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Challenges Associated with India's Updated GST Return Filing System

India's updated GST return system, effective from October 2020, aims to address previous gaps but introduces new challenges for taxpayers and professionals. Key issues include the need to educate clients on real-time invoice uploads and ITC claims, the continuous effort required for invoice matching, and the complexities of tracking missing invoices. Effective vendor communication becomes crucial for reconciling discrepancies. Adapting to these new features, such as ANX-1 and ANX-2 actions, requires time and potentially leveraging modern technologies to streamline the transition.

📖 3 min read read🏷️ GST Returns

The Goods and Services Tax (GST) was implemented in India several years ago, yet certain legal provisions remain unclear. Taxpayers, with assistance from professionals, continuously strive to comprehend the implications of these provisions on their business operations. Many taxpayers are adopting various technological solutions to adapt to the GST framework. The GST Council decided to introduce a new GST return system starting in April 2020. This new system aimed to address deficiencies found in the existing return mechanism. However, its implementation still presents several challenges.

Latest Updates

As of March 14, 2020, the new GST return system is scheduled for implementation from October 2020. The current return filing system (GSTR-1, 2A & 3B) will remain in effect until September 2020. Note: This is subject to official notification from the CBIC.

Educating Stakeholders

Adapting to changes in tax laws requires time for taxpayers. While this transition period allows compliance, it poses a significant challenge for chartered accountants to educate their clients on the functionality of the new GST return system. For instance, a chartered accountant must guide clients on real-time invoice uploads, the process of taking actions in ANX-2 to claim Input Tax Credit (ITC), and how to report missing invoices effectively.

Continuous Invoice Upload

The new GST return system provides a feature for taxpayers to upload invoices continuously and in real-time to GST ANX-1. For taxpayers to adopt continuous invoice uploads, they will need a new mechanism capable of capturing and uploading all issued invoices and related documents to the portal. This presents a difficulty because the concept of real-time invoice uploads does not exist in the current return system. Consequently, taxpayers must exert additional effort to continuously upload accurate invoice details.

Regular Matching

The process of regular matching involves verifying invoices uploaded by suppliers against the recipient's books of accounts to claim ITC. Since suppliers upload invoices continuously, recipients must also match these invoices on an ongoing basis. Invoices uploaded by a supplier in their GST ANX-1 will automatically populate into the recipient's GST ANX-2. Typically, taxpayers reconcile their invoices with their books of account when filing their GST returns. The difficulty with frequent matching is that taxpayers must either dedicate time from their daily business activities or assign specific personnel for this task. For example, if a taxpayer only matches invoices at the time of filing under the new GST return system, they will have insufficient time to follow up with suppliers, potentially leading to incorrect or inaccurate ITC claims.

Invoice Tracking

Scenarios may arise where a recipient possesses a physical invoice, but it is not available on the GST portal for necessary actions. The recipient must identify these missing invoices and report them to the supplier. This requires the recipient to continuously monitor whether the supplier has uploaded the invoices to the portal. This process adds an extra responsibility for the recipient, even after they have paid the tax amount to their supplier. The main challenge is the persistent follow-up with suppliers to ensure invoice uploads, which could potentially strain relationships between suppliers and recipients.

Vendor Communication

Effective vendor communication is crucial within the new GST return system. Vendors must pay closer attention to accounts receivables and accounts payables compared to the previous return filing system. Accounts receivable will determine the value of sales/debtors and ITC claimed, while accounts payable will influence the value of purchases/creditors and output tax liability. Therefore, robust vendor communication is essential for following up on missing invoices and resolving discrepancies. This is a primary aspect taxpayers need to manage for a streamlined GST return submission process.

Transitioning to the New GST Return System

Taxpayers currently operating under the existing return system will require considerable time to adjust to the new GST return framework. Although the government has provided a prototype of the new system, not all its specified features are fully enabled. The main challenge during this transition is for taxpayers to become familiar with new functionalities such as uploading invoices to GST ANX-1, taking actions in GST ANX-2 for ITC claims, regularly reconciling differences, and claiming provisional credit for invoices that are not yet available. To mitigate these challenges, taxpayers can leverage modern technologies available in the market, which can facilitate an easier adaptation process to the new GST returns. These technologies offer features like bulk invoice uploads and tracking, continuous reconciliation of books with GST returns, and streamlined communication with numerous vendors.

Frequently Asked Questions

What is Input Tax Credit (ITC) under GST?
Input Tax Credit (ITC) allows businesses to reduce the tax they pay on their output by the tax they have already paid on their inputs. This mechanism prevents the cascading effect of taxes, ensuring that tax is levied only on the value addition at each stage of the supply chain.
Who is required to file GST returns?
Generally, all businesses and individuals registered under GST are required to file GST returns. The specific type and frequency of returns depend on the nature of the business, turnover, and registration type (e.g., regular, composition scheme).
What are the different types of GST in India?
In India, there are four main types of GST: Central Goods and Services Tax (CGST) levied by the Central Government, State Goods and Services Tax (SGST) levied by State Governments, Integrated Goods and Services Tax (IGST) levied by the Central Government on inter-state supplies, and Union Territory Goods and Services Tax (UTGST) levied by Union Territories.
How can one obtain a GST registration?
To obtain GST registration, an applicant needs to file an online application on the GST portal (www.gst.gov.in). The process involves providing various documents such as PAN, Aadhaar, proof of business registration, bank account details, and address proof. Once approved, a GSTIN (Goods and Services Tax Identification Number) is issued.
What happens if a GST return is filed late?
Filing GST returns after the due date can result in late fees and interest penalties. Late fees are typically charged per day of delay, and interest is calculated on the outstanding tax liability. Consistent delays can also lead to cancellation of GST registration.
What is the purpose of the e-Way Bill under GST?
The e-Way Bill is an electronic document required for the movement of goods worth more than a specified amount (typically ₹50,000) from one place to another. Its purpose is to track the movement of goods and prevent tax evasion, ensuring that goods being transported comply with GST regulations.
What is the Composition Scheme under GST?
The Composition Scheme is a simplified tax scheme for small taxpayers with an annual turnover below a certain threshold. It allows them to pay GST at a fixed, lower rate of turnover instead of the normal GST rates, and they are required to file fewer returns. However, businesses under this scheme cannot claim Input Tax Credit and cannot make inter-state supplies.
How is the HSN Code used in GST?
The Harmonized System of Nomenclature (HSN) code is a globally recognized system for classifying goods. Under GST, businesses use HSN codes in their invoices and GST returns to classify products and services, which helps in determining the applicable GST rates and streamlining trade.
What is the significance of the GST Council?
The GST Council is the governing body for GST in India. Chaired by the Union Finance Minister, it comprises state finance ministers and is responsible for making recommendations to the Union and State Governments on all matters related to GST, including rates, exemptions, rules, and procedures.
What documents are generally required for GST registration?
Common documents required for GST registration include a PAN card of the applicant/business, Aadhaar card, proof of business registration (e.g., partnership deed, certificate of incorporation), address proof for the business premises, bank account details, and digital signature certificate (DSC) or E-sign for verification.

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