Avoiding Frequent Mistakes in Goods and Services Tax Return Filing

Even experienced businesses can encounter challenges when submitting Goods and Services Tax (GST) returns in India. Errors, such as incorrect figures or misclassified entries, can result in unexpected penalties or prolonged reconciliation efforts. This guide examines common pitfalls, provides practical scenarios, and offers actionable advice to ensure seamless GST compliance.

Errors while Uploading Invoice-wise Data in GSTR-1

GSTR-1 mandates the submission of detailed invoice-wise information for all outward supplies, including the invoice date, number, place of supply, and tax rate. Manual entry of these intricate details significantly increases the probability of errors, particularly concerning crucial information. Such discrepancies frequently lead to mismatches between GSTR-1 and GSTR-3B. Taxpayers must exercise extreme caution as there is no provision to amend a return once it has been filed. Therefore, precision in filing GSTR-1 is paramount.

Claiming Incorrect Input Tax Credit

GSTR-2B is an automatically generated, static return that summarizes a taxpayer's registered purchases and corresponding input tax credits (ITC), based on supplier actions within their Invoice Management System (IMS). Conversely, taxpayers are required to declare their input tax credit separately when submitting GSTR-3B returns. During this process, it is essential to accurately report and claim the ITC value reflected in their GSTR-2B. If a higher value is declared, the return cannot be revised, necessitating payment of the difference, along with interest, in the subsequent month's return.

Neglecting to File NIL Returns

Many taxpayers mistakenly believe that GST returns are not necessary if they have no transactions to report for a given tax period. This misconception can lead to penalties for non-filing or delayed filing. Taxpayers are obligated to file a NIL return even when there are no transactions to declare. This also ensures the ability to file subsequent returns, as the GSTN system prevents new filings if previous period returns remain outstanding.

Incorrect Classification and Payment of Tax Under Wrong GST Head

GST returns involve reporting tax under various heads. Some taxpayers err by entering GST liability or input tax credit under an incorrect head. For example, payments may be erroneously made under the wrong head, or interest might be paid under the tax head. Vigilance is critical during tax payments, as the GSTN does not permit inter-utilization of taxes. Such errors can disrupt working capital due to unforeseen cash flow issues.

Failure to Reconcile GSTR-1 with GSTR-3B

GSTR-3B serves as a monthly summary return, while GSTR-1 provides detailed information on outward supplies. Inconsistencies can arise from a failure to reconcile these two forms. To prevent discrepancies, it is advisable to cross-verify GSTR-3B with GSTR-1 on a monthly basis.

Confusing Zero-Rated and Nil-Rated Supplies

Many taxpayers incorrectly conflate zero-rated and nil-rated supplies, despite their distinct meanings. Zero-rated supplies typically encompass exports and supplies to a Special Economic Zone (SEZ), where tax is effectively zero and ITC can generally be claimed. Conversely, nil-rated supplies include all goods and services subject to a 0% tax rate, but no input tax credit can be claimed for them. Taxpayers must ensure they do not classify exports under the nil-rated category when filing returns.

Understanding Reverse-Charge Mechanism Applicability

The government recently streamlined the applicability of the reverse-charge mechanism by limiting it to specific notified goods and services. Although this list is pending, businesses must ascertain if these provisions apply to their operations. Service providers subject to reverse charge must avoid paying GST on such services themselves, to prevent double taxation. Furthermore, it is important to note that reverse-charge payments can only be made in cash, and input tax credit cannot be utilized for them.

Input Tax Credit Reversal and Blocked Credits

Under GST law, Input Tax Credit must be reversed in specific situations, such as when payments to suppliers are not made within 180 days, inputs are partially used for personal purposes, capital goods are sold, free samples are distributed, or goods are destroyed. Additionally, certain goods and services are statutorily ineligible for credit. Taxpayers must be mindful of the consequences of incorrectly claiming such credits, as non-compliance can lead to GST department notices, potentially incurring interest and penalties.

Amendments to GST Returns

Unlike the pre-GST regime, the concept of amending returns to add or modify invoices from prior periods does not exist. Failing to declare an invoice from an earlier period can lead to interest being charged from the original invoice date. In such cases, businesses are encouraged to issue credit or debit notes instead of attempting to amend initial invoices. While GST aimed to simplify the indirect tax system in India, the return-filing process can still be complex. It remains the responsibility of every taxpayer to ensure full compliance with minimal errors for the financial well-being of their business.

Failing to Apply the Correct GST Rate

Keeping pace with GST rates, which include multiple slabs (0%, 5%, 12%, 18%, and 28%) and frequent revisions, can be challenging. A common scenario involves a manufacturing unit selling packaged food items that mistakenly charges 18% GST instead of the correct 5%. This error results in customer dissatisfaction, unnecessary tax deposits, and a cumbersome correction process. To prevent this, businesses should:

• Stay updated on GST rate changes by following GST Council announcements or using reliable tax resources.
• Utilize billing software that automatically calculates rates based on Harmonized System of Nomenclature (HSN) codes.
• Maintain an easily accessible reference of applicable GST rates for their products.

Treating Export Sales as Domestic Sales

Confusion frequently arises regarding export sales. Under GST, exports are zero-rated but are sometimes erroneously included under taxable domestic sales. This error not only inflates tax liability but also complicates the refund process. For instance, a garment exporter might inadvertently classify ₹10 lakh worth of exports as domestic taxable sales, leading to overpayment and a lengthy delay in claiming refunds. To rectify this, businesses should:

• Report export sales in Table 6A of GSTR-1, ensuring they are distinct from domestic turnover.
• Keep export documentation, such as shipping bills and Letters of Undertaking (LUTs), current and readily available.
• Consult with an accountant before submitting returns.

Overlooking Essential Details

Several critical omissions can derail GST filings:

• Incorrect GSTIN Entries: Even a single-digit error in a Goods and Services Tax Identification Number (GSTIN) can prevent payment reflection and trigger notices from the tax department.
• Invoice Number Discrepancies: Skipping or duplicating invoice numbers invariably causes reconciliation errors.
• Misclassification of Goods: HSN codes are unique identifiers for products; using the wrong one can lead to confusion and penalties.

To mitigate these issues:

• Automate data entry processes wherever feasible to minimize manual errors.
• Implement a logical and transparent invoicing system (e.g., INV2024/001).
• Verify HSN codes using the official GST portal or professional tax advisory services.

Diligent attention to details such as GST rates, invoice accuracy, and classification is essential for businesses to avoid common filing pitfalls. Employing tools like automated software, providing regular staff training, and conducting periodic audits can significantly reduce errors in GST compliance.