Examining the Differences: Old vs. New GST Return Systems for Inward Supplies and Input Tax Credit

The Goods and Services Tax (GST) return system underwent a significant overhaul to streamline the filing process. The primary objective of this revamp was to replace the previous complex multi-form system with a single, more straightforward return. The updated framework introduces the main return, GST RET-1, supplemented by two annexures: GST ANX-1 and GST ANX-2. This shift brought about several key changes, particularly impacting the reporting of inward supplies and the claiming of Input Tax Credit (ITC).

Forms in the New GST Return Framework

The central return, GST RET-1, encompasses all essential details concerning outward and inward supplies, alongside tax payments. The initial annexure, GST ANX-1 (Annexure of Supplies), is designated for declaring outward supply information, inward supplies subject to reverse charge, and imported goods and services. The second annexure, GST ANX-2 (Annexure of Inward Supplies), compiles details of received inward supplies. A notable feature of the new system's annexures is their real-time operational capability, allowing suppliers to upload invoices immediately upon transaction occurrence. Recipients then have the flexibility to accept, reject, or mark these invoices as pending for future review. This real-time functionality benefits both suppliers and recipients by eliminating the need to wait until the end of a tax period for return reconciliation with their accounting records.

Key Distinctions in Reporting Inward Supplies and ITC

The variations in how inward supplies and Input Tax Credit are reported can be categorized into three main areas: procedural actions, format and reporting structure, and the process for claiming ITC.

Differences Based on Procedural Steps

Under the Previous Return System

The former procedure for reporting inward supplies involved the following steps:

• Post-tax period, suppliers would declare all supply transaction specifics in their GSTR-1 return.
• These details were only uploaded to the GSTN after the supplier had filed their return, whether monthly or quarterly.
• Recipients were responsible for self-assessing their inward supplies and eligible ITC based on the period's transactions.
• This self-calculated data was then reported monthly in their GSTR-3B form, allowing eligible ITC to offset monthly output tax liabilities.
• The data uploaded by suppliers had no immediate effect on the recipient's monthly declaration, as recipients could only access these details once the supplier's return was filed.

Under the Revised Return System

The updated GST return system streamlines the reporting of inward supplies as follows:

• Suppliers can upload supply transaction details into their Form GST ANX-1 at any point during a tax period.
• This information is immediately transmitted to the GSTN in real-time, becoming instantly available for recipients to view and act upon.
• Recipients can only declare their inward supplies and claim ITC based on documents uploaded by their supplier in GST ANX-1.
• All documents submitted by a supplier in GST ANX-1 are reflected in the recipient's Form GST ANX-2 in real-time for review and action.
• Recipients can accept, reject, or defer decisions on these documents by marking them as pending.
• Once accepted, this data automatically populates the relevant sections of the recipient's main GST RET-1 return.

Variations in Formats and Reporting Structure

The GSTR-2A form, which served as the auto-drafted return for inward supplies in the previous system, included the following fields:

1. GSTIN
2. Legal Name & Trade Name
3. Inward Supplies from registered persons (excluding reverse charge)
4. Inward Supplies from registered persons subject to reverse charge tax
5. Debit/Credit Notes received during the period
6. ISD Credit received
7. TDS and TCS Credit received

In contrast, GST ANX-2, the inward supplies form under the new return system, requires reporting of the following:

1. GSTIN
2. Legal Name, Trade Name, ARN, and Date of Filing
3. Inward Supplies from registered persons (excluding reverse charge), imports, and supplies from SEZ units/developers via Bill of Entry
4. Summary of Input Tax Credit
5. ISD Credit received

Key changes in the formats and reporting of inward supplies and ITC include:

• The total number of data fields required has decreased from seven to five in the new system.
• Unlike GSTR-2A, which was for viewing only, GST ANX-2 is submitted, thus ARN (Application Reference Number) and filing date are auto-populated.
• Under the new system, individuals responsible for reverse charge tax must declare relevant inward supplies solely in their GST ANX-1; the supplier is no longer required to report these.
• New fields for reporting imports and supplies from SEZ units/developers have been introduced.
• The section for reporting debit/credit notes received has been eliminated.
• The table for reporting TDS/TCS credit has also been removed.

Differences in Input Tax Credit Claiming

Under the Legacy Return System

• The former method for claiming input tax relied on a comprehensive self-declaration of inward supplies and associated ITC.
• When filing their GSTR-3B return, recipients had to report their inward supplies for a tax period and specify the eligible, ineligible, reversed, or reclaimed ITC amounts.
• This data was declared at a summary level, not on an invoice-by-invoice basis.
• Based on this declaration, eligible ITC could be utilized to offset outward tax liability, with any remaining balance paid in cash.
• During the annual return filing, this data necessitated reconciliation with the auto-drafted GSTR-2A to confirm alignment between recipient declarations and supplier-reported GSTR-1 data.

Under the Updated Return System

• The new return system operates on a real-time data upload mechanism, promoting full transparency in reporting.
• Recipients can only accept or reject data in their GST ANX-2 that has already been submitted by the supplier in GST ANX-1.
• Once an invoice is accepted by a recipient, it is locked, preventing further action unless the recipient manually unlocks it. Input Tax Credit claims are strictly limited to the invoice-specific data reported in GST ANX-2.
• Should a supplier fail to upload documents for a particular tax period, a 20% credit margin, subject to upcoming CBIC rules, may be claimed through self-declaration.