Understanding GSTR-2: Purpose, Structure, and Compliance Requirements

GSTR-2, a monthly return form, was designed for taxpayers to report inward purchases of goods and services. However, this form has been suspended since September 2017 following amendments to the CGST Rules. It was replaced by GSTR-3B, a combined return encompassing aspects of both GSTR-2 and GSTR-3. This document will explore the features of the former GSTR-2 form. For detailed information about GSTR-3B, you can refer to the article "All about GSTR-3B return".

Understanding GSTR-2 and Its Significance

Until August 2017, all registered GST taxpayers were required to provide details of their inward supplies (purchases) and Input Tax Credit (ITC) for each tax period using GSTR-2. This form detailed all monthly purchase transactions of a registered dealer, including those subject to reverse charge. The government used the filed GSTR-2 to reconcile with sellers' GSTR-1 filings, facilitating buyer-seller reconciliation. Since its suspension in September 2017, GSTR-2 no longer holds significance. Taxpayers now report eligible ITC in GSTR-3B, cross-referencing with GSTR-2B and GSTR-2A.

The Process of Buyer-Seller Reconciliation

Buyer-seller reconciliation, also known as invoice matching, involves comparing a seller's reported taxable sales with a buyer's declared taxable purchases. This process is crucial because Input Tax Credit (ITC) on purchases is only granted if the purchase details submitted by the buyer (currently in GSTR-3B) align with the sales details filed by their seller (in GSTR-1). For example, if a buyer, Ajay, purchases goods worth Rs. 500 from Vijay Stationery, Vijay must declare Rs. 500 in sales in his GSTR-1. Ajay, in turn, must report the same Rs. 500 purchase in his GSTR-3B to claim ITC. Discrepancies would prevent Ajay from claiming the ITC. Presently, this reconciliation occurs between GSTR-2B and GSTR-3B, sometimes requiring reference to GSTR-2A.

GSTR-2 Due Dates

According to the Act, the filing deadline for GSTR-2 was the 15th of the subsequent month. A five-day interval was provided between GSTR-1 and GSTR-2 filings to allow for corrections. However, no specific due date was ever announced for businesses filing quarterly returns.

Consequences of Not Filing GSTR-2

Failure to file GSTR-2 would have prevented the submission of the subsequent GSTR-3 return (now GSTR-3B). This non-compliance created a ripple effect, leading to substantial fines and penalties. Both GSTR-2 and GSTR-3 have been suspended since September 2017. If filing was delayed, individuals would have incurred an 18% annual interest on the outstanding tax, calculated from the day after the due date (16th of the next month) until payment. A late fee of Rs. 100 per day per Act (Rs. 100 under CGST and Rs. 100 under SGST, totaling Rs. 200 per day) was also applicable, with a maximum of Rs. 5,000. No late fee was applied for IGST.

Eligibility for GSTR-2 Filing

Previously, every registered person was mandated to file GSTR-2, regardless of whether they had transactions during the month. However, certain registered entities were exempt from GSTR-2 filing under GST law:

Input Service Distributors
Composition Dealers
Non-resident taxable persons
Individuals responsible for collecting Tax Collected at Source (TCS)
Individuals responsible for deducting Tax Deducted at Source (TDS)
Suppliers of online information and database access or retrieval services (OIDAR), who were required to pay tax themselves (as per Section 14 of the IGST Act).

Revising GSTR-2

Once filed, GSTR-2 could not be revised directly. Any errors found in a filed return had to be corrected in the subsequent month's return. For instance, a mistake made in the July 2017 GSTR-2 would be rectified in the August 2017 GSTR-2.

Understanding GSTR-2A

GSTR-2A is a purchase-related tax return automatically generated on the GST portal for each business. It populates information from every seller's GSTR-1 filing for a particular GST-registered buyer. This return is dynamic, meaning it can change if sellers make revisions in later tax periods. This dynamic nature led to the introduction of GSTR-2B. You can find more details on GSTR-2A here.

Understanding GSTR-2B

GSTR-2B is a static, auto-drafted statement introduced for regular taxpayers on the GST portal from the August 2020 tax period onward. It provides month-wise details of Input Tax Credit (ITC). Unlike GSTR-2A, the ITC details in GSTR-2B remain unaltered for a specific tax period, even if the seller later makes revisions. Therefore, taxpayers can rely on the ITC information presented in GSTR-2B for eligible ITC claims in GSTR-3B for any given tax period. You can find more details on GSTR-2B here.

Components of the GSTR-2 Form

The government-prescribed GSTR-2 format contained 13 sections, each requiring specific details:

1. GSTIN

Every taxpayer receives a 15-digit state-wise PAN-based Goods and Services Taxpayer Identification Number (GSTIN). This number was auto-populated upon return filing.

2. Name of the Taxpayer

The taxpayer's legal and trade name was auto-populated, along with the relevant month and year for which GSTR-2 was being filed.

3. Inward Supplies from Registered Taxable Person

Most purchases from registered individuals were auto-populated from the seller's GSTR-1, including details on the type, rate, GST amount, ITC eligibility, and ITC amount. Purchases under reverse charge were excluded from this section. If transactions were missing due to the seller not filing GSTR-1 or omitting a transaction, the buyer could manually add them. The seller would then receive a notification to accept these changes in their GSTR-1A return. For supplies received in multiple lots, the invoice was to be reported in the return for the month when the final lot was received and recorded.

4. Inward Supplies Subject to Reverse Charge

This section reported purchases subject to reverse charge, where the buyer is liable to pay GST. This included purchases exceeding Rs. 5,000 per day from an unregistered dealer. Further details on reverse charge for purchases from unregistered dealers can be found here.

4A. This subsection listed purchases where reverse charge applied specifically by law (e.g., buying cashew nuts from an agriculturist).
4B. This section detailed daily purchases from unregistered dealers exceeding Rs. 5,000.
4C. This reported reverse charge GST paid on imported services.

5. Inputs/Capital Goods Received from Overseas or SEZ Units via Bill of Entry

Imports of inputs or capital goods against a Bill of Entry, as well as goods received from SEZ units, were reported here.

5A. Imports: Details of imported inputs or capital goods received against a Bill of Entry, including 6-digit port codes and 7-digit bill numbers, were required.
5B. Received from SEZ: Inputs or capital goods sourced from sellers within a Special Economic Zone (SEZ) were reported here.

6. Amendments to Inward Supply Details from Previous Tax Periods

GSTR-2 could not be revised directly. Amendments to purchase details from previous months were made under this heading in the subsequent month's return. The seller would be notified and required to accept these changes in their GSTR-1A return.

6A. This section covered all revisions related to input goods/services (excluding imports).
6B. Any changes in the amount or tax calculated on imported goods and SEZ goods were made here, requiring mention of modifications to the Bill of Entry/Import Report.
6C. All debit and credit notes pertaining to purchases were reported. Debit/credit notes issued under the reverse charge mechanism were auto-populated from counter-party GSTR-1 and other relevant returns (e.g., GSTR-5 filed by Non-Residents).
6D. Changes to debit/credit notes from preceding months were reported in this section.

7. Supplies from Composition Taxable Persons and Other Exempt/Nil-rated/Non-GST Supplies

This section included purchases from composition dealers and other exempt, nil-rated, or non-GST supplies. Non-GST items, such as petrol and diesel, which are outside GST purview, were also reported, distinguishing between inter-state and intra-state supplies.

8. ISD Credit Received

This section displayed details of input tax credit received from a registered Input Service Distributor (ISD), typically a head office that has transferred ITC to its branches. This data was auto-populated from the GSTR-6 filed by the ISD.

9. TDS and TCS Credit Received

TDS Credit Received: Applicable for specific contracts with government bodies, where the government deducts a percentage of the transaction value as Tax Deduction at Source. Information was auto-populated from GSTR-7 filed by the deductor.
TCS Credit Received: Relevant for online sellers registered with e-commerce operators, who are required to collect tax at source when making payments. This information was auto-populated from the e-commerce operator's GSTR-8.

10. Consolidated Statement of Advances Paid/Adjusted Against Supply Receipt

This section recorded any advance payments made during the month. It also included details of advance tax paid for goods or services received in previous tax periods, where invoices were received in the current month. Advance receipts issued under reverse charge were also covered. Typically, a seller issues an advance receipt upon receiving an advance payment. In reverse charge scenarios, the buyer was responsible for issuing the advance receipt if paying in advance.

Part I: Covered advance amounts paid for reverse charge supplies in the current month and advances paid in earlier months for which invoices were received currently, broken down by inter-state and intra-state.
Part II: Contained amendments to Part I related to previous months.

11. Input Tax Credit Reversal / Reclaim

ITC can only be claimed for business purposes. If goods or services are used for non-business (personal) purposes or for making exempt supplies, ITC cannot be claimed. This section required taxpayers to detail ITC amounts that could not be claimed during the month due to various ITC rules.

11A. Covered all input tax reversals for the current month, including ITC reversal for exempt and personal supplies.
a. Amount in terms of Rule 37(2): ITC reversal for invoices not paid within 180 days.
b. Amount in terms of Rule 39(1)(j)(ii): For ISDs, ITC reduced due to a credit note from the seller to the HO was reversed.
c. Amount in terms of Rule 42(1)(m): For businesses using inputs for both business and non-business purposes, the proportionate ITC for personal use had to be reversed.
d. Amount in terms of Rule 43(1)(h): Similar to (c), but for capital goods.
e. Amount in terms of Rule 42(2)(a): Calculated after the annual return. If total ITC on inputs for exempted/non-business purposes exceeded the ITC actually reversed during the year, the difference was added to output liability, with interest applicable.
f. Amount in terms of Rule 42(2)(b): The opposite of (e). If total ITC on inputs for exempted/non-business purposes was less than the ITC actually reversed, the difference could be reclaimed as ITC.

You can read more about Reversal of Input Tax Credit to understand this in detail here.

11B. Allowed manual amendment of ITC details from 11A for earlier months, with information selected from a drop-down menu.

12. Adjustment of Output Tax for Mismatches and Other Reasons

This section recorded any additional tax liability arising from corrections made to the previous month's GSTR-3.

a) ITC claimed on mismatched/duplication of invoices/debit notes: Excess ITC claimed from duplicate purchase invoices was reversed and added to tax liability due to invoice mismatches.
b) Tax liability on mismatched credit notes: Incorrect credit notes issued by the taxpayer led to incorrect ITC, with extra ITC claimed due to mismatch being added to tax liability.
c) Reclaim on account of rectification of mismatched invoices/debit notes: If a mismatch resulted in claiming lower ITC, the additional entitled amount was reduced from the output tax liability.
d) Reclaim on account of rectification of mismatched credit note (Reduce): Similar to (c), where lower ITC was claimed due to an incorrect credit note, leading to a reduction in output tax liability.
e) Negative tax liability from previous tax periods: Excess tax paid in prior months was reduced from the current month's output tax liability.
f) Tax paid in advance in earlier tax periods and adjusted with tax on supplies made in the current tax period (Reduce): Refers to tax paid with advance payments in earlier months for supplies received in the current month.

13. HSN Summary of Inward Supplies

Taxpayers were required to provide an HSN-wise summary of purchased goods. This section concluded with a declaration of accuracy.