Understanding GSTR-2: Its Purpose, Filing, Structure, and Applicable Regulations

GSTR-2 was a monthly GST return used for reporting inward supplies, encompassing purchases of taxable goods and services. However, this form has been suspended since September 2017 following amendments to the CGST Rules. It has been largely replaced by GSTR-3B, a consolidated return that combines elements of both GSTR-2 and GSTR-3. This document will delve into various historical aspects of the GSTR-2 form.

About GSTR-2 and its Importance

Before August 2017, all GST-registered individuals needed to submit their inward supply details, which included purchases and Input Tax Credit (ITC), using GSTR-2 for each tax period. This form recorded all monthly purchase transactions for registered dealers, including those subject to reverse charge. The government utilized the filed GSTR-2 to reconcile buyer purchases with seller GSTR-1 filings. Nevertheless, GSTR-2 has been obsolete since September 2017. Taxpayers now declare their eligible ITC through GSTR-3B, cross-referencing with GSTR-2B and GSTR-2A.

What is Buyer-Seller Reconciliation?

Buyer-seller reconciliation, also known as invoice matching, involves verifying that a seller’s reported taxable sales correspond with a buyer’s reported taxable purchases. This process is crucial because Input Tax Credit (ITC) on purchases is only granted if the purchase details submitted by the buyer (initially in GSTR-2, now primarily in GSTR-3B) align with the sales information provided by the seller in their GSTR-1. For instance, if Ajay purchases 100 pens for Rs. 500 from Vijay Stationery, Vijay Stationery must record Rs. 500 in sales in GSTR-1, and Ajay must report the identical Rs. 500 purchase in GSTR-3B to be eligible for ITC. Discrepancies would prevent Ajay from claiming ITC. Currently, this reconciliation primarily occurs between GSTR-2B and GSTR-3B, with GSTR-2A occasionally consulted by taxpayers. Many fields within GSTR-2 were designed to be auto-populated from corresponding GSTR-1 filings, aiming to reduce manual effort.

When was GSTR-2 Due for a Month?

Under the GST Act, the GSTR-2 filing deadline was set for the 15th of the subsequent month. A five-day interval was provided between GSTR-1 and GSTR-2 filings to allow for corrections. Nevertheless, a specific due date for businesses filing quarterly returns was never officially declared.

What Happened if GSTR-2 was not Filed?

Failure to file GSTR-2 would have prevented the submission of the subsequent GSTR-3 return (now GSTR-3B), leading to a ripple effect of penalties for delayed GST filings. Both GSTR-2 and GSTR-3, however, have been suspended since September 2017. In cases of delayed filing, taxpayers would have incurred an annual interest charge of 18% on the outstanding tax amount, calculated from the 16th of the month following the due date until the payment date. A late fee of Rs. 100 per day per Act (Rs. 100 for CGST and Rs. 100 for SGST, totaling Rs. 200 per day) would also apply, capped at Rs. 5,000. No late fee was imposed for IGST.

Who Should File GSTR-2?

Historically, all registered individuals were mandated to file GSTR-2 monthly, regardless of transactional activity. Nevertheless, certain registered entities were exempt from GSTR-2 filing under GST law. These exceptions included Input Service Distributors, Composition Dealers, Non-resident taxable persons, individuals obligated to collect TCS, those responsible for deducting TDS, and suppliers of online information and database access or retrieval services (OIDAR) who were directly liable for tax payment, as per Section 14 of the IGST Act.

How to Revise GSTR-2?

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

What is GSTR-2A?

Upon a seller's GSTR-1 submission, the corresponding details are automatically reflected in GSTR-2A. This purchase-related tax return is system-generated by the GST portal for each registered business, drawing information from every seller's GSTR-1 for a specific buyer. GSTR-2A is dynamic, meaning its details can change if sellers make revisions in subsequent tax periods. This dynamic nature led to the introduction of GSTR-2B.

What is GSTR-2B?

GSTR-2B represents a static, auto-drafted statement designed for regular taxpayers. Introduced on the GST portal starting from the August 2020 tax period, it provides monthly data. Crucially, the Input Tax Credit (ITC) details presented in GSTR-2B remain constant for a given tax period, unaffected by any later revisions made by sellers. Consequently, taxpayers can rely on the ITC information in this statement when claiming eligible ITC in their GSTR-3B for that specific period.

Contents of the Form GSTR-2

The GSTR-2 form, as structured by the government, encompassed 13 distinct sections. Each section is outlined below, detailing the specific information required for reporting.

1. GSTIN

Every taxpayer receives a state-specific, PAN-linked 15-digit Goods and Services Taxpayer Identification Number (GSTIN). This GSTIN would be automatically populated during the return filing process.

2. Name of the Taxpayer

This section automatically displays the taxpayer's legal and trade name. It also required specifying the applicable month and year for which the GSTR-2 was being filed.

3. Inward Supplies from Registered Taxable Person

This part would mostly be auto-populated with purchase data from registered sellers' GSTR-1 filings, detailing the type, GST rate, amount, ITC eligibility, and ITC value. Purchases under the reverse charge mechanism were excluded. Manual entry of transactions was necessary if the seller failed to file GSTR-1 or omitted a transaction. In such instances, the seller would receive a notification to approve the changes in their GSTR-1A return. For supplies delivered 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 on Which Tax is to be Paid on Reverse Charge

This section covers goods and services subject to reverse charge, where the buyer is responsible for paying GST. It includes all purchases where reverse charge applied. For instance, a registered dealer buying over Rs. 5,000 daily from an unregistered dealer was liable for reverse charge.

4A: Reports all purchases legally mandated for reverse charge, such as buying cashew nuts from an agriculturist.
4B: Lists purchases exceeding Rs. 5,000 per day from unregistered dealers.
4C: Details reverse charge GST paid on imported services.

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

This section mandates reporting of all imported inputs (raw materials for manufacturing) or capital goods acquired via a Bill of Entry, as well as goods sourced from Special Economic Zone (SEZ) units.

5A. Imports: Covers all imported inputs or capital goods received under a Bill of Entry, requiring details such as the bill of entry number, 6-digit port code, and 7-digit bill numbers.
5B. Received from SEZ: Reports inputs or capital goods obtained from sellers located within an SEZ.

6. Amendments to Details of Inward Supplies Furnished in Returns for Earlier Tax Periods

Once a GST return was filed, it could not be directly amended. Corrections were only permissible in the subsequent month's return under this specific section. Taxpayers could manually adjust previously submitted purchase details for goods or services. Following these adjustments, the seller would receive a notification and needed to accept the modification in their GSTR-1A return.

6A: Encompasses all revisions to input goods or services, excluding imports.
6B: Allows for changes in the value or tax computed on imported goods and items from SEZ units, requiring updates to the Bill of Entry or Import Report.
6C: Mandates reporting of all debit and credit notes pertaining to purchases. Debit/credit notes issued under the reverse charge mechanism would be auto-populated from the counter-party's GSTR-1 and other relevant returns (e.g., GSTR-5 by Non-Residents).
6D: Records any modifications made to debit or credit notes from prior months.

7. Supplies Received from Composition Taxable Person and Other Exempt/Nil-Rated/Non-GST Supplies Received

This section details purchases from composition dealers, alongside other exempt, nil-rated, or non-GST supplies. Non-GST supplies encompass products like petrol and diesel, which fall outside the GST framework. Both inter-state and intra-state supplies must be reported here.

8. ISD Credit Received

This section provides information on Input Tax Credit (ITC) transferred from a registered Input Service Distributor (ISD), typically a head office distributing ITC to its branches. This data is automatically populated from the GSTR-6 filed by the ISD.

9. TDS and TCS Credit Received

This section pertains to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) credits.

TDS Credit Received: Applicable for specified contracts with designated entities, usually government bodies. The recipient (government) would deduct a percentage of the transaction value as TDS. This information would be auto-populated from the GSTR-7 filed by the deductor.
TCS Credit Received: Relevant for online sellers registered with e-commerce operators. E-commerce operators are required to collect tax at source when making payments to these sellers. This data would be automatically populated from the e-commerce operators' GSTR-8.

10. Consolidated Statement of Advances Paid/Advance Adjusted on Account of Receipt of Supply

This section summarizes advance payments made or adjusted due to supply receipts. It includes any advance payments made during the current month, as well as advance tax paid on goods or services in prior periods for which invoices were received in the current month. Advance receipts under reverse charge are also reported here. Typically, a seller issues an advance receipt upon receiving an advance payment. However, for purchases under reverse charge, the buyer must issue the advance receipt if making an advance payment.

Part I: Details advance amounts paid for reverse charge supplies in the current month, along with advances from earlier months for which invoices have now been received. This part categorizes purchases into inter-state and intra-state.
Part II: Records any modifications made to Part I information concerning previous months.

11. Input Tax Credit Reversal / Reclaim

Input Tax Credit (ITC) is permissible only for goods and services used for business operations. If utilized for non-business (personal) activities or to produce exempt supplies, ITC cannot be claimed. This section requires taxpayers to report ITC that is ineligible for claim in the current month due to various ITC regulations.

11A: Covers all input tax reversals for the current month, including ITC reversals due to exempt or personal use supplies.
a. Rule 37(2) Amount: ITC is reversed for invoices unpaid within 180 days of issuance.
b. Rule 39(1)(j)(ii) Amount: Applies to Input Service Distributors (ISDs); if a credit note was issued by the seller to the Head Office, the resulting reduction in ITC is reversed.
c. Rule 42(1)(m) Amount: For businesses using inputs for both business and personal purposes, the proportionate ITC for personal use must be reversed.
d. Rule 43(1)(h) Amount: Similar to rule 42(1)(m), but specifically for capital goods.
e. Rule 42(2)(a) Amount: Calculated post-annual return filing. If total ITC on inputs for exempt/non-business purposes exceeds the ITC actually reversed during the year, the difference is added to output liability, with interest.
f. Rule 42(2)(b) Amount: The inverse of rule 42(2)(a). If total ITC on inputs for exempt/non-business purposes is less than the ITC actually reversed, the difference can be reclaimed as ITC.
11B: Allows manual amendments to prior months' ITC details under 11A, selected from a drop-down menu.

12. Addition and Reduction of Amount of Output Tax for Mismatch and Other Reasons

This section records adjustments to output tax liability stemming from corrections made to the preceding month's GSTR-3.

a) ITC on Mismatched/Duplicate Invoices/Debit Notes: Where invoice discrepancies or duplication lead to excessive ITC claims, the surplus ITC from duplicate purchase invoices is reversed and added to the tax liability.
b) Tax Liability on Mismatched Credit Notes: Erroneously issued credit notes by the taxpayer causing incorrect ITC claims result in additional tax liability.
c) Reclaim from Rectified Mismatched Invoices/Debit Notes: Conversely to point (a), if a mismatch led to a lower ITC claim, the taxpayer is entitled to additional ITC, which reduces the output tax liability.
d) Reclaim from Rectified Mismatched Credit Note (Reduce): Similar to point (c), this applies when lower ITC was claimed due to an incorrect credit note, leading to a reduction in output tax liability.
e) Negative Tax Liability from Previous Periods: Represents an overpayment of tax in prior months, which reduces the current month's output tax liability.
f) Advance Tax Paid and Adjusted (Reduce): Pertains to tax paid with advance payments in earlier months for supplies received during the current month.

13. HSN Summary of Inward Supplies

In this section, registered dealers must provide a Harmonized System of Nomenclature (HSN) wise summary of goods procured, to be entered manually by the taxpayer. The form concludes with a declaration affirming the accuracy and completeness of all provided information.