Taxation Implication Crypto Currencies in India: Some Thoughts

Taxation Implication Crypto Currencies in India: Some Thoughts

Trade and Commerce play a vital role in the progress of any country’s economy. Trade started about 1,50,000 years ago, and in the initial days of trade, goods and services were exchanged. Over a period, bater has been replaced with physical currency. The currency issued by various Federal Governments is of two types, Gold Standard. The currency which is backed by the quantity of gold equivalently is known as Gold Standard. The other category is Fiat System. In this, the currency system is not backed by any Gold reserves. They are open to be issued, and the demand and supply determine the currency’s value. US dollars is the classic example for the Fiat system-based currency, and Indian Rupee is the example for the Gold Standard.

With the adoption of digitization, physical currency is being replaced with digital transactions. As per the latest information available with the National Payments Corporation of India, the number of transactions recorded using the UPI-based payment during Oct 2021 is 4.21 billion, amounting to US 100 billion dollars. Cryptocurrencies are the new buzzword in the market.


The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network. Cryptocurrency is a digital currency used over the internet to purchase goods or services or traded for profit. Cryptocurrencies are created using a technology called the blockchain. Blockchain is a decentralized technology spread across many computers that manage and records transactions.

Cryptocurrencies are fiat currency, and any Federal Government in the world do not regulate them. Though the cryptocurrencies are claimed to be safe, there were instances where millions of cryptocurrencies were stolen and used by anti-national forces. Some experts claim that Cryptocurrencies are the future of finance as the transfer of funds between two parties is instantaneous. There is no involvement of third parties like banks or financial institutions. The transfer happens with minimal charges compared to the traditional banking channels. The transfer happens through a combination of public and private keys.

In the cryptocurrencies world, they are termed public keys as they are public-facing, i.e., the address to which the cryptocurrencies are received. They are tagged with a public address like a country, city, street name, and house number. The public keys are based on a complex mathematical algorithm. Private Keys are like the password for the wallets, and the fund transfer happens on a combination of the public and private keys.

The cryptocurrencies started in 2009 with the introduction of bitcoin. The value of cryptocurrencies fluctuates on day to day basis. As per there are about 13K+ cryptocurrencies that are traded in the market. List of the top 10 cryptocurrencies with the highest market capitalization as per as of 8th Nov 2021.

Sr.NoCryptocurrencyMarket Capitalization
1Bitcoin$1.2 trillion
2Ethereum$557.2 billion
3Binance Coin$107.7 billion
4Solana$73.6 billion
5Tether$72.6 billion
6Cardano$67.4 billion
7XRP$58.5 billion
8Polkadot$52.1 billion
9Dogecoin$36.5 billion
10USD Coin$34.3 billion

Legal Status

Though cryptocurrencies are used very widely in many countries, it is yet to be declared or notified as legal tender. As of the date on El Salvador is the only country that has declared cryptocurrencies as legal tender. Now in El Salvador, the citizens can buy any goods or services using bitcoins or pay taxes. It also offers citizenship if anyone purchases three bitcoins.

In India, investors trading in bitcoins is very high though it is not legal tender. The recent Honorable Supreme Court Judgement has set aside the RBI Circular issued in April 2018 while delivering the verdict in the case of Internet and Mobile Association of India Vs. RBI. The honorable Supreme Court has stated that the circular issued by RBI instructing banks to make sure customers dealing in cryptocurrencies should not be allowed access to banking services is not legal in the absence of any legislative ban on the buying or selling of cryptocurrencies, the RBI cannot impose disproportionate restrictions on trading in these currencies. The court felt such restrictions would interfere with the fundamental right of citizens to carry out any trade that is deemed legitimate under the law.

Though the restriction has been lifted based on the judgment of the Honorable Supreme Court in the trading of cryptocurrencies, the Reserve Bank of India has asked banks to continue other due diligence procedures on cryptocurrency traders under rules linked to anti-money laundering and prevention of terrorism.

The basis on the recommendations of the RBI, in India, during the last 6 months, about 2 lacs accounts have been blocked by the top three cryptocurrency exchanges – WazirX, CoinSwitch Kuber and CoinDCX, citing malicious activities. It also means that there is still an active mechanism by the cryptocurrency exchanges with respect to KYC and monitoring the transactions from whom the users have received and the usage of the funds.

Taxation of Cryptocurrencies

Cryptocurrencies are about a decade old, and they are still in the evolving stage. As of date, only one country has made it a legal tender. Other countries are still evaluating the treatment of taxation (direct and indirect taxes) for transactions carried out with cryptocurrencies. Different countries have adopted different measures in taxing cryptocurrencies.

United States of America

The US Treasury has been issuing guidelines on cryptocurrencies since 2013, and they have not classified/declared them as currency. Cryptocurrencies have been declared as Money Services businesses. It has been declared as property for taxation purposes.

Profit from cryptocurrencies trading is considered for capital gains. The tax has to be paid based on the holding period, either as short-term capital gains or long-term capital gains.


Cryptocurrencies are used in Canada to buy goods and services online or offline stores as long as they accept them. However, the Government has not declared it as legal tender. The exchanges dealing with cryptocurrencies are required to registered as Money Services Business and register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

Canadian Revenue Agency considers Bitcoins as a commodity, which means that transactions carried out in cryptocurrencies will be a barter transaction. Once the transaction is classified as a barter transaction, the buyer paying in bitcoins has to issue a tax invoice, and Canadian VAT is applicable.


In Russia, cryptocurrencies are treated as digital assets like property, and they cannot make payments in cryptocurrencies. It means cryptocurrencies can be traded, and on trading, profits are taxable. Investors in cryptocurrencies have to disclose their holding in their returns income tax returns or pay a penalty of 10%. Reporting of holdings in cryptocurrencies is mandatory from April 2022.

United Kingdom

The United Kingdom has classified cryptocurrencies as property in 2020. The cryptocurrency exchanges have to be registered with Financial Conduct Authority. Individuals residing in the UK and holding cryptocurrencies will be taxed on profits made on the purchase and sale of cryptocurrencies as capital gains. The regular exemption on the capital gains up to £12,300 is available, which means that if the profit is less than £12,300, it is exempted and above that is taxable. It is not considered as a legal tender to date.


According to the Australian Tax Office, cryptocurrencies are viewed as digital assets. On cryptocurrency transactions, both income tax and capital gains taxes are applicable. In case if the business receives payments in cryptocurrency, it has to be recorded in the books with the amount received in cryptocurrency and in Australian currency.


In Switzerland, taxation is different for different cantons, and this can lead to some confusion. In Zurich, cryptocurrencies are treated as digital payment units and are considered virtual currencies. It means that it can be used for regular payments or as investments. Virtual currencies are subject to wealth tax.

In Bern, for individuals, cryptocurrencies are treated as private assets and are subject to wealth tax and are classified as “miscellaneous assets.” It means capital gains are also applicable


In India, cryptocurrencies are not considered legal tender. They are considered commodities as they are tradable in the exchanges. As they are treated as commodities, any profits or gains on the trading of cryptocurrencies are liable for taxation under Income Tax Act 1961 for capital gains.

From a GST perspective, there is uncertainty on the taxation and a lot of clarity is required. The main challenge is cryptocurrencies are not considered as legal tender by the Government. Suppose cyrpocurriences have to be considered legal tender. Section 22 and Section 26 of the Reserve Bank India Act 1934 have to be amended accordingly.  Section 22 of the RBI Act 1934, only the Reserve Bank of India can issue Bank Notes. As per Section 26 of the RBI Act, only notes issued by RBI will be considered as legal tender. Suppose cryptocurrencies have to be declared as legal tender. In that case, the relevant provisions of the RBI Act have to be amended in the first place.

Can cryptocurrencies can be classified as security? If yes, we need to review the definition of security as defined in Section 2(h) of the Securities Contracts (Regulations) Act 1956. It defines securities as

Securities include

  • shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company 14[or a pooled investment vehicle or other  body corporate];

ia) derivative;

ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

id) ) units or any other such instrument issued to the investors under any mutual fund scheme;

securities” shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938);

ida) units or any other instrument issued by any pooled investment vehicle;]

ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be;

  • Government securities;

Iia) such other instruments as may be declared22 by the Central Government to be securities; and

  • rights or interest in securities;

As cryptocurrencies cannot be classified as securities, it is paving the way for wider interpretation. There are various schools of taught processes on the taxation of cryptocurrencies, which gives an interpretation that it has to be classified as goods or services. The provisions of Section 7 of the CGST Act 2017 defined supply and included barter also.

For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business 1[and];

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

Consideration – Section 2(31)

“consideration” in relation to the supply of goods or services or both includes––

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Money Section 2(75)

“money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value;

Cryptocurrency cannot be considered as money basis on the above provisions in GST Act 2017.

Suppose cryptocurrencies are paid for the purchase of goods or services or both. In that case, the same transaction is to be considered Barter as per the above provisions. The buyer will be giving cryptocurrencies in place of legal tender in the form of cryptocurrencies. They are not legal tender in India at this point.


A purchase a villa in the construction stage worth ₹ 5 crores in Hyderabad from builder B and pays B in cryptocurrency, i.e., pays Coinhaze coins (cryptocurrency) brought from Exchange E. The villa is transferred in A’s name, and an occupancy certificate is received subsequently. B Pays 140 coins of conihaze as consideration.

Why it is a supply under GST?

  1. There is a transaction of between A & B, B is giving Villa
  2. There is the consideration paid by A to B

 A is supposed to pay in rupees, but he is paying in Coinhaze coins, which means there is an exchange of villa for Coinhaze coins, and this purely falls under the category of “barter.”

Cambridge dictionary defines barter as “to exchange goods for other things rather than for money:”

Merriam Webster defined barter as “to trade by exchanging one commodity for another to trade goods or services in exchange for other goods or services”

From the above definitions, it is clear that the transaction between A & B is barter. It falls under the definition of supply as per the provisions of GST.

When the transaction is defined as barter, there will be a requirement to issue two tax invoices for a barter transaction.  One tax invoice will be issued by the B for the sale of the villa. Another tax invoice has to be issued by A for Coinhaze coins, as it is not considered legal tender.

From the above, it is very clear that if cryptocurrency is used to purchase goods or services, it must be treated as supply, and GST is applicable. The next question arises: Is it to be treated as a supply of goods or services? As it is taxable under GST, the transaction has to be classified as either goods or services.

Definition of goods as per the provisions of Section 12(52) of the CGST Act 2017

“goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

The definition of goods in GST is borrowed from the definition of goods given in the Sale of Goods Act 1930.

Services are defined in Section 2(102) of the CGST Act 2017

“services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

The above two definitions clearly indicate that cryptocurrencies have to be classified as services. Cryptocurrency is intangible and cannot be seen physically or felt, or touched.

 As per the definition of goods given in the Constitution of India, then it will be considered as goods. But going through some of the previous case laws gives an idea that it can also be classified as good as in the case of “electricity” based on the jurisprudence provided in the case of Associated Power Company vs. R.T Roy by the honorable High Court of Kolkata.

Goods have been defined in Article 366(12) as 

goods includes all materials, commodities, and articles.”

In the case of Associated Power Co. v. R.T. Roy, the Calcutta High Court held that electricity comes under the ambit of ‘goods’ under Article 366 (12) of the Constitution.  It can be argued that since electrical energy can be brought and sold, it will come under the ambit of a ‘commodity or an ‘article’).

Taking a cue from the above judgment, we can also consider cryptocurrencies as goods as cryptocurrencies are traded as commodities in the exchanges. To classify it as goods or services as we have seen in other countries, there should be a clarification from the Government through legislation.

After classifying it as goods or services, the next question is the HSN code for cryptocurrencies is? It can be determined only as and when we have clarity on the classification and with necessary amendments for classification have been made. The basis on the classification, then only the tax rate can be determined.

If a tax invoice is required to be issued by A, the next question which comes into mind is on what value tax invoice has to be issued? It has to be valued as per provisions of Section 15 of CGST Act 2017; the transaction value paid in rupee terms for acquiring the villa can be taken, and, on that value, GST is to be computed.

Valuation – Section 15 of CGST Act 2017

(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include–––

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax(Compensation to States) Act, if charged separately by the supplier;

In the previous example, we have seen that A pays B 140 coins, which is also being paid on GST. Ideally, it is not required to be paid based on GST provisions for Valuation as it has explicitly excluded the CGST, SGS, IGST and Compensation Cess taxes.

Going by our initial example, A has to issue a tax invoice for ₹ 5 crores as he is paying consideration in other than money. Now the question is GST applicable additionally on ₹ 5 crores or not? If yes, who will pay the tax amount? This also needs to be notified by the department

Value of each coin = A5,000
Currency Exchange Rate (USD to INR) = B75
Value in INR = C (A X B)3,75,000
Cost of Villa = D5,00,00,000
GST @5% = E25,00,000
Total value = F (D X E)5,25,00,000
No of coins to be issued if Tax is to be included = G (F/C)140
No of coins to be issued if Tax is to be excluded = H (D/C)133

 to keep away the ambiguity. Ideally, A has to pay a value of ₹ 5 crores and on that GST at the applicable rate as this is purely an independent transaction.

The input tax credit can be claimed if the buyer buys cryptocurrencies and uses them for business purposes. The exchanges charge some amount of fee for the transaction, and on the GST is applicable. The other question that arises is that as cryptocurrencies are to be treated as commodities, then is GST applicable to the value of cryptocurrencies purchased? Yes, it is applicable, and as of the date, it is not being charged by many of the exchanges.

The buyers have to obtain registration under GST if their threshold has crossed ₹ 40 lacs and pay GST on the transactions where they use cryptocurrencies to purchase goods or services or both. After obtaining GST registration, the buyer has to file GST Returns periodically and discharge GST with the input tax credit or cash for the invoices the buyer of cryptocurrencies.

Income Tax Implications

Now let’s review the impact from the Income-tax point. On the sale of cryptocurrencies, Income tax is applicable. It will be taxed as it is not explicitly exempted in the Income Tax Act 1961. If the cryptocurrencies are treated as commodities, they are taxed on the profit as business income. The applicable tax rate is the individual taxpayer’s bracket. There is also another school of taught which advocates cryptocurrencies as investments. If they are treated as investments, then it is applicable to be treated under capital gains based on the holding. The second school of taught may not hold good as the profit earned on the sale of cryptocurrencies is not a speculative income as per Income Tax Act Provisions as the delivery of cryptocurrencies has taken place.

Under the Income Tax provisions, what should be the treatment if the cryptocurrencies are purchased at a lower price and transferred to another person in exchange of goods or services? In such cases, is there any impact of Income Tax? The answer is yes, and it is to be taxed on the difference between the transfer price in Indian Rupees and the purchase price in Indian Rupees.

Normally wallets transfer coins to the holders as part of marketing and promotion to the existing holders, and it is termed as airdrops. The question is income tax applicability on the coins received as air drops when the recipient sells them or uses them to purchase goods or services? The answer is yes for the applicability of Income Tax. At the time of receipt of airdrops from the wallet owner, there is no GST as it is a gift in the recipient’s hands. Still, GST will be applicable if the coins received as gift are used to acquire goods or services or both.   

Equalization Levy

As of date, the equalization levy does not apply to the cryptocurrencies purchased by the Indian citizens from the exchanges located outside India. As these exchanges are not paying any taxes, the Government may notify them down the line for the applicability of the equalization levy.


To provide a level playing field for the domestic players, digital services provided by foreign companies to recipients in India are taxed as part of OIDAR services. The foreign entity must take registration under GST in India and pay GST on the services provided by them to Indian clients.

As of date, many of the cryptocurrency exchanges based out of India are not paying GST under OIDAR Services. This could be a bone of contention, and the department may go behind them to recover duties. This is a low-hanging sword, and they have to cough up 18% as and when they are issued notices by the officials.

As of date, there is an ambiguity on the taxation of cryptocurrencies in India as there is no specific legislation for the same. The interpretation or analysis is purely the author’s views based on his experience and interpretation of the provisions. To clear this ambiguity, the Government should expedite the process of introducing the proposed Cryptocurrency Bill 2021, and it should clear the following grey areas

  1. Treatment of mining of cryptocurrencies
  2. Classification of Cryptocurrencies as goods or services
  3. Taxability of cryptocurrencies as taxable or exempted
  4. Applicable tax rates if they are treated as taxable goods or services
  5. Equalization levy applicability on purchase of cryptocurrencies by Indian from foreign companies
  6. The implication of trading of cryptocurrencies as per Income Tax, GST and other applicable laws
  7. How to determine the exchange value for converting into INR for compliance purposes
  8. Treatment of airdrops issued by the wallets to holders from time to time
  9. Treatment under Income Tax as asset or security for taxation purpose

Though cryptocurrency is not a legal tender in India, many people have started investing in cryptocurrencies. These are used to purchase goods or services or for trading to make money or as an investment. It is also learned that many NRIs are remitting to their family members in cryptocurrencies to save the financial charges levied by the financial intermediaries. Few companies in India are accepting cryptocurrencies for the goods or services supplied by them.

The Government and the Reserve Bank of India are also contemplating a lot on the legislation for cryptocurrencies. As of date, it has not been made as a legal tender as India; we follow the Gold Standard for the issue of currency notes. Still, in cryptocurrency, they are not backed by any sovereign guarantee as they are privately held. The value of cryptocurrencies is highly volatile. In multiple instances across the globe, it has been observed that cryptocurrencies are miss used by anti-national forces. The legislation should be brought on cryptocurrencies at the earliest to avoid litigation. It will clarify the future course of action for the investors and address the above challenges being discussed. If possible, the Government should introduce The Cryptocurrency and Regulation of Official Digital Currency Bill 2021in the upcoming winter session and take inputs from all the stakeholders similar to GST for effective implementation of the same and avoid disputes between the tax authorities with the trade & industry and investors.

Till it is made as legal tender, in any country it opens a can of worms for the law enforcing agencies on the taxation of the cryptocurrencies under the direct and indirect tax legislations in their countries.

Disclaimer Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions, or organizations that the author may or may not be associated with in a professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

New Functionalities enabled on GST Portal during the month of April 2021

New Functionalities enabled on GST Portal during the month of April 2021

Change and improvements are the main reasons for success of any reform or product and the same is being adopted by the GSTN. It is goods to note that GSTN is coming up with new features day in day out and enabling the taxpayers to have seamless experience. These new features will definitely improve the user experience as well as improve the efficiency of compliances and minimizing the errors.

Let’s discuss about the new features/functionalities released by GSTN during the month of April 2021

Auto Generation of Form GSTR – 2B for QRMP (Quarterly Returns Monthly Payment) Taxpayers  

For availing input tax credit matching as per Rule 69 of the CGST Rules is to be carried out based on the taxpayers Purchase Register and data auto populated in From GSTR – 2B based on the suppliers filing of Form GSTR – 1 or IFF (Invoice Furnishing Facility). The QRMP Tax payers have also to do matching and for that Form GSTR – 2B is the basis and now the same is made available to the those taxpayers

  1. Taxpayers can now view and download their system generated Quarterly Form GSTR-2B, for Jan-March, 2021 quarter, by clicking on Auto-drafted ITC statement for the quarter on 14th April, 2021, by selecting the last month of the quarter (M3).
  2. Form GSTR-2B contains details of filed IFFs (for Month M1 & M2) & filed Form GSTR 1 (for Month M3). Form GSTR 2B has two sections of ITC i.e. ITC available and ITC not available (which flows from the supplier’s filed IFF & Form GSTR-1, imports etc.). It also contains tax liability of the taxpayer (which flows from the taxpayers own filed IFF & Form GSTR-1).
  3. The default view of Form GSTR-2B is quarterly. However to view Form GSTR-2B of a particular month (M1, M2 or M3), taxpayer has an option to select appropriate month, from the view drop-down to view that month’s data.
  4. A hyperlink ‘View advisory’ has also been provided, which on clicking displays the criteria/ cut-off dates considered for generation of quarterly GSTR-2B, as a pop-up, with details of Supplies from/type i.e. Monthly taxpayer, Taxpayer in QRMP Scheme, NRTP, ISD & Import from Overseas/SEZs, and ‘From
  • Offline Matching Tool enabled for QRMP Taxpayers

Matching of taxpayers purchase register and data based on the filing of Suppliers Form GSTR – 1 or IFF is an time consuming and complex activity as the taxpayers will many transactions during the return filing period. Automation is the need as it will avoid the user errors and saves time and efforts. Some taxpayers cannot afford investments on technology and for such taxpayers the GSTN has provided an offline utility for matching. With the rollout of QRMP scheme, now the same utility is being made available to the QRMP taxpayers also.

  1. The Matching Offline Tool has been updated and now taxpayers under QRMP Scheme will also be able to use it.
  2. The system generated Form GSTR-2B JSON file can be used for matching details, as available with them in their purchase register, using the updated Matching Offline Tool.
  3. Taxpayers under QRMP Scheme can now navigate to Services > Returns > Returns Dashboard, select the Financial Year and Return Filing Period > SEARCH and click on Download button on Auto – drafted ITC Statement – GSTR -2B tile to download system generated Form GSTR-2B JSON file, for opening and matching it in the matching tool.
  4. In the Matching tool dashboard page, an option to select the quarter has been provided and in the purchase register, quarters Apr-Jun, Jul-Sep, Oct Dec and Jan-Mar have been added as the tax periods.
  • Auto-population of ITC data in Form GSTR – 3B for QRMP taxpayers

The success of any product or service will depend on the ease of its operations and usage it and providing auto population of data is another key element for return filing.  Reconciliations or error occur when there is data entry. Form GSTR – 3B being a  business critical return, the accuracy in filing of it is the need of the hour and similar to regular taxpayer the Input tax credit data is now being auto populated for QRMP Taxpayers also.

  1. Figures of ITC available and ITC to be reversed, will now be auto-populated in Table 4 of Form GSTR-3B of the taxpayers under QRMP scheme, from their system generated quarterly Form GSTR-2B.
  2. On the GSTR-3B dashboard page, an additional button ‘System computed GSTR-3B’ has also been provided, by clicking which system computed Form GSTR-3B can be downloaded in PDF format.
  3. Taxpayer under QRMP scheme can edit the auto-drafted values as per their records and save the updated details in their Form GSTR-3B. The system will show a warning message to taxpayers in case ITC available is increased by more than 5% or ITC to be reversed is reduced even partially, by them. However, the system will not stop the filing of Form GSTR-3B in these cases.
  • Auto-population of Liability data in Form GSTR – 3B for QRMP taxpayers

Similar to input tax credit, the data related to the tax liability to the be discharged by the QRMP taxpayers will be auto populated in Form GSTR – 3B

Liability in Table-3 (except 3.1(d)) of Form GSTR-3B, for the taxpayers under QRMP Scheme, will now be auto-populated on the basis of Filed quarterly Form GSTR-1 (of Month 3) and Filed IFF (of Month 1 & 2). Liability of table 3.1 (d) is auto populated from the filer’s Form GSTR 2B.

Note: Data saved/ submitted in Form GSTR-1 or in IFF, will not be auto-populated as Liability, in Table-3 of Form GSTR 3B

  • Generation of From GSTR – 11 based on From GSTR – 1 and GSTR – 5

Entities and organizations which are falling part of the Geneva Convention or as notified by commissioner from time to time have to the take registration under UIN scheme. The main idea of having a different registration number and basis on that they can claim refund on taxes paid by them for their purchases. These organizations are not required to pay taxes as part of the treaty and they are exempted but in GST as exemptions are very limited or restriced they are provided with refund mechanism and for that they have file From GSTR – 11. Now for these taxpayers also based on the suppliers GSTR – 1 or GSTR – 5, the data is auto populated.

UIN holders are required to file details of purchases (inward supplies) in their Form GSTR-11. Now their Form GSTR-11 will be generated on the basis of Form GSTR-1 & Form GSTR-5, filed by their supplier taxpayers. This will facilitate UIN holder’s in filing their refund claim

Five Commandments – GST for Year Closing

We are in the world of New Normal due to the ongoing pandemic globally. Pandemic has resulted in disruptions and business strategy changes based on consumer preferences and budget allocations. The organizations have started the new financial years on 1st April 2020 in the lockdown period. None of the organizations have prepared or able to scale to the dynamic & ever-changing business environment. Time Never Stops, and History Repeats are the two common phrases we hear in our discussions in business circles. Come whatever may happen, organizations have to close their books of accounts for 31st March year. Closure of books in time and properly helps the organization mitigate the risks and take timely actions for the coming year to improve the top line and bottom line. What is required for increasing the top line and bottom line is a strategy on how to achieve it, and compliance is one of the strategies meant to achieve the same. As we all know, GST is a Business Reform, not tax reform; changing few business processes in the organization here and there can ensure productivity while safeguarding the organization from hefty penalties and late fees. Following a structured process will ensure to minimize the same and at the same time be in good books of the tax authority and the suppliers. Professionals and taxpayers are required to complete the following before filing the GSTR – 1 and GSTR – 3B for March 2021 by 11th of April 2021 and 20th of April 2021 ( for few taxpayers, it will be 22nd of April or 24th of April if their turnover is less than ₹ 5 cores based on the state they are located).

  1. Reconciliation of Outward Supplies
  2. Reconciliation of Inward Supplies
  3. Reconciliation of Related Party Transactions
  4. Issue of Pending Debit/Credit Notes
  5. Reversal of ITC arising out of pandemic
  1. Reconciliation of Outward Supplies

A series of reconciliations have to be done while filing the returns for March 2021 if the reconciliations have not been done while filing monthly and quarterly returns.

Verify the following for the correctness of the data in return filing

  • Taxable Supplies, Exempted Supplies are reported correctly
  • Non-GST supplies are reported correctly
  • Supplies to deemed exporters are reported correctly at lower tax rates
  • Supplies to notified agencies at a lower rate are reported correctly
  • All outward supplies transactions are reported correctly in the Sales Register
  • Ensure that e-invoices are issued wherever required if applicable
  • Ensure and validate that the GSTINs of the customers are entered correctly and reported
  • Ensure and validate that no GST is charged for transactions within the state having the same GSTINs
  • Ensure that all the debit and credit notes are issued as per the provisions of GST
  • Ensure and verify that all the liability entries are passed in the books of accounts

Complete the following reconciliations before the filing of the March GST Returns

  • Reconcile between the GSTR – 1 data and the Sales Register
  • Reconcile between GSTR – 1 and GSTR – 3B
  • Reconcile between GSTR -3B and Sales Register
  • Reconcile the data for the HSN summary being reported in monthly GSTR – 1
  • Reconcile e-waybill data with GSTR – 1 data, and if there are any differences, it is worth making a reconciliation statement and preserve it for future references.
  • Reconcile the e-invoices reported in the GSTR – 1 with the e-invoices generated
  • Reconcile between the Liability Ledgers on GST portal with the

The beginning of the year started with lockdown, and it has resulted in a lot of delays and cancellations of orders. Wherever there is a commercial element missing and open, try to close all such cases by the issue of debit and credit notes. Credit Notes have to be issued before the due date of filing of GSTR returns for the month of September or filing of Annual Return, whichever is earlier.

Section 37 (3), First Proviso

Provided that no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

If any excess tax is paid for the said period through GSTR – 3B, then the same should be reduced from the GST liability in March 2021, reducing the cash outflows. Also, please maintain a reconciliation statement for the same for future reference.

2.Reconciliation of Inward Supplies

One of the major features and business-friendly measures in GST is the availability of seamless input tax credit. Though it is a piece of soothing music to the business’s ears, it comes with a set of stringent measures like if input tax credit has been availed wrongly or excess amounts or claiming it if the supplier has not filed returns. Given all these, availing of the input tax credit process and claiming correctly becomes crucial for the business. 

One of GST rollout’s major benefits for the trade and industry is the availability of input tax credit seamlessly across the supply chain cycle. Though input tax credit is available, certain restrictions are available, and they are given in Section 16, Section 17(5), and in the corresponding rules.

Section 16(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Before doing the reconciliation, ensure to complete the following tasks

  • Update the purchase register for the entire year and ensure all the transactions are updated in it.
  • Verify that e-invoices are received from all the suppliers to whom it is applicable; else, it will not be considered a tax invoice and not eligible to claim the input tax credit.
  • Verify and ensure that all the original copies of the tax invoice are available
  • Verify and ensure that the goods and services are received before availing of the input tax credit
  • Verify and ensure that all the credit and debit notes are updated in the system and accounted
  • Verify and ensure that if any debit or credit notes are required to be issued by the supplier are issued, filed by the supplier in his returns and also accounted in the books
  • Verify and ensure that RCM applicability on inward supplies is identified and accounted for, and paid.
  • Verify and ensure that input tax credit is availed only on eligible inward supplies only
  • Verify and ensure that input tax utilization entries passed in the books of accounts

Section 17(5)

(b) the following supply of goods or services or both—

  • food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
  • membership of a club, health and fitness centre; and

(c) works contract services when supplied for construction of an immovable property(other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

Apart from ensuring the steps mentioned above are completed and the do the reconciliation

Complete the following reconciliations

  • Reconcile between GSTR – 2A / 2B with Purchase Register
  • Reconcile between GSTR -2A /2B with GSTR – 3B
  • Reconcile between GSTR-3B with Purchase Register
  • Reconcile the ITC Ledger on GST portal with the various ledger accounts

Rule 69 – Matching

The following details relating to the claim of input tax credit on inward supplies including imports, provisionally allowed under section 41, shall be matched under section 42 after the due date for furnishing the return in FORM GSTR-3-

  • Goods and Services Tax Identification Number of the supplier; 
  • Goods and Services Tax Identification Number of the recipient;
  • invoice or debit note number;
  • invoice or debit note date; and
  • tax amount:

3. Reconciliation of Related Party Transactions

In multiple instances, related parties are not accounted for properly, or returns are filed incorrectly. This results in a lot of tax litigation or reversal of input tax credits through discharge of liability. Though there is no loss to the exchequer, it is not as per the law’s provisions, and the taxpayer cannot amend the returns if they have claimed wrongly.

It is recommended to verify all such transactions if there are any related party transactions and rectify the same in the March months returns. This process will ensure no loss of input tax credit, excess payment of taxes, which impacts the organization’s bottom line. This will also eliminate litigation and save time and effort.

The above process is not required if the taxpayers reconcile their data before filing their monthly returns

4. Issue of Pending Debit/Credit Notes

In a going business concern, there will always be issues and challenges in the supply chain. The supply chain challenges could be damages or breakages in transit or delay in shipments or receipt of goods, or receipt of inferior quality or different ones from the ordered—all these results in some price negotiations or others. In GST, only the supplier of goods or services can issue a debit note, and the recipient cannot unilaterally issue a debit note or credit note on the supplier.

As the above case results in price negotiation, there will always be a delay in the process, and as it is the year-end, it is recommended to clear all such pending issues. A rigorous follow-up with the vendors is required, backed by documentation.

Another case could be on account of reconciliation, there could be some suppliers who must have missed filing their returns, or their registrations have been canceled; in all such cases where the supplier has not filed the returns, a credit note should be requested to be issued to compensate the loss of input tax credit. If the supplier does not issue a credit note and the payment is already made, then the taxpayer cannot do anything but reverse the input tax credit with interest at the rate of 24%; payment of interest will be an additional loss to the taxpayers. To avoid such cases, before the payment release, it is recommended to complete the reconciliation process or withhold the tax amount until the supplier files the GST returns. This process will ensure that there is an impact on the bottom line.

Similar could be the case in the case of outward supplies. Also, it is recommended to issue debit or credit notes before the 31st of March 2021.

Section 34(2) – Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

Though there is no time limit for the issue of Debit Note but is advised to issue the same as the same will minimize the pending issues, the issue of debit notes brings is additional cash into the system, which has become scarce due to the business disruptions on account of the pandemic.

5.Covid Impact on GST

The pandemic has impacted every business directly or indirectly. The impact is on the sales front, profits front as well on the operations and employee front. As the lockdowns have been announced to curtail the spread of the deadly virus, many manufacturers and service providers have impacted their businesses.


  • If any spoilage/wastage of raw materials or work in progress, the same is being debited to the Profit and loss account simultaneously. If any input tax credit has been availed, the same has to be reversed and observed in the profit and loss account.
  • If any goods have been expired due to the lockdown, the same is being written off to the profit and loss account. Similarly, the input tax credit has to be reversed if any availed.
  • If the customers have returned the goods and the same could not be used, were scrapped or destroyed for not being used, the input tax credit has to be reversed on such goods.
  • If the scrapped goods are sold at a nominal rate, then input tax credit need not be reversed as it is sold as scrap, and GST is paid on it as per one school of thought.
  • The pandemic has also resulted in a delay in payments. Identify if the suppliers are paid within 180 days; if not, the input tax credit must be reversed on the amounts due from one hundred and eighty-first day onwards.
  • If any return of the goods by the customers or dealers or distributors, issue the credit notes immediately without further delay. It will be a challenge in financial reporting if issued after 1st April 2021.

Service Providers

If the advance is received from the customers and service is not being provided due to the lockdowns, advance received treatment becomes crucial in GST. The possible scenarios and treatment under GST

  1. If the advance is returned in the same month, then no need to account for GST on receipt of the advance. Verify and validate all such advance receipts, and if GST is not paid, please pay interest on it if the invoice is issued in the subsequent months.
  2. If the invoice is not issued till 31st March and service is not provided, validate and verify if GST is paid on the advance receipt along with the interest
  3. If an amount is partially returned in the subsequent months and service is not provided, validate and verify if GST is paid on advance receipt if not account it and pay along with interest
  • The pandemic has also resulted in a delay in payments. Identify if the suppliers are paid within 180 days. If not, the input tax credit must be reversed on the amounts due from one hundred and eighty-first day onwards.
    • If any credit notes are required to be issued for the delay in service, complete the activity before filing GST Returns for March; else, reconciliation statements have to be prepared to explain to various stakeholders.
    • If any debit notes have to be issued for price variations, the activity must be completed before the GST Returns filing for March 2021; else, reconciliation statements must be prepared to explain to various stakeholders.

The points mentioned above are indicative and may vary from taxpayer to taxpayer. It is also recommended to address the following points before the filing of the March return  

  1. Inputs sent on job work if not returned within the stipulated period; tax invoice has to be issued
  2. Avail of the input tax credits if any is missed out
  3. There is an exemption for reporting input tax credit by classification for the first two years only; the taxpayers must classify and claim input tax credit accordingly. If not done, prepare a reconciliation statement and validate that the same match the input tax credit claimed in GSTR – 3B.
  4. Verify If any employee gifts above Rs 50,000 on which tax liability has to be paid
  5. Verify if any input tax credit has to be reversed for the goods given without any consideration
  6. Verify if any shortages or damage to stock on which input tax credit has been claimed? If any such items are there, reverse the input tax credit
  7. Validate the input tax credit reversed on common inputs for taxable and exempted supplies being reversed
  8. Verify input tax credit has been reversed on a pro-rata basis on capital goods from one state to another state
  9. Verify the financial credit notes and debit notes issued according to the l provisions; else, issue GST Credit / Debit Notes.
  10. File all the relevant returns as per applicability and complete the reconciliations
  11. Verify if all the customers who have to file GSTR – 7 & 8 have filed their returns and accepted the same, this will save on the cash outflows.

Wherever possible, if any ITC has to be reversed or tax has to be paid, account for it and discharge it through GSTR – 3B.   

Verification of the above tasks is a time-consuming process, and it is recommended to start the process ASAP and ensure that no input tax credit benefit lapses. No removal of difficulties order has been issued for availing input tax credit for an extra period on account of a pandemic-like situation.

During the first three years after the rollout of GST, there was an option for corrections using the GSTR – 9 for liability. The same is being withdrawn based on the Finance Bill 2021, yet to be notified; if this is the case, there is no room left for the taxpayers for rectification. The wrongdoings can be seen only during the audit or scrutiny by the department officers over a period of time. By that time, the penalty amount along with interest also is going to be increased multi-fold. To avoid such challenges, it is highly recommended to follow the above steps before filing the returns for March 2021.

To avoid all the challenges, the return filing data should be captured in the accounting or ERP system accordingly. Wherever possible, automation should be introduced to minimize human efforts and automate the process of data entry and reconciliations. Let’s not forget that GST is a business reform and not tax reform.


Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions, or organizations that the author may or may not be associated with within a professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

GST Returns 2.0

Returns are required to be filed in tax regime by the taxpayers declaring the details of their income in case of direct taxes and the amount of tax on it. In case of indirect taxes, it is a statement which shows the details of the purchases, the amount of input tax credit claimed on it, the total value of sales and the amount of tax payable on the same. Apart from this, the returns also act as a medium of information flow between the taxpayer and the department, whereby giving full visibility to the Government on the amount of taxes being collected based on items, services, or class of taxpayers or geographic regions. This information helps the Government in the determination of the policymaking on the tax rates and also which areas/goods there is more demand and which industry needs support from the Government.

In India, GST has been rolled out from the 1st of July 2017, and there is 360change in the return filing process. Salient features of existing GST Return filing is

  • Mandatory filing of online returns
  • Same return formats for the State and the Central Taxes
  • Filing of transaction-level data
  • Same return formats across India
  • Different return formats based on the nature of registration like Regular, Composition, Input Service Distributor, e-commerce Operator, etc.,

Though transactional data filing is mandatory in GST, the same is not effective in minimizing the revenue leakages as Matching of buyer’s data with the seller’s data is not implemented. It has resulted in the reduction of tax collections as a section of taxpayers is misusing it. To curtail this tax evasion, the Government is introducing the New Returns formats along with matching and e-invoicing.  In the new returns, the number of returns to be filed by the taxpayer has been reduced, but at the same time, the need to have additional data to be uploaded. To implement the same in organizations, the taxpayers and professionals have to understand the requirements clearly and the basis that they have to revisit their business process.

Salient features of new return formats

  • A single return to be filed for the inward and outward supplies
  • Transaction data to be reported at HSN Level
  • Each return is supported with two Annexures, Anx – 1 for the outward supplies and Anx -2 for the Inward Supplies
  • Suppliers can upload the sales invoices on a real-time basis continuously
  • The information flow between the supplier and the recipient is on near real-time basis
  • For ease of taxpayers there returns formats have been introduced
  • Quarterly filing of returns is available for the taxpayers having a turnover up to Rs 5 crores
  • Debit / Credit Notes need not be tagged with a tax invoice
  • Payment of taxes is to be discharged through PMT-08
  • Different due dates for return filing for the monthly and quarterly taxpayers to reduce the load on the GSTN Servers to provide better user experience to the taxpayers.
  • Matching tool for reconciling the Purchase Register with Anx – 2

New Returns 1

Compared to the existing GSTR -1, which has lots of tables for classifying and reporting the various transaction, debit notes/credit notes, and amendments to the invoices. All these different tables make complex and confusing to the taxpayers and basis on the inputs received from the industry, trade bodies, professionals and department personnel the returns have the revised and made simple. The new returns will improve the user experience and also reduce the load on the GSTN portal as they are simpler, and the due dates for the regular and quarterly taxpayers are different.

New Returns 2

Differences between the three returns data for Outward Supplies

New Returns 3

Differences between the three returns for the Inward Supplies

New Returns 4

Basis on the nature of transactions the taxpayers have, they have to select appropriate returns in GST. Newly registered taxpayers have the option of selecting any of the three return categories.

Data flow from Supplier to Recipient in the New Returns

New Returns 5

  • Once the Recipient accepts the invoice, the same gets locked in the Supplier’s return, and he cannot edit or modify the same.
  • If the Recipient does not take any action, at the end of the month, the liability is finalized and updated in the returns accordingly.
  • If the Recipient Accepts the invoice, the same is updated for his input tax credit.
  • If the Supplier uploads the invoices before the cut off period, say 10th of the next month, if the Recipient accepts the same, can avail the input tax credit in the same month.
  • If the Supplier uploads the invoice after the cut off period say 10th of the next month, the Recipient even if he accepts the same, the input tax credit will be reflected in the subsequent month.

Data from Anx – 1 and Anx -2 flows the respective returns, and then the liability is frozen. An option is also provided for the taxpayers to enter the input tax credit on the invoices issued before the rollout of the new returns but claimed after the rollout of the new returns.

With the new returns in place, a lot of changes are required in the business process and accounting. These changes will help to implement the same without any challenges and also ensure that there are no GAPS in the GST Compliance and data is readily available for the Annual Return and GST Audit if applicable.


As there is a requirement of matching of the supplier invoices before availing the input tax credit and payment of taxes, the taxpayer should train all the concerned stakeholders like Purchasing Team, Stores Personnel, Finance Team along with the taxation team. Even training has to be provided to the IT Team will be aware of the requirements and accordingly develop or make changes to the existing ERP’s / Accounting packages.

Business Process

The business process of procuring the goods have to be changed at the earliest as a change in any organization faces resistance. The Purchase Department should have a process to check for the supplier return filing status as one of the conditions before the release of the purchase/service/work orders. This condition should be added along with the existing criteria like Quality, Price, Post Service, Warranty & Delivery period. As per the new provisions, even if the data is auto-populated in Anx – 2, if the Supplier does not file returns for two months, the input tax credit cannot be availed. Any deviations in the above process will strain the cash outflows as the taxpayer is deprived of the input tax credit and has to discharge the liability through cash.

Follow up with Vendors

The purchase department team’s  KRA should be enhanced now to follow up with the suppliers for filing of returns and payment of taxes. Access should be provided for them for Anx – 2 so that they will have updated information and have regular follow-ups. This will help the organizations to avoid the last-minute rush at the time of filing of the returns. As the data is being updated on a near real-time basis, the purchasing department will have a complete picture of the upload of invoices by the suppliers from time to time.


Reconciliation is a tedious activity, and it requires a lot of patience and concentration. To steam line this activity, the large taxpayers should think of automating this whole process by making necessary changes to their ERP / Accounting software wherever possible or go for third party solutions with proper integrations. Alternatively, they can also outsource this activity and concentre on their business only. This will be a win-win situation as it creates more employment and at the same time, improve productivity.


As per the latest changes in the existing input tax credit mechanism and with the New Returns, the input tax credit is available only after matching. To keep track of the invoices which are matched and which are not matched, the accounting policies also have to be changed accordingly. The accounting entry at the time of receipt of goods or invoice entry should be debiting the interim / suspense account for respective taxes. At the time of matching the actual credit, the entry should be updated. This process will ensure you have to checks and balances in the system and also minimize the outflow of cash. Here also automation can help a lot; check if your accounting / ERP has this feature and if not explore for the option of customization and implement the same.

Additional Fund Requirements

As input tax credit is available only matching, this means there will be a requirement of funds in the short run. The additional requirement of funds should be projected accordingly and also make necessary arrangements for the same.  Arrangement of additional funds also takes time and cost; this has to be factored accordingly.

Apart from this, the automation process and training also involve cost; budgets should be allocated for the same accordingly.

Management Blessing

The top management and the key decision-makers should be appraised of the upcoming changes in the return filing system along with the implications. Management approvals are required in every organization and this will also help them in the decision-making process. In any organization, the implementation of the new process or change is possible to be implemented successfully if it is a top-down approach. This will give the finance/tax team to implement the same easily.

On the face of it, New Returns looks to be simple but the undergoing changes are tremendous and it requires proper planning and execution. For the adoption of new returns to be successful, the organizations have to strive hard and at the same time, ensure that there also lapses in compliance. If all the organizations adopt the same with full vigor and efforts, we can envisage the bouncy in the tax collections, which can result in tax rates reduction of goods and services.



Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

This article is published in the Supervisor released during the Third National Seminar on Taxation held on Bhubaneswar in Dec 2019.


Role of Technology in GST 2.0

Goods and Service Tax has been rolled out in India from 1st July 2017, and now it is about 28 months, and during this period, we have seen a lot of changes being announced by the Government. The roll out of GST is dubbed to be the largest reform after Independence, but in reality, it is a business process reform as the trade and industry have to change their business process, and also, the Department has adopted technology and started doing data analytics to find out the errant taxpayers. All these are the things of the past,  there are a lot of changes being announced, and for that, the trade and industry have adopted to them else they will receive the same as a shocker like the roll out of GST or matching of invoices for availing the input tax credit.

As we are in the era of digitization from banking to day to day payments, if we do not embrace technology, we will be missing the bus, and it will impact the top line and bottom line of our business. In GST, very important changes are announced, and some of them are already effective some or going to be rolled out in 2020. The areas in which technology can help us to run our business smoothly and without

Matching for availing input tax credit

One of the major changes seen in GST is in the Return filing process. In the erstwhile tax regimes, the filing of returns was done manually or in some cases, filed electronically. There was no validation between the suppliers’ returns and the buyers’ returns, but in GST, it is implemented as the Government was to weed out the black sheep from the system. Matching was part of the GST law and the return formats, but it has to be deferred as small taxpayers were not used to it and did not have the know-how of doing the same. Now the same has been made effective from 9th Oct 2019 through Notification No 49 – Central Tax. The taxpayer is eligible to take input tax credit only based on the supplies filing of GST Returns. Invoices uploaded by the supplier has to be matched with the buyers purchase register, this can be done manually if the number of transactions is less as in case of small traders but in case of medium to large organizations where there are thousands of purchase invoices and multiple GST Registration Numbers, matching manually is a challenge, technology can adopt us the do this job seamlessly. There are various solutions available in the market where the GSTR – 2A data can be imported using the API’s and then uploading the purchase register with the relevant data, matching will be done seamlessly and accurately.

Adoption of technology for this activity not only saves time but also safeguards the organizations from paying interest and penalty on account of availing input tax credit wrongly due to human errors.


Tax evasion is one of the biggest challenges which the Governments face across the globe, and as part of it, many of them have adopted/implemented e-invoicing. If technology is adopted, e-invoicing is very simple. The suppliers will generate the tax invoice in his system and send the data through APIs (without human intervention) to the Invoice Registration Portal (IRP), and once the IRP validates the data, a unique number is generated and sent back. The same is imported, and the tax invoice can be printed. All these activities take place with the help of technology and happen in a matter of a few seconds. It will ensure that there are no disruptions in the business process; alternatively the taxpayers can upload the data manually on the IRP, but there will be room for data entry and human errors; this will lead to another set of compliance issues.

IRP not only generates the IRN but also shares the data with the supplier and updates in Anx -2, updates the Anx- 1 of the supplier, and also generates the Part – A of the e-waybill. In a nutshell, the adoption of technology for one activity has resulted in the accomplishment of three different tasks.

e-invoice is being rolled out from 1st Jan 2020 voluntarily and for B2B transactions, with matching in place for availing input tax credit, this makes the life of taxpayers very easy if the technology is adopted and taxpayers start issuing e-invoices.

New Returns

As a part of the simplification of the GSTR Return filing process, the Government has consolidated multiple returns into a single return with annexures. This is a welcome move, but again, this requires some changes in the business process and the way transactions are recorded.

The major shift we have seen in GST is filing of returns electronically and reporting of transaction data, but with the new format for GST returns, the Government is going one step ahead and is asking the taxpayers to report the same at the HSN level. It means that the taxpayers have to start filing the returns at the invoice line level or group at the HSN level if there are multiple lines on the invoice with the same HSN. This activity cannot be done manually, and for this, digitalization is required, and there are no exceptions for filing. The only exception is for the periodicity of return filling but not for the data. To make the life of MSME’s simple and easier before the rollout GST, the Government has shortlisted and validated free accounting software for MSME to adopt them.

Entering the data manually will only complicate the process and gives room for human and data entry errors. As the new returns are applicable from 1st April 2020, the taxpayers should have a plan for the adoption of digital ways for the issue of tax invoices so that the return filing is accurate and duplication of work is avoided.

GST Audit / Annual Returns

Every taxpayer who has to file the GST Annual Return GST Audit, the data to be uploaded in the returns are at a micro-level. Being the initial years of rollout of GST, many of the taxpayers are not having the data required for filing of the GST Annual Return. To give legroom for the taxpayers, the Government has relaxed the requirements for the first two years, but going forward, the micro-level data has to be uploaded.

The data has to be captured at the transaction creation time only, and it cannot be done as a post-mortem activity. For the data to be in place, again, digitalization is the only solution. This will help in the maintenance of the books of accounts easily and being GST compliant. For this, the taxpayers have to revisit their ledgers/chart of accounts and create new once wherever necessary, so that the transactional data is updated accordingly.

Apart from the ledgers, the HSN summary and tax rate wise data also have to be uploaded; this is possible only if the taxpayers have a proper accounting system in place. For small taxpayers, it may not be a challenge, but for the MSMEs and the big taxpayers, it is going to be a challenge if necessary changes are not incorporated in the accounting packages / ERP.

As the compliance requirements are stringent and mandatory, the taxpayers have to adapt to the new age technologies and start doing business. The adoption of technology helps them to concentrate on their core business areas rather than spending productive time on compliance work. We as professionals, have to guide the taxpayer accordingly and help them in the technology adoption. Things can be done without technology, but they will consume a lot of time and effort. As business is slowly moving from the unorganized sector to the organized sector, there will be some teething troubles, and we should join hands together for the transformation to happen smoothly.


Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

This article is published in Souvenir released in the Southern Regional Cost Convention held in Chennai in Nov 2019.

38th GST Council’s decisions regarding Law and Procedure related changes

The 38th meeting of the GST Council met under the Chairmanship of the Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman here today. The meeting was also attended by the Union Minister of State for Finance & Corporate Affairs Shri Anurag Thakur  besides Finance Ministers of States & UTs and senior officers of Ministry of Finance.  The GSTCouncil recommended the following:

  1. Grievance Redressal Committees (GRC) will be constituted at Zonal/State level with both CGST and SGST officers and including representatives of trade and industry and other GST stakeholders (GST practitioners and GSTN etc.). These committees will address grievances of specific/ general nature of taxpayers at the Zonal/ State level.
  2. Due date for annual return in FORM GSTR-9 and reconciliation statement in FORM GSTR-9C for FY 2017-18 to be extended to 31.01.2020.
  3. Following measures would be taken to improve filing of FORM GSTR-1:
    1. waiver of late fee to be given to all taxpayers in respect of all pending FORM GSTR-1from July 2017 to November 2019, if the same are filed by 10.01.2020.
    2. E-way Bill for taxpayers who have not filed their FORM GSTR-1 for two tax periods shall be blocked.
  4. Input tax credit to the recipient in respect of invoices or debit notes that are not reflected in his FORM GSTR-2A shall be restricted to 10 per cent of the eligible credit available in respect of invoices or debit notes reflected in his FORM GSTR-2A.
  5. To check the menace of fake invoices, suitable action to be taken for blocking of fraudulently availed input tax credit in certain situations.
  6. A Standard Operating Procedure for tax officers would be issued in respect of action to be taken in cases of non-filing of FORM GSTR 3B returns.
  7. Due date of filing GST returns for the month of November, 2019 to be extended in respect of a few North Eastern States.
  8. The Council also approved various law amendments which will be introduced in Budget 2020.

[This note presents the decision of the GST Council in simple language for easy understanding which would be given effect through Gazette notifications/ circulars which alone shall have force of law. The same will be made effective from the date as specified in such notifications / circulars.]




Over Simplified GST Annual Return & GST Audit

Apart from the monthly filing of returns by the taxpayers in GST, all taxpayers have to file GST Annual Return and taxpayer with turn over above Rs 2 Crores have to file GST Audit Report yearly.  Annual Return under GST has to be filed through GSTR – 9 by all the taxpayers who have registered in GST even for a single day during the period 1st April 2017 to 31st March 2017.  The data to be reported is very much in detail, and most of the taxpayers have failed to maintain the data in the required manner as they have not reviewed or been guided based on the draft return formats released by the Government before the rollout of GST. The formats for the GSTR – 9 and GSTR – 9C (audit) have been released during Sep 2018; by that time, the financial year has lapsed, and most of the taxpayer was not in a position to get the data. This has resulted in requests from the trade, industry, and professionals for the extension of the due dates and simplification of the formats.

The Government has extended on multiple occasions from 31st Dec 2018 to finally now to 31st Dec 2019. Filing of Annual Return has been made optional for taxpayers having up to Rs 2 Crores has been made optional wide Notification No. 47/2019 – Central Tax for the Financial Year 2017-18 and 2018-19. Now, apart from this, the Government has simplified the return filing process for other taxpayers. This is good news for the taxpayers as their pain in collating the data is no longer required as most of them have been made optional for the Financial Year 2017-18 and 2018-19.

Simplifications announced in GSTR – 9

  1. Outward supplies can be reported net of Debit / Credit Notes and Adjustments

The outward supplies being reported from Table 4A to 4G now can be reported net of Debit / Credit Noted and adjustments optionally if the taxpayer is having any difficulty in deriving the data. The outward supplies that can be reported are

  1. B2B Supplies
  2. B2C Supplies
  3. Deemed Exports
  4. Supplies to SEZ with payment of Duty
  5. Exports with payment of duty
  6. Advance received but supplies not made
  7. Inward supplies on which tax is payable on account of reverse charge


  1. Consolidated reporting for Exempted, Non-GST, and Nil Rated Supplies

All the supplies related to Exempted, Non-GST, and Nil Rate Supplies, which are to be reported in Table 5D to 5F, can now be reported in Table 5D, i.e., Exempted as a consolidated amount optionally if the taxpayer has any challenges in deriving these amounts individually. These can be reported net of Debit / Credit Notes & Amendments rather than reporting them separately.

  1. Outward Supplies Without Payment of Duties

The taxpayers can report the supplies made to SEZ or SEZ Developers, Exports, or Supplies on which the Recipient has to pay taxes can be reported net of Debit / Credit Notes & Amendments. These supplies are falling in table 5A to 5C.

  1. Input Tax Credit

Inward supplies from other than imports or from SEZ Units, imports and liable for reverse charge which are to be reported in Table 6B separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6B – “Inputs” if the taxpayer is not able to provide the breakup of the same.

Inward supplies received from unregistered suppliers liable for reverse charge are to be reported separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6C – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

Inward supplies received from registered suppliers liable for reverse charge are to be reported separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6D – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

Inward supplies from SEZ Units are to be reported separately for Inputs & Capital Goods can now be reported as a consolidated amount in Table 6E – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

  1. Reversal of Input Tax Credit

Taxpayers are required to reverse the input tax credit if the supplier is not paid in 180 days as per provisions of Rule 37, Input Service Distributor as per provisions of Rule 39, reversal in cases where the goods or services or both used partially for taxable supplies and partially for non-business purpose or exempted supplies as per provisions of Rule 42 and for transfer or sale of capital goods as per provisions of Rule 43, Blocked input tax credit under Provisions of Section 17(5) of the CGST Act 2017  were supposed to be reported separately in Tables 7A to 7E can now be reported as a single amount in Table 7H.

  1. Refunds

The taxpayers are required to fill the amount for Refund Claimed, Refund Sectioned, Refund Rejected & Refund Pending are to be reported in Table 15A to 15D, now the taxpayers have the option of not reporting the same.

  1. Demands

Taxpayers are required to fill the amount of Demand raised, Amount of Demand Paid, and Pending amounts in Table 15E to 15G, now the taxpayers have the option of not reporting the same.

  1. Reporting of other Supplies

Taxpayers were required to report the supplies from Composition Tax Payers, Total amount  of material not received from job work, which is considered as deemed supplies and goods shipped on approval basis but received within specified period are not returned are required to report in Table 16A to 16C and now the taxpayers have an option of not reporting the same.

  1. HSN Summary for Inward & Outward Supplies

Taxpayers were required to provide the HSN Summary for the Inward Supplies and Outward Supplies in Table 17 & Table 18, and now the taxpayers have the option of not reporting the same.

  1. Applicability of the optional reporting

In almost all the sections where details are required to be reported, but now the same has been made optional. The flexibility applies only from 1st July 2017 to March 2018 and from 1st April 2018 to 2019. Thereby meaning that the taxpayers have to file the detailed amounts for the year 2019-20.

Simplifications announced in GSTR – 9C

GSTR – 9C is a reconciliation statement between the GST Returns and the Financial Statements. As part of the reconciliation statement, there is also a requirement to the return certified by a practicing Cost Accountant or Charted Accountant, the wording used in the same are also modified to shift the onus form the GST Auditor to the Taxpayer.

Simplifications announced in GSTR – 9C

  1. Revenue Reconciliation

Taxpayers have to reconcile the revenue between the GST Returns and the Financial Statements. The tax payment is based on the Time of Supply for the GST Returns, and for the Financial Statements, they are based on the Accounting Standards; as a result, there will be a difference between both the revenues and the same is required to be reconciled and reported in GSTR – 9C. The reconciliation is the GSTR – 9C is required to classify under the following sections

  1. Unbilled Revenue at the end of the Financial year
  2. Unbilled Revenue at the beginning of the Financial year
  3. Supplies treated as Deemed Supplies as per Schedule – 1
  4. Credit Notes issued for the supplies in the next financial year, not reflected in the GST Returns
  5. Trade Discounts accounted in the Financial Statements, but they are ineligible as per GST and not reflected in the GST Returns
  6. Turnover from 1st April to 30th June 2017
  7. Credit Notes accounted in the Financial Statements, but they are ineligible as per GST and not reflected in the GST Returns
  8. Adjustments on account of supply of goods by SEZ units to DTA Units
  9. Turnover for the period under composition scheme
  10. Adjustments in the turnover under section 15 and rules thereunder
  11. Adjustments in turnover due to foreign exchange fluctuations

All these are required to be reported in Table 5A to 5N of the GSTR – 9C, now the taxpayers have an option to report the same separately as a consolidated amount in Table 5O.

  1. Input Tax Credit Reconciliation

Input tax credit reconciliation is required to be provided in Table 12, and as a part of it in 12 B, ITC booked in earlier Financial Year claimed in current Financial Year is not mandatorily required to be reported. Taxpayers have the option of not reporting it also.

In table 12 C, ITC availed as per audited financial statements or books of accounts, taxpayers have an option of not reporting it also.

  1. Expense wise reporting of Input Tax Credit

In Table 14 of GSTR – 9C, taxpayers are required to report the input tax credit based on various accounting/expense heads mandatorily, now taxpayers have the option of reporting the same.

  1. Certification from GST Auditor

GST Audit has to be certified by GST, a practicing Cost Accountant or Charted Accountant, who is certifying the audit. The format and the content of the Certificate are the same except for the change of wordings from “true and correct” to “true and correct.” This gives a lot of breather for the practicing members as they are not coming forward to come and certify that the information provided by them is correct.

The simplification of the GSTR – 9 and GSTR – 9C is applicable only for the FY 2017-18 & 2018-19, and the extension of the due dates have been notified through the Removal of Difficulties Order No. 08/2019-Central Tax dated 14th Nov 2019.

From the above, it makes it clear that the Government wants all the eligible taxpayers to file the GST Annual and Audit returns. Once the filing is completed, the Government may be taking up the assessment of the same to ascertain the correctness of the data being furnished from time to time by the taxpayers and also detect any tax evasion which might have taken place. After the rollout of GST, to date, the taxpayers have not completed at least one audit or assessment.



Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

360° analysis of Circular No. 123/42/2019 – GST

Restrictions on Input Tax Credit is notified on 9th Oct 2019 wide Notification No 49/Central Tax, dated 9th Oct 2019. There is a lot of confusion and the process of availing the restricted input tax credit by the trade and industry and along with the professional. Keeping in view of all these, CBIC has issued Circular No. 123/42/2019– GST dated 11th Nov 2019. Though the circular clarifies most of the points, there are still a couple of points on which clarity is required.

Points clarified in the Circular No. 123/42/2019– GST are

  1. Restrictions on 20% input tax credit is applicable for availing input tax credit after 9th Oct 2019, thereby meaning it is applicable for the filing of the return for Sep 2019 also.
  2. Restriction of 20% is applicable only for the invoices, debit notes and credit notes reflected in GSTR – 2A
  3. Restriction of 20% is not applicable on the IGST paid on imports, ISD transfer, etc., which are not part of the GSTR – 2A
  4. Restriction is not applicable supplier wise but on the total eligible credit. Ineligible credits have to be deducted from the available credit from GSTR – 2A
  5. If the total amount of restricted credit of 20% is more than the eligible credit, then it is restricted to the eligible amount only.
  6. The taxpayer can take the differential amount of input tax credit where the suppliers have filed the returns in the subsequent tax periods

Points which require clarification are

  1. The amount of restricted credit claimed during the month is for which tax? Is it to be considered separately for CGST, SGST, and IGST or the sum of all the taxes?
  2. What would be the treatment if the taxpayer has claimed for IGST only, and the suppliers have filed returns on which CGST +SGST is available?
  3. Ineligible credit in case of the same supplies used for the taxable and exempted supplies will be known at a later period, in such a case who to determine the eligible credit?

As per the author’s interpretation, it is based on each tax and not the total input tax credit available in GSTR – 2A as the said notification is issued concerning CGST Rules. The third point definitely needs some clarification based on the wording used in the circular “The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision (say under sub-section (5) of section 17) would not be considered for calculating 20 per cent. of the eligible credit available.”

The taxpayers have to do a cost-benefit analysis after considering all the scenarios, the amount of additional investment involved for claiming the restricted input tax credit as it involves changes in the accounting systems and keeping track of the same. Even if the taxpayers decide not to go for the availing restricted 20% credit, still they have to change the accounting practice for availing input tax credit. Embracing technology will help the taxpayers to overcome the challenges of maintaining the reconciliations manually and also keeping track of it from time to time and update it. The changes in accounting required for availing the 20% restricted input tax credit, the details of the changes in the accounting can be referred here

Whatever the decision the taxpayers have to take, they have to take it at the earliest as the clock is ticking, and the due date for filing of GSTR – 3B for Oct 2019 is approaching fast.


Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

Input Tax Credit Utilization

Changes have been announced in the input tax credit utilization in the GST and now the taxpayers have to first utilize the input tax credit of IGST and then only utilize the other taxes input for offsetting the various tax liabilities in GST.

These changes are announced in the CGST Amendment Act 2018.