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Filing your GST return correctly is crucial for ensuring compliance without any hassle. Under GST, we are generally required to file two returns - GSTR 1 and GSTR 3b. The frequency of filing these returns, whether monthly or quarterly, depends on the taxpayers turnover in the previous financial year. Quarterly filers also have the option to file IFF to reflect the Input Tax Credit (ITC) on their tax invoices, although it is not mandatory.
Regardless of the filing frequency, it is of utmost importance to file an accurate return. The return serves as a self-declaration by the taxpayer and is considered as a form of self-assessment under section 59. Any information provided in the GST return is legally binding for the taxpayer. The data filed in GSTR 1 is automatically reflected and enables the recipient to claim input tax credit.
A notable case, Kabir Reality, established that a liability declared through GSTR 1 is binding on the taxpayer. In this case, the supplier had filed GSTR 1 but failed to pay the tax by filing GSTR 3b. The ruling stated that the supplier is liable to pay the tax and there is no need to raise a demand, as the liability was already declared while filing GSTR 1.
Here are the top 10 common common mistakes in GST returns.
Reconciliation is crucial when it comes to GST returns. Unfortunately, many taxpayers neglect this step and fill in their data without proper reconciliation. This can lead to mismatches, which can have harmful consequences. It is important for the data in the financials to match with the returns, as well as for the data in GSTR 1 and GSTR 3b to match with each other. Failure to reconcile these can even result in the cancellation of GST registration. To avoid any issues, it is highly recommended to perform the following reconciliations before filing your return
Compare the sales in your financials with GSTR 1.
Conduct a headwise reconciliation of sales.
Verify the input tax credit in your financials and GSTR 3b.
Keep in mind that there are certain instances where input tax credit may not be eligible, even if it is recorded in the financials. Factors such as the receipt of the invoice, receipt of goods, Blocklist of section 17, and others should be considered. Make sure to check all these criteria before claiming input tax credit
Match the ITC in GST 2B with the ITC claimed in GSTR 3b.
There have been errors made when inputting the data into the GST return. Some taxpayers mistakenly enter export invoices as domestic sales, and exempt sales are often not accurately reported. It is important to enter the data into the correct table and category. For example, receipts from pure agents are sometimes reported as exempt supply, even though they do not affect the taxability. However, we include exempt turnover in calculating different thresholds. Now, a non-supply item may be included in the exempt supply, which can impact the threshold. As a result, some companies may fall under the taxpayer category even if they were not originally applicable.
3.A claim of Input Tax Credit
The importance of claiming the input tax credit cannot be overstated. Over-claiming it can lead to different consequences. However, if the ITC is not included in GSTR 3b, it may be lost forever. This will once again result in financial loss for the taxpayer.
Some situations call for the reversal of input tax credit, but unfortunately, many taxpayers overlook these provisions.
This includes cases
where inputs are used for exempt supplies, when inward supplies are used for personal benefits,
when ITC is wrongly taken for blocked items, when ITC is taken for outward supplies covered under reverse charge, and when creditors are not paid for 180 days.
However, if the payment is eventually made by the taxpayer, the ITC can be taken again. Therefore, it is important to conduct in-house scrutiny to identify when ITC needs to be reversed.
CBIC has made changes to the mechanism of adjusting the input tax credit. However, some taxpayers are not taking into account these amendments and are adjusting it incorrectly. This can lead to an excessive adjustment of the input tax credit, resulting in a lower amount paid through the cash ledger for output liability. The department may take penal action against such taxpayers, and they may be liable for interest and penalties. Currently, the adjustment of input tax credit follows a specific order. First, the ITC of IGST should be utilized, followed by the ITC of CGST or SGST. Generally, taxpayers use the ITC of CGST and SGST to pay the tax liability under CGST and SGST. The ITC of IGST is saved for any remaining balance payment as it can be used for all taxes. However, the ITC of CGST and SGST can only be adjusted against their respective tax liabilities. It is important to follow this provision while filing the return. Negligence in doing so may result in a lower payment of tax through the cash ledger.
Please ensure that the turnover is entered under the appropriate categories. It is important to correctly distinguish between inter-state and inter-state turnover. Additionally, entering B2B turnover under B2C turnover can have negative consequences, such as depriving the recipient of the necessary input tax credit. It is also worth noting that once the B2C turnover is entered, it cannot be edited. Therefore, mistakenly entering B2B sales as B2C can result in a loss of ITC.
Taxpayers often overlook the tables in their GST returns. When we access GSTR 3b, we are presented with a concise list of information. Unfortunately, we sometimes enter incorrect data and only a limited number of tables are displayed. We diligently fill out those tables and submit our return, but in reality, we miss out on the other tables. It is crucial to ensure that we file all the necessary tables. The same situation applies to GSTR 1 as well. We tend to overlook important details such as the issuance of documents. Receipt vouchers and payment vouchers are often not issued by taxpayers. Additionally, when it comes to invoices, we are required to provide the range of documents issued within a specific month. Another important piece of information that is often under-reported in GST returns is the HSN summary. Despite being mandatory for all taxpayers now, it tends to be overlooked.
In the case of services, any advance payment is subject to taxation. To ensure accurate reporting, GSTR 1 provides a separate table specifically for recording advance-related details. However, it is common for taxpayers to overlook this important information. On the other hand, when it comes to the supply of goods, advances are not taxable. In this scenario, tax liability only arises when an invoice is issued.
The adjustment of advance receipts is just as important as their entry. In GSTR 1, there is a separate table specifically for adjusting advances. We make these adjustments when an invoice is issued against the advance. However, many filers overlook this crucial information. In certain situations, the advance may be returned without the supply being completed. In such cases, it is necessary to reverse the tax that was paid at the time of receiving the advance.
It is crucial to enter the export turnover correctly. According to GST regulations, the tax paid on exports can be refunded if the return is filed accurately. However, if the data in GSTR 1, 3b, and the shipping bill do not match, the refund may get delayed. The sales figures in GSTR 1, 3b, and shipping bills should align. When we issue an invoice, it is for the value of goods, but the shipping bill also includes the freight amount. To ensure the value matches the shipping bill, we need to add the freight amount to the value of goods. Only then will it align with the shipping bill, and we can proceed with the refund process.
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