
Section 47(1) levies late fee for delay in furnishing the final return. Section 62 permits best judgment assessment of a person who fails to file the final return after a s.46 notice.
GSTR-10 is outside the three-year filing bar, because s.45 is not among the sections listed in the Finance Act, 2023 restriction. The three-year bar on filing returns →
Key takeaways
- s.29(5): pay the higher of the credit on stock and capital goods, or the output tax on them.
- Rule 44(1)(a): stock on the corresponding invoices; Rule 44(1)(b): capital goods pro rata over sixty months.
- Where invoices are unavailable, a market-price estimate certified by a CA or CMA is permitted.
- The amount forms part of the output tax liability, declared in REG-16.
- GSTR-10 within three months of cancellation or the order, whichever is later.
- GSTR-10 is outside the three-year filing bar.
Read next
- Section 29(2): Grounds for Cancellation by the Officer
- How to File the Final Return GSTR-10
- Section 18(4): Reversal on Opting Into Composition or Exemption
- Selling a Capital Good: Section 18(6) and Rule 44(6)
Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Registration under GST (November 2025).