Understanding GST Compliance: Registration, Filings, and Advantages

Tax authorities can impose penalties and other measures for non-compliance with GST rules, even in cases of unintentional errors. Such proceedings can disrupt business operations, negatively impacting profitability. Therefore, understanding and consistently implementing statutory GST compliance within any business is crucial. This article explains GST compliance and provides a fundamental checklist for businesses.

April 17, 2025: The CBIC has released updated guidelines for processing GST registration applications (source). These instructions aim to streamline the procedure and reduce requests for extraneous documents. They clarify acceptable proofs for a business's principal place and its legal constitution. The guidelines also address concerns about physical verifications and the prompt approval of GST registrations. Key updates include: outlined documents for proving the principal place of business, advice against requesting unnecessary documents (like a lessor's PAN or Aadhaar), and ensuring registration applications are processed within specified deadlines.

What is GST Compliance?

GST compliance refers to the mandatory practice of observing the GST Act, along with its specific rules and regulations pertinent to a business. Since these regulations differ considerably across industries, the practical application of GST compliance must account for industry-specific variations in guidelines.

GST compliance can generally be divided into five main categories:

1. Adherence to GST registration rules.
2. Compliance with tax invoicing requirements.
3. Timely filing of GST returns.
4. Remitting collected tax to the government.
5. Proper maintenance of business records.

A business is considered GST-compliant only if it meets all mandatory requirements outlined in the GST guidelines for its specific industry.

Consider an example transaction: ABC Ltd, a Kolkata-based garment trader, supplies semi-finished trousers to MNO Ltd in Patna. For ABC Ltd, GST compliance entails:

• Registration: Both ABC Ltd and MNO Ltd must be GST-registered and possess valid GSTINs.
• Invoicing: The supply invoice must contain essential details, including the supplier's and purchaser's GSTIN, item descriptions, HSN codes, quantity, unit price, applicable CGST and SGST rates, and the place of supply.
• Logistics: If the transaction value surpasses ₹50,000, ABC Ltd must generate an e-way bill.
• Returns: The supplier is required to report this supply in their monthly GSTR-1 filing (by the 11th of the following month) and GSTR-3B (by the 20th of the following month).
• Tax Transfer: ABC Ltd must remit the collected tax for the transaction to the government by filing GSTR-3B by the 20th of the subsequent month.
• Record Keeping: The supplier must retain all transaction-related documents, such as invoices, e-way bills, and GST payment records, for a minimum of 72 months.

GST Registration Compliance

Adhering to registration requirements is the foundational aspect of GST compliance. GST registration is compulsory for businesses involved in manufacturing or trading goods with an annual turnover exceeding ₹40 lakhs. For service-related businesses, the minimum turnover threshold for mandatory GST registration is ₹20 lakhs.

Fulfilling GST registration compliance involves:

• Registering the business on the GST portal once the turnover reaches the specified minimum limit.
• Acquiring a Goods and Services Tax Identification Number (GSTIN).
• Regularly updating GSTIN-specific details on the GST portal, or promptly when changes occur, such as alterations to the office address or business nature.

Benefits of the GST Compliance Rating

The concept of a GST compliance rating functions similarly to a performance ranking and is referenced in Section 149 of the GST Act 2017. This section grants the Central Government the power to evaluate and rate all registered taxpayers according to their adherence to mandatory GST rules. This rating could be assigned regardless of a taxpayer's size or business type, potentially ranging from one (least compliant) to ten (most compliant).

The potential advantages of such a system include:

• Businesses with high compliance ratings might experience less scrutiny from tax authorities and receive more favorable treatment for minor, unintentional compliance issues.
• A strong compliance rating could enhance a company's reputation within the GST framework, offering a competitive advantage.
• High ratings could also facilitate better negotiations with financial institutions and attract investors.

Despite ongoing discussions regarding its parameters and implementation, the government has not yet launched this GST compliance rating system, nor has a specific timeline for its introduction been announced.

Tax Invoice Compliance under GST

Adhering to GST rules concerning tax invoices requires issuing sales invoices for all supplies of goods, services, or both. These invoices must accurately include:

• The GSTINs of both the supplier and the purchaser.
• The address, including the state, from which the supply originates.
• The address, including the state, to which the supply is destined.
• The HSN code and a description of the items supplied.
• The applicable GST rate for the items.
• The quantity sold.
• The unit price of the items.
• The total GST amount charged.

Precise information on supplier invoices is essential for processing input tax credit efficiently and preventing incorrect GST collection.

GST Return Compliance

Adhering to the mandatory GST return filing involves submitting GSTR-1, GSTR-2B, and GSTR-3B either monthly or quarterly (under the QRMP scheme). Additionally, an annual GSTR-9 must be submitted by taxpayers with a turnover exceeding ₹2 crore.

A standard registered taxpayer typically files 37 returns annually. Those enrolled in the QRMP scheme are required to file GSTR-1, GSTR-2B, and GSTR-3B on a quarterly basis.

Frequently Asked Questions

What is GST and TDS compliance? GST compliance related to Tax Deducted at Source (TDS) applies to specific deductors who are obligated to deduct GST as TDS. These entities typically include:

• Central or state government departments.
• Local self-governing bodies.
• Government agencies.
• Organizations established by Parliament or State Legislature where the government holds 51% or more of the total share.
• Societies formed by Central, State, or local authorities under the Societies Registration Act of 1860.
• Public Sector Undertakings (PSUs).

In line with GST registration rules, entities responsible for TDS deduction must be GST registered. This registration can be completed using an existing Tax Deduction and Collection Account Number (TAN), and a Permanent Account Number (PAN) is not a mandatory requirement for this specific registration.

What constitutes GST non-compliance? GST non-compliance occurs when a business fails to adhere to one or more essential aspects of GST regulations, including registration, invoicing practices, tax payments, return submissions, or proper record keeping.

What are the turnover limits for GST compliance? The mandatory turnover threshold for GST compliance is an annual turnover of ₹40 lakhs or more for businesses dealing in goods, and ₹20 lakhs for those providing services.

What are the penalties for GST non-compliance? Penalties depend on the specific type of non-compliance. For instance, late filing of returns can incur a late fee of ₹100 per day per Act. For any of the 21 offenses outlined in the GST Act, without fraudulent intent, the penalty is typically 10% of the tax due or ₹10,000, whichever amount is higher. If an offense involves explicit fraudulent intent, the penalty can be 100% of the tax evaded (or ₹10,000, whichever is higher), potentially coupled with imprisonment.

What are the primary elements of GST compliance? The core components of GST compliance include:

1. Adherence to GST registration requirements.
2. Observance of tax invoicing regulations.
3. Timely submission of GST returns.
4. Remittance of collected tax to the government.
5. Proper maintenance of business records.

What purpose would a GST Compliance Rating system serve? If implemented, a GST compliance rating system would incentivize better compliance for both suppliers and buyers, thereby fostering greater proactiveness and improving the overall quality of adherence to regulations.