Returns under GST have undergone a lot of turmoil. GST era started with a big bang of compliance based law and complete Transparency System. However, one of the biggest challenges of GST Implementation was filing of returns online. When GSTR 2 was introduced the return filing mechanism completely failed and since then only GSTR 1 and GSTR 3B are filed. There were lot of apprehensions from the industry too in complying with the GSTR 2, especially marking the invoices as accepted, selecting the amount of credit to be claimed and reporting of HSN, classification of purchases between Input, Input Service, Capital Goods etc. Read on…
The submission and processing of return is an important link between the taxpayer and tax administration as it is an important tool for:
- (i) Compliance verification program of tax administration; Simplified Proposed GST Returns - Ver 2.0 Are They Actually Simple?
- (ii) Providing necessary inputs for taking policy decision;
- (iii)Management of audit and anti-evasion programs of tax administration;
- (iv) Finalization of the tax liabilities of the taxpayer within stipulated period of limitation.
Since the entire chain of reporting is not complete, we can say the compliance is not 100% complete. The prima facie model of filing of GST return was based on matching concept whereby the outward supplies uploaded by supplier will be matching with corresponding claim of ITC on account of inward supplies by the recipient. In case the same is matched, the claim of ITC is accepted else the claim of ITC will be added in output liability of the recipient in the return of next tax period along with requisite interest or penalty.
The government made a committee for simplifying return processes who have submitted their report to GST Council. GST Council in its 27th meeting held on 4th May 2018 had approved the basic principles of GST return design. Now in its 28th meeting held on 21st July 2018, GST Council approved the key features and new format of the GST returns. This is placed in the Public Domain for feedback upto 31st August 2018. We hereby analyse the above process to understand that are these returns will actually give much needed relief to the trade and Industry.
- A. Key Features of Proposed Return Process
The key features of the proposed return process are discussed below;
1. Consolidation of Returns: All 3 returns (Outward, Inward, Monthly) has been now condensed to one return with outward and Inward as an annexure to furnish. Currently small taxpayer file quarterly returns, the same is continued and the limit of small taxpayer is now revised to 5 crores. The turnover will be calculated based on the reported turnover in the last year i.e. 2017-18, annualized for the full year. The following table will explain the new Returns.
A questionnaire would be made available to show only relevant fields based on the transaction applicability, to ensure the returns look crisp and only limited tables for data entry.
2. Uploading of Outward Supply Annexure : Supplier would be given a facility to upload the Invoices on continuous basis. Invoices uploaded till the date of returns would automatically be updated as liability in the monthly/quarterly returns. However, for the Recipient, Invoices uploaded till 10th would be made available as Input credit for that Period Return.
3. Due Date for filing : Return filing dates shall be staggered based on the turnover of the taxpayer. The due date for filing of return by a large taxpayer shall be 20th of the next month.
4. Filing of Nil Return by SMS : Taxpayers who have no purchases, no output tax liability and no input tax credit to avail in any quarter of the financial year shall file one NIL return for the entire quarter. In month one and two of the quarter, such taxpayer shall report NIL transaction by sending a SMS. Facility for filing quarterly return shall also be available by an SMS. There is no clarity whether filing of Nil return facility by SMS will be applicable for registered person availing option of Monthly return.
5. Payment of tax : for quarterly return filers, there has been an additional monthly form issued for discharging the tax liability on self-declaration basis of turnover and gross liability, ITC and net liability. The benefit of this simplification would be that the compliance cost for small taxpayers would come down as payment declaration form is not a return and minor errors in the same would not lead to initiation of any legal action. IF there are any Invoices uploaded as mentioned above the same shall be considered for minimum gross liability. It needs to be assessed whether this simplification would add any additional burden to small tax payers.
- B. Matching Process in Proposed GST Return Formats
1. Invoice Locking : By now we all know under GST the documents are uni-directions, it needs to be filed by supplier only. As and when the supplier updates the invoice, the same is available to recipient in real time basis. Supplier can edit if it’s not locked / accepted. Recipient can exclusively select the invoice and mark as accepted. Owing to large transactions recipient can proceed to file the returns without explicitly marking them as accepted. In that situation, the invoices would be marked as deemed accepted and locked.
2. Unlocking of Invoice: If there needs to be a correction in the Invoice, the same can be unlocked by the recipient for a correction by the supplier. The moment invoice is unlocked, corresponding credit would be forgone at the recipient end, the same can be availed once the edited invoice is again accepted by the recipient.
3. Invoice uploaded but return not filed: In cases where no return is filed after uploading of the invoices by the supplier, it shall be treated as self-admitted liability by the supplier and recovery proceedings shall be initiated against him after allowing for a reasonable time for filing of the return and payment of tax.
4. Missing Credits: A six month transitional window would be provided to account for invoices or debit notes which have not been uploaded by the supplier and on which recipient choose to avail input. credit taken hereby is called as “missing invoices”. The credit availed would be provisionally considered for a period of two months within which supplier has to upload the invoices, in case that doesn’t happen, this credit shall lapse, and recipient must declare invoice wise supplier wise defaults. An IT tool would be provided for downloading of invoices in Excel format and reconciling with books of accounts to assess missing invoices
5. ITC Credit Process: The following chart explains the process of ITC Business Flow
- C. Preparation of Monthly Return
The main return shall have two main tables,
1) Table 3: reporting supplies on which tax liability arises and
2) Table 4: for availing input tax credit.
These tables are similar to that of Current 3B format. Taxes are discharged using Table 7 Payment of Taxes. The other details like amount of Interest and late fee due to late filing of return (including late reporting of invoices of previous tax periods) will be auto-computed by the system. However, interest on account of reversal of ITC or late reporting of reverse charge supplies will be calculated by the tax payer.
One of the new feature which is added in the return is period wise reporting of tax liabilities. Liability in the return arising out of invoices of different dates shall be summarized period wise. However, one payment for the total tax liability on all tax invoices shall be allowed to be made. For example, a missing invoice of April if needed reporting in September, would be reported in the regular return of September. However, the liability for the month of September and April shall be shown separately on the common portal to the taxpayer in the regular return of September but one consolidated payment would be required to be made. Interest shall be calculated on invoices reported late i.e. in the present example on the invoice of April. After filing of the return, information relating to April invoice shall be clubbed with the information relating to April information.
In case of refund claimed from Electronic Cash ledger, the same can be undertaken from Monthly return. The above feature will become operational in Proposed return format. Currently tax payer need to file separate application for the same.
Return shall have following annexures;
1. Details of outward supplies, imports and inward supplies attracting reverse charge. The Invoices of outward Supply can be continuously uploaded by supplier. These invoices will get auto populated in this annexure. The following is the summary of Liability Table 3
- 3A. Supplies made to consumers and unregistered persons (Net of debit notes, credit notes)
- 3B. Supplies made to registered persons (other than those attracting reverse charge)
- 3C. Exports with payment of tax
- 3D. Exports without payment of tax
- 3E. Supplies to SEZ units/developers with payment of tax
- 3F. Supplies to SEZ units/developers without payment of tax
- 3G. Deemed exports
- 3H. Inward supplies attracting reverse charge (to be reported by recipient, GSTIN wise, net of debit notes and credit notes)
- 3I. Import of services
- 3J. Import of goods*
- 3K. Import of goods from SEZ units on a Bill of Entry*
- 3L. Missing invoices on which credit has been claimed in (T-2) tax period and supplier has not reported the same till filing of return for the current tax period
Table 5: HSN wise summary of inward supplies and that of outward supplies declared in table 3 (four digits or more)
Some important points to note in the above statement are;
- Reverse charge outward supplies will be reported only by recipient and not by supplier. Such supplies shall be reported GSTIN wise (wherever applicable) and net of credit and debit notes.
- HSN code for services shall be reported at six digit level or more irrespective of the turnover during the preceding financial year.
- For reporting issue of credit / debit notes due to difference in the tax rate only without affecting the taxable value; only tax amount has to be reported and taxable value of the credit or debit note will be reported as ‘zero’.
- Value of supplies and amount of tax may be reported in whole number or upto two decimal points at the most.
- All supplies specified in Schedule III shall be reported under ‘No supply’ in the main return. It will include high sea sale and bonded warehouse sale also.
2. Annexure of Inward Supplies This will be auto drafted annexure based on annexure of outward supplies by various vendors of registered person, GSTR-5 and GSTR-6 filed by corresponding suppliers including ISD Credits.
- D. Amendment of Return
The proposed return scheme also allows amendment of return through a separate return. Amendment return is different than a regular return. There would be a facility to file two amendment returns for each tax period within the time period specified in Section 39(9) of the CGST Act, 2017. Amendment of entries which flow from the annexure of the main return shall be allowed only with the amendment of the details filed in the annexure-3. Amendment return can be filed before the due date for furnishing of return for the month of September following the end of the financial year or the actual date of furnishing relevant annual return, whichever is earlier.
The amendment can be on account of following two issues;
I. Amendment of missing invoices : Amendment of missing invoices reported later by the supplier shall be carried out through the amendment return of the relevant tax period to which the invoice pertains. Therefore, it would be advisable to report all the invoices and then avail the facility for amending return so that invoices reported late can also be amended through the amendment return. For example, Invoice of April if uploaded in September shall get amended with the amendment of return for the month of April only and therefore trade is advised to report all the missing invoices before exhausting their opportunity to amend the return.
II. Amendment of details other than that of invoice : All user entries of input tax credit table in the main return would be allowed to be amended. This is necessary as amendment of subsequent returns should not be necessary with respect to the input tax credit table to keep the compliance load under control. Change in the closing balance of the input tax credit shall be affected based on the declaration in the amendment return of the taxpayer. Thus, the opening and closing balances of intervening month(s) shall not get impacted.
No Amendment in certain cases It may also be noted that invoices on which credit has been availed by the recipient (i.e. locked invoices) will not be allowed to be amended by the supplier. There are two options in this case;
1. The supplier may ask the recipient to unlock the invoice along with corresponding ITC reversal and Online confirmation. Post which Supplier may amend the invoice which can again be locked by Recipient and claim ITC on the same.
2. A credit or a debit note will have to be issued by the supplier.
Payment of Liability in Amendment Return Payment would be allowed to be made through the amendment return as it will help save interest liability for the taxpayer. Input tax credit, if available in the electronic credit ledger can also be used for payment of the liability in the amendment return. Negative liability arising from the amendment return shall be carried forward as negative liability in the regular return of the next tax period. For change in liability of more than 10% through an amendment return, a higher late fee may be prescribed to ensure that reporting is appropriate in the regular return.
By now we can draw a reasonable conclusion that new Returns are combination of GSTR 1,2,3,3B + Resolution of problems faced while filing GSTR 2. In other words, we can say Old Wine in a NEW Bottle. Only time can test the success and failure of this format and the readiness of the Industry in accepting the same and adopting their books of accounts for tuning to the new formats. The question remains in the readers mind whether IT System support processing of the same or would continue midnight oil burning for filing the returns. GSTN to also clarify certain operational issues in implementing the same and the Online GSTN Portal visibility; Availability of offline and proposed IT tools. We only wish a successful implementation and early warning information to Taxpayer for making their IT Systems ready for GST Returns Ver 2.0.
CA. Venugopal Gella and CA. Chitresh Gupta ( They can be reached at firstname.lastname@example.org)