It has been over two years since the implementation of the New Goods & Service Tax Regime. And the GST regime has effortlessly taken over the former VAT & Service Tax system.
The GST System has eliminated the Cascading effect or the tax on tax effect on goods & services thus decreasing the costs of Goods & Services.
The GST System has also introduced various advantageous rules & relieves such as
- The Composition Scheme for Small Businesses
- Elimination of the Cascading Effect
- Automating the Filing process online- Digitalization
- Simpler Compliance
- Improvements in Logistics
- Systematization of the unregulated Sectors such as the E-Commerce
- Input Tax Credit
In other words, the GST system was introduced to make the Indirect Taxation more efficient & sophisticated both for the Business as well as for the Government.
However, just like no system is perfect, the GST Regime has also faced backlash due to its not so effective implementation & the flaws in the system.
Out of the lot, the most basic issues faced by Taxpayers still remain Compliance. The former VAT system allowed the Taxpayers to rectify any errors while filing their Returns. The GST System does not provide any such facilities to the Taxpayer.
If a certain Return is wrongly filed there is no chance the Taxpayer can modify the returns until the next Filing. In the meantime, the Taxpayer shall receive a Notice & maybe even penalties.
Hence it becomes crucial for Businesses to comply with the GST System & file accurate taxes, not just for the sake of compliance but also for the Business.
A well-prepared Tax return helps the Business track their growth & progress. It helps the Business to learn the exact numbers of Inward & outward supplies and on that basis, they can understand the cash flow cycle.
An accurate GST Filing also ensures an accurate amount of Input Tax Credit Claim. ITC is an indirect form of cash inflow for Business & saves them from paying double taxes.
The Taxpayer must take the precision of the GST Return Filing into utter consideration & make sure to avoid errors, as errors in the filing cannot be rectified once submitted.
But Tax filing cannot always be accurate since the filing needs to be done manually some errors may still occur. The GST Norms are complicated & the Taxpayer may miss out on something or the other, such as missing records like invoices, or wrong entering wrong GSTINs, etc.
We have identified & stated The Most Common Mistakes Taxpayers Make & Must Avoid while filing their Returns-
1. Manual Data entry errors– This is the most basic mistake in GST Return Filing & the one that should essentially be avoided. The taxpayer must ensure the details are entered correctly & in the right format, such as the date format, non-repetition of Invoice numbers, correct Invoice values & value format, correct counterparty GSTINs & Supply address, etc. The special characters must be used wisely by the taxpayer only where required.
2. Tax Slab Compliance– The taxpayers must ensure that the tax rates of the items are calculated as per the Tax Slabs given by the GSTN & the HSN summary must be calculated accordingly. Currently, there are 5 tax slabs- 0%, 5%, 12%, 18%, & 28%.
3. Non Filing of the NIL Returns– Taxpayers usually feel that since they had no transactions for a particular tax period, they don’t need to file their GST Returns. This is a misconception, even in case of zero transactions, Businesses must file a nil return.
4. Reverse charge Mechanism– The Supplier taxpayers must thoroughly understand the Reverse Charge Mechanism under GST. Under Reverse Charge, the Buyer pays the Tax for purchased goods directly to the Government. In normal cases, the Buyer pays this tax to the Supplier who then pays it to the Government. While filing their GST Returns the supplier must understand if they fall into the RCM category & file the Returns accordingly to avoid double tax payment. There may also be cases where the RCM is ignored even for eligible transactions. This practice is incorrect & must be avoided
5. Confusing Zero-rated Supply with Nil-rated Supply– Yet another common concern is the confusion in Zero-rated supplies & Nil-rated supplies. Goods & services with 0% applicable GST is Nil rated Supply, whereas, exported goods & supplies to SEZs are Zero-rated supplies. The taxpayers must categorize the supplies carefully & accordingly.
6. ITC Reversal & Credit Blockage– As per the various amendments in the ITC laws, the ITC shall be reversed in situations like ITC on goods used for personal use, lost or destroyed goods, non-payment to the supplier within 180 days, sold capital goods, & samples, etc. Also, there are certain goods for which the Credit is blocked. Taxpayers must keep in mind the ITC laws while filing & claiming ITC.
7. Paying Taxes under the wrong GST head– There are GST heads such as CGST, SGST, IGST, etc. The payment of taxes under the wrong GST Head can invite trouble for the Taxpayer. The CGSTs must be paid under the CGST head only.
8. Mismatch of monthly/quarterly filing with Annual Returns– The taxpayer must file accurate GSTR-1, GSTR-3B, & GSTR-9. The mismatch in the three reports can cause the taxpayer to receive notices. The GSTN is highly dynamic about the same & does not tolerate even the slightest mismatching of even negligible amount. Hence the taxpayers must be highly cautious while filing these returns.
9. E-WayBill Compliance – The taxpayer must comply with the E-WayBill system since the GSTN has announced the reconciliation of the GSTR- 1 & E-WayBill data. Hence the taxpayer must file their GSTR-1 accurately concerning the e-WayBills & vice versa.
10. Precise ITC claim – The taxpayer must thoroughly cross-verify their auto-populated GSTR-2A, Purchase books & GSTR-3B & claim the correct value of ITC. Since return once filed cannot be rectified or changed until the next filing. The delay caused due to the error can attract notices, fines & penalties. The taxpayer must keep in mind to claim only the accurate value of ITC in their filing to avoid concussions. That is, the taxpayer must know, how to claim input tax credit in gst
To conclude, it is advisable to the taxpayer that they must take their time & file accurate GST returns, to track the exact Business progress & to comply with the GST system to dodge Notices, Scrutiny, Late fees, fines & penalties.
GSTR Filings can be done accurately using APIs & Integrations of the billing systems with software solution providers such as GSTHero Software Solutions.