Understanding the Mandatory Sequential Filing of GSTR-1 Before GSTR-3B

Taxpayers must submit their GSTR-1 form before the GSTR-3B for the corresponding tax period, a rule that became effective from October 2022. The Goods and Services Tax Network (GSTN) implemented this order for routine GST return submissions to guarantee the precision of GST data. This article will delve into the reasons behind the importance of this specific filing sequence.

What is Sequential Filing of GSTR-1 and GSTR-3B?

Sequential filing mandates that the GSTR-1, which reports outward sales transactions, must be filed prior to the GSTR-3B, a summary return for total tax liabilities and subsequent GST payments. Failure to submit GSTR-1 for a particular tax period, whether monthly or quarterly, will prevent the filing of GSTR-3B for that identical period.

These modifications were introduced through amendments to the CGST law. Specifically, Sections 37 and 39 of the CGST Act were formally announced on September 28, 2022.

This process can be likened to declaring income information before settling tax obligations. This particular order guarantees uniformity between sales records and tax submissions, thereby minimizing discrepancies.

Who Must Adhere to Sequential Filing?

This prescribed filing sequence is mandatory for all taxpayers registered under GST who are required to file both GSTR-1 and GSTR-3B. Compliance with this order is necessary even when reporting a nil return, indicating no sales or tax liability.

Effective Date for Sequential Filing

The requirement for sequential filing became effective on October 1, 2022, applying to tax periods from October 2022 onwards. The necessary modifications on the GST portal to enforce this rule were subsequently rolled out starting November 1, 2022.

Previously, businesses had the flexibility to file their returns in any desired order. However, due to a rising number of data inconsistencies, the GST Council opted to introduce this significant change.

GSTN Advisory on GSTR-1 Sequential Submission

An advisory from the GSTN regarding the sequential submission of GSTR-1 was published on October 21, 2022, outlining specific directives:

• Submitting GSTR-1 is a prerequisite for filing GSTR-3B for the identical tax period.
• Any outstanding GSTR-1 returns from prior periods must be cleared first. Only after resolving previous arrears can the GSTR-1 for the current period be filed.

Official Notification No. 18/2022–Central Tax, dated September 28, 2022, legally formalized these provisions.

This measure aims to ensure that reported outward supplies are consistent with actual tax payments, providing a straightforward yet impactful solution.

Anticipated Changes on the GST Portal

Following the implementation of this regulation, the GST portal underwent updates to enforce sequential filing. The current operational mechanism is as follows:

• If the GSTR-1 for a preceding period remains unfiled, taxpayers are prohibited from submitting GSTR-3B for that specific period or any subsequent periods.
• The system will prevent further filings and present an error message detailing the unfulfilled obligations.

This system ensures that any pending returns are addressed before new filings can proceed.

Penalties for Non-Compliance with Filing Sequence

Failure to adhere to the prescribed sequential filing order can result in substantial penalties:

• Late Fees: A penalty of INR 50 per day is imposed for non-compliance, with a maximum cap of INR 5,000 per return.
• Interest: An annual interest rate of 18% is levied on any outstanding tax liabilities resulting from delayed submissions.
• GST Registration Cancellation: If GSTR-1 is not filed for two consecutive tax periods, the taxpayer's GST registration may be subject to cancellation.
• ITC Denial: Recipients might encounter discrepancies in their Input Tax Credit (ITC) if their suppliers do not file GSTR-1 promptly.

These consequences highlight the critical necessity of strictly following the designated filing sequence.

Illustrative Example of Sequential GST Return Filing

Consider an example involving a business, Sharma Enterprises:

• If Sharma Enterprises neglects to file GSTR-1 for August 2024,
• The GST portal will prevent the filing of GSTR-3B for the identical period.
• Furthermore, filing GSTR-1 for September 2024 will be blocked as the system requires resolution of the prior pending return.

Such a series of delays can rapidly lead to accumulating late fees and the added burden of managing blocked filings.

The sequential submission of GST returns represents a straightforward yet crucial adjustment to the compliance framework. Prioritizing GSTR-1 filing guarantees precision in tax declarations and streamlines the reconciliation procedure. Proactive compliance can prevent numerous future complications. Therefore, adhering to the correct filing order will simplify navigating this mandate.

Frequently Asked Questions