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.

Training

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.

 Automation

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.

Accounting

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.

 

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 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.

 

FAQ – 17

What are the various reasons where the GST Liability as per financial statements and GST Returns could be different?

There could a difference due to the following reasons commonly

a) Revenue Recognition

b) Stock Transfer outside the states

c) Advance Receipt from customers

d) GST on paid on job work if not returned in stipulated time

e) Reverse charge on certain goods on outward supplies

f) Reverse charge on inward supplies paid

GST Tip – 385

As per Rule 138 of the CGST Rules, every registered person under GST has to generate Part A of FORM GST EWB-01, when goods worth more than Rs 50,000 are being transported in relation to supply or for stock transfer from one location to another location or for movement of material for other than supply or in case of inward supplies from unregistered taxpayers.

GST Tip – 363

As per Notification No.   45/2017 – Central Tax, details related to  Inward supplies received from a registered supplier (other than supplies attracting reverse charge) are not required to be reported in Section 4A of the GSTR – 4 for July 2017 to September 2017 and October 2017 to December,2017quarters.

GST Tip – 329

If a taxpayer has missed any outward supplies or inward supplies invoices amounts while filing GSTR – 3B, those invoices can be included in the GSTR – 1 and GSTR – 2 and the output liability and input tax credit will be considered in the GSTR – 3 and if any amount is payable the same can be paid. As there is no edit option available for GSTR – 3B, this approach can be taken and be tax compliant.

Does GTA Services fall under Notification No.8/2017-Central Tax (Rate)?

Before we go and conclude on the topic “Does GTA Services fall under Notification No.8/2017- Central Tax (Rate)” first let’s understand what is reverse charge? where it is applicable along with in which cases it is exempted.

In the normal course of business, taxes are paid by the recipient of goods or services or both to the supplier of goods or services or both and the supplier, in turn, remits the amount of tax collected to the respective tax authorities. In case of reverse charge, the recipient will pay on behalf of the supplier of goods or services or both.  This is clearly defined in sub-section 98 of Section 2 of CGST Act

“reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act;

The category of goods or services on which reverse charge is applicable is clearly defined sub-section (3)  of section 9 of CGST Act

The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

 Sub-section (4)  of section 9 of CGST Act defines clearly states that in case of supply of goods from unregistered taxpayers, the recipient should pay taxes.

The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Notification No.4/2017-Central Tax (Rate), clearly gives the list of goods on which reverse charge is applicable.

RS on Goods1

RS on Goods2
RS Goods_2

Notification No. 13/2017- Central Tax (Rate) provides the list of services under which reverse charge is applicable on the list of services under CGST Act.

RS Services 1

RS Services 2

From the above two notifications, it is clear that Reverse charge is applicable on all inward supplies of goods and services. Previously Reverse Charge was applicable only for the services and now under GST it is applicable for the goods also. As GST is a new and taxpayers who are registered under VAT in the erstwhile regime may or not may not be aware in all the states. In order to provide some ease of doing business, the government has given some exemptions for the applicability of Reverse Charge on inward supplies wide Notification No.8/2017-Central Tax (Rate), the same is given below

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017):

Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.

Now in the trade, one question which is asked very frequently is that is reverse charge exemption applicable on services like GTA, hamali charges or other freight charges paid by the taxpayers on day to day basis?

If we go through Notification No.8/2017-Central Tax (Rate), it is given for all the inwards supplies from unregistered tax payers by a registered taxpayer. So the above question does not arise that. If the inward supplies based on the above are below Rs 5000 in a day, then reverse charge is not applicable and benefit of the said notification can be taken.

If you have any different view, please share your views in the comments section so that it will be helpful for coming to a common understanding.

GST Tip – 299

As per Rule 46 of CGST Rules 2017, in the case of inward supplies of reverse charge where the inward supplies are more than Rs 5,000 per day, a consolidated tax invoice can be issued at the end of the month for all such transactions during the month.

GST Tip – 293

In section 4( B ) of GSTR – 3B, input tax credit availed at the time of inward supply being reversed on account of using the same inputs used for taxable supplies and exempted supplies. Reversal of such input tax credit has to be done for both the inputs and the capital goods. Input tax credit reversed for any other reasons issue of free goods or used for employee purpose or used for non-business purpose.

GST Tip – 292

In subsection A of Section 4 of GSTR – 3B, input tax credit availed during the month has to be shown separately for all the taxes for import of goods, import of services, inward supplies from ISD, inward supplies which attract reverse charge along with any other sources from where ITC is claimed that is for the inward supplies of goods and services together.