Key Practices and Pitfalls in GST Compliance

Since the Goods and Services Tax (GST) system was implemented in India, many businesses and chartered accountants have adapted. However, ongoing updates from the government frequently introduce new complexities, requiring taxpayers to stay informed to ensure compliance and prevent official notices. Below are crucial recommendations and warnings for every GST taxpayer.

Recommended Actions

Timely Filing of GST Returns

The GST framework mandates the submission of various returns and forms, a departure from prior indirect tax regulations. A fundamental compliance measure to avoid interest charges, late fees, and official notices is to ensure all GST returns are submitted by their respective deadlines.

Accurate Data Submission in GSTR-1

Filing the GSTR-1 return involves completing numerous fields. The GSTN system currently does not permit amendments once a return is filed. While this presents challenges for taxpayers, meticulous data entry can eliminate the need for reconciliations and rectifications in subsequent monthly returns.

Maintain Thorough Documentation

While essential for a GST audit, all businesses should adopt the practice of maintaining comprehensive GST records. This includes purchase and sales ledgers, fixed asset registers, payment challans, and e-way bills. Proper documentation significantly streamlines the reconciliation process during scrutiny notices or at the time of closing financial books.

Reconcile Returns with Accounting Records

Businesses should perform a monthly reconciliation of filed returns with their financial accounts, rather than postponing it until the year-end. This timely practice helps identify any errors or omissions, allowing for corrections in a subsequent month's return, thereby potentially avoiding interest and penalties.

Match E-way Bills with GSTR-1 Invoicing Details

Taxpayers must align the details of issued e-way bills with the invoice information reported in GSTR-1. Discrepancies in this data can lead to notices from authorities and create difficulties during GST audits and the preparation of annual GST returns.

Perform Inter-Return Comparisons and Reconciliations

Comparing GSTR-3B returns with GSTR-2A and GSTR-1 is a highly beneficial exercise. It not only assists in filing the annual return but also proves valuable during a GST audit. Ensuring all data aligns across these returns is critical.

Correct and Amend Returns Before Annual Filing

Before submitting the annual return, GST filers should ensure all necessary amendments to monthly returns have been made. Failure to do so can result in discrepancies between the returns filed throughout the year and the final annual return. Therefore, all reconciliations should be completed and discrepancies resolved prior to the annual return submission.

Understand Reverse-Charge Mechanism Provisions

The government frequently updates the provisions for the Reverse-Charge Mechanism. Businesses must stay informed about these changes. It is important to note that input tax credit cannot be used for reverse-charge payments, which must be made in cash.

Inform GST Authorities of Business Changes

All individuals registered under GST must notify the GST authorities of any alterations to their registration details within 15 days of such changes. The application, along with supporting documents, should be submitted via the GST portal.

Conduct GST Audit for Turnover Exceeding Two Crores

Any registered dealer with an annual turnover surpassing Rs 2 crore in a financial year is required to have their accounts audited by a Chartered Accountant or a Cost and Management Accountant. This involves submitting audited returns, audited accounts, and reconciliation statements.

Actions to Avoid

Incorrect GST Head Tax Payments

Taxpayers sometimes erroneously pay tax under the wrong GST head or interest under the tax head. Extreme caution is advised for GST payments, as the GSTN does not permit inter-utilization of taxes. Incorrect payments can negatively impact working capital.

Misclassification of Zero-rated and Nil-rated Supplies

A common error involves classifying zero-rated supplies as nil-rated, and vice versa. Zero-rated supplies include exports and supplies to Special Economic Zones (SEZs), while nil-rated supplies are those with a 0% tax rate. Input tax credit cannot be claimed on nil-rated supplies, making accurate data entry in GST returns crucial.

Neglecting to File Nil Returns

An important aspect taxpayers sometimes overlook is filing a nil return when no transactions occur during a specific period. Filing nil returns ensures the smooth processing of subsequent returns, as the GSTN may prevent later filings if previous period returns are outstanding.

Applying Incorrect Tax Rates

The government regularly issues notifications on updated tax rates recommended by the GST council. Businesses must stay current with these rate adjustments and apply the correct GST rates. Different rates may apply based on whether input tax credit is claimed. Invoice issuers must ensure accurate tax rates are charged on all invoices.

Paying Tax Under Reverse Charge When Not Required

For businesses whose invoices specify GST payment under reverse charge, it is crucial to identify if the recipient is responsible for this payment. In such cases, the invoice issuer should not charge GST to avoid double tax payment and unnecessary administrative burden, as the liability rests with the recipient.

Failing to Pay Tax on Job-work Goods After Due Period

If goods sent for job-work are not returned within the stipulated timeframe (one year for inputs, three years for capital goods), the principal manufacturer becomes liable to pay tax along with applicable interest. For molds, dies, jigs, and fixtures disposed of as scrap, the job-worker is typically responsible for tax payment, or the principal manufacturer if the job-worker lacks GST registration.

Claiming Ineligible Input Tax Credit

Input tax credit cannot be claimed in specific situations, such as payments not made to suppliers within 180 days, inputs used partly for personal reasons, sold capital goods, free samples, or destroyed goods. Taxpayers must remain informed about ITC provisions, as incorrect claims can lead to notices from the GST department.

Forgetting to Claim Transitional Credit

For taxpayers who faced technical issues in claiming transitional credit, the government has extended deadlines for TRAN-1 and TRAN-2 forms. This provides an opportunity to claim pre-GST transitional credit by the extended due dates. Maintaining statutory compliance is essential for an enterprise's overall stability and success, helping to avoid notices from the GST department.