This article provides an extensive checklist tailored for business firms, specifically focusing on outward supplies concerning the annual return filing (GSTR-9) and the annual return reconciliation statement (GSTR-9C).
The checklist delves into the intricate details and comprehensive requirements that businesses need to consider and address while preparing for and completing their annual return and reconciliation processes. We also take a look at the various provisions related to e-invoicing compliance.
By taking individual components of GST filing such GSTR-3B and GSTR-1, input tax credit (ITC) reconciliation, intra-head adjustments. By encompassing various aspects related to outward supplies, the article aims to guide businesses in ensuring accuracy, adherence to regulatory standards, and a thorough reconciliation process for a comprehensive and meticulous approach to their annual GST filings.
The checklist delves into the intricate details and comprehensive requirements that businesses need to consider and address while preparing for and completing their annual return and reconciliation processes. By encompassing various aspects related to outward supplies, the article aims to guide businesses in ensuring accuracy, adherence to regulatory standards, and a thorough reconciliation process for a comprehensive and meticulous approach to their annual GST filings.
Sales Reconciliation:
Crucially, GSTR-1 compiles details of various supply types, including:
● Taxable outward supplies to registered persons (excluding zero-rated supplies and deemed exports)
● Taxable outward supplies to unregistered persons
● Zero-rated and deemed exports
● Outward supplies related to NIL rates, exempted, and non-GST items.
While the term “sales register” is not explicitly defined in GST law, Section 35 of the Central Goods and Services Tax Act, 2017 outlines the accounts and records that registered persons must maintain under GST. Among these, the record of outward supplies of goods or services, commonly referred to as the ‘Sales Register,’ is essential. In essence, the sales register documents sales within a specific tax period.
The primary objective of reconciliation is to identify and rectify discrepancies between the two relevant sets of data. GST reconciliations were present even in the pre-GST regime, but they were comparatively simpler and had fewer implications. In the post-GST regime, the reconciliation of data has become more crucial, especially considering that the availability of GST Input Tax Credit depends on the reconciliation between filed returns and auto-populated returns.
It is imperative for registered persons to adhere to the provisions of Section 35 and maintain the sales register. Both GSTR-1 return filing and the sales register capture details of outward supplies during the prescribed period. Reconciliation between GSTR-1 and the sales register allows registered persons to validate the accuracy of sales figures for the given period and finalize the sales figures at the end of the financial year.
Additional checks should include:
● Cross-verification between GSTR-1 and GSTR-2A while checking GSTR-3B with the latest advancements
● Ensuring matching outward supply details in GSTR-1 and GSTR-3B
● Confirming that inward supply details comply with rule 36(4) regarding the impact and validity of ITC Rule 36(4)
● Verifying timely filing of returns
● Checking alignment of GSTR-1 details with GSTR-3B
● Confirming that details of GSTR-2A match with GSTR-3B, ensuring accurate credit claims
● Properly claiming refunds for exempt or zero-rated supplies
● Calculating and paying proper interest if leviable
● Ensuring the payment of any applicable late fees
● Matching GST returns with books of accounts and other tax returns.
HSN Code & Tax Rate Accuracy
Under GST laws, there are four types of GSTR-9 that taxpayers must file. All registered taxpayers, excluding casual taxpayers, input service distributors, non-resident taxpayers, and those deducting or collecting tax at source under Sections 51 and 52, are required to file GSTR-9 with accurate HSN codes.
The Harmonized System of Nomenclature (HSN) is a unified system used for the classification of goods for customs purposes in India. It comprises eight digits, with the last two determining the applicable tax rate based on the goods being transacted.
Given that GSTR-9 details all supplies made during a specific accounting period, it is imperative to include accurate HSN codes for each item. HSN codes standardize the classification of supplies, contributing to consistent tax rate application. Adherence to a 3-tiered structure for HSN codes is essential:
Businesses with a turnover less than Rs. 1.5 crore are exempt from printing HSN codes on GSTR-9 forms.
Taxpayers with a turnover exceeding Rs. 1.5 crore but less than Rs. 5 crore must use a 2-digit HSN code on GSTR-9.
Taxpayers with an annual turnover exceeding Rs. 5 crore must report the HSN code at 6 digits.
Businesses involved in imports and exports must utilize an 8-digit HSN code in GSTR-9 filings.
Correct reporting of HSN codes on GSTR-9 is mandatory by law to ensure GST compliance and accurate tax rate payment. Accurate HSN codes also facilitate precise classification of supplies, reducing disputes and controversies related to tax rates and classification. This, in turn, minimizes the risks of penalties and fines and allows businesses to claim input tax credits, reducing overall tax liability.
Incorrect reporting of HSN codes on GSTR-9 comes with risks and penalties. Failure to mention HSN or SAC codes results in a penalty of Rs. 50,000, split equally between CGST and SGST. The penalty also applies to incorrect HSN codes or tax invoices. Late filing incurs a daily fee of Rs. 200, up to a maximum of Rs. 5,000. Incomplete filing subjects one to a penalty of 10% of the tax due or Rs. 10,000, whichever is higher. Fraudulent activities, invoicing errors, and other violations entail various penalties, emphasizing the importance of accurate reporting in GSTR-9.
E-Invoicing Compliance:
The regulations for the applicability and generation of e-invoices are outlined in CGST Rule 48.Previously, until April 30, 2023, there was no specified time limit for generating e-invoices. However, starting from May 1, 2023, taxpayers with an Aggregate Annual Turnover (AATO) equal to or exceeding INR 100 crore are required to generate e-invoices for tax invoices and credit-debit notes within 7 days of the invoice date. Failure to comply will render the invoices/CDNs non-compliant. For other taxpayers, there is no defined time limit for e-invoice generation. It is advisable for such taxpayers to create e-invoices on or after the invoice date but before filing GSTR-1 returns.
In the e-Invoicing model, businesses will continue to generate invoices on their ERPs. The specified standard, schema, and format for invoice generation will ensure standardization and machine-readability. The responsibility for generating the invoice lies with the taxpayer.
The workflow involves two major parts: the interaction between the business/supplier and the Invoice Registration Portal (IRP), and the interaction between the IRP and the GST/E-Way Bill systems. The supplier generates an invoice, uploads the JSON file to the IRP, which validates the data, generates an Invoice Reference Number (IRN), QR code, and digitally signs the invoice. The IRP sends the signed e-Invoice to the seller via the registered email ID.
The e-invoice data is then sent to the GST system, auto-populating the GSTR-1 return. Simultaneously, the data is sent to the e-way bill system, generating Part A of the e-way bill. If transporter details are provided, Part B is also generated. E-invoicing streamlines the taxpayer’s workflow by eliminating multiple data entries.
The generation of an e-way bill is required when there is a movement of goods in a vehicle/conveyance with a value exceeding Rs. 50,000, either for each invoice or in the aggregate of all invoices in a vehicle/conveyance. This applies to various scenarios:
● In relation to a ‘supply’
● For reasons other than a ‘supply’ (e.g., a return)
● Due to an inward ‘supply’ from an unregistered person
For the purpose of e-way bill generation, a ‘supply’ can fall into one of the following categories:
● A supply made for consideration (payment) in the course of business
● A supply made for consideration (payment) not in the course of business
● A supply without consideration (without payment)
In simpler terms, ‘supply’ typically refers to:
● Sale: The sale of goods with payment made
● Transfer: Branch transfers, for instance
● Barter/Exchange: Where the payment is made in goods rather than money
For certain specified goods, the e-way bill must be generated mandatorily even if the value of the consignment of goods is less than Rs. 50,000. This includes:
● Inter-state movement of goods by the principal to the job-worker by the principal/registered job-worker
● Inter-state transport of handicraft goods by a dealer exempted from GST registration
Advance Received for Services:
In business transactions, it is a common practice to receive advances for goods and services that will be delivered or provided at a later date. These advances, referred to as advances under GST, may attract GST liability based on the nature of the supply and the applicable time of supply rules.
Advances Received for the Supply of Goods
Regarding the supply of goods, advances received are not subject to GST, as per CGST Notification No. 66/2017 effective from 15th November 2017. The taxation occurs when the actual supply takes place, following the time of supply rules. The time of supply for goods is determined by the earliest of the following:
● Date of invoice issuance or the last date by which the invoice should be issued
● Date of payment
Advances Received for the Supply of Services
In contrast, advances received for the supply of services are subject to GST. The time of supply for services is determined by the earliest of the following:
● Date of invoice issuance (if issued within the prescribed date)
● Date of service provision (if the invoice is not issued within the prescribed date)
● Date of payment/advance
● Date on which the buyer records the receipt of services in their books of account
Subsequently, the supplier is required to calculate GST on the advance and remit this tax while filing the return for the respective month. It is crucial to gross up the advance received, considering it inclusive of GST. In cases where the rate of tax cannot be determined at the time of advance receipt, GST at the rate of 18% must be applied. Additionally, if the place of supply cannot be ascertained, the advance is treated as an interstate supply, and IGST is applicable.
It is essential to highlight that a taxpayer making an advance payment is not eligible to claim input tax credit (ITC) on the advance paid. According to GST regulations, claiming ITC requires the taxpayer to have received the goods or services. Therefore, in the example mentioned above, the recipient becomes eligible to claim ITC only upon the receipt of services in February.
Time of Supply Compliance:
To calculate and fulfill tax obligations accurately, understanding the time when tax liability arises is crucial. In GST, this is known as Time of Supply. Sections 12, 13, and 14 of the CGST Act, 2017, govern the time of supply for goods, services, and inter-State supplies leviable to Integrated tax, respectively. Additionally, section 20 of the IGST Act, 2017 makes these provisions applicable to inter-State supplies.
● For goods involving movement, the invoice must be issued before or at the time of removal.
● For other cases, the invoice must be issued before or at the time of delivery.
Similarly, for services, the invoice must be issued before or after service provision but not later than thirty days from the date of service.
Time of supply of goods (Default Rule):
Earliest of the following must be adhere to:
● Date of issue of invoice
● Date of payment by the recipient
For normal registered persons (excluding composition dealers), the time of supply is the issue of the invoice.
Time of supply of services (Default Rule):
Earliest of the following must be adhered to:
● Date of issue of invoice or date of receipt of payment (whichever is earlier) if the invoice is issued within the prescribed period.
● Date of service provision or date of receipt of payment (whichever is earlier) if the invoice is not issued within the prescribed period.
Time of supply of goods when tax is to be paid on reverse charge basis:
Earliest of the following must be adhered to:
● Date of receipt of goods
● Date of payment recorded in the recipient’s books
● Date immediately following 30 days from the date of the invoice
Time of supply of services when tax is to be paid on reverse charge basis:
Earliest of the following must be adhered to:
● Date of payment recorded in the recipient’s books
● Date immediately following 60 days from the date of the invoice
Time of supply in case of supply by Associated Enterprises located outside India:
The time of supply is the date of entry in the recipient’s books or the date of payment, whichever is earlier.
Time of supply in case of supply of vouchers:
● For single purpose vouchers, where supply is identifiable at issuance, the time of supply is the date of issue.
● For general purpose vouchers, the time of supply is the date of redemption.
Time of supply of goods or services (Residual provisions):
If not determined under the above provisions, the time of supply is:
● Due date of filing the return for periodical returns.
● Date of tax payment in all other cases.
Time of supply related to an addition in the value of supply:
The time of supply related to interest, late fees, or penalty for delayed payment is the date on which the supplier receives such additions. Understanding the nuances of time of supply is essential for accurate tax compliance in the GST framework.
Maintenance of proper account and check for Spill-over Effects
The business firm need to undertake a thorough spill over effect check outstanding debts, unaccounted expenses, or miscalculations in budgeting,
Failure to rectify these issues promptly can lead to cash flow constraints, increased borrowing costs, and, in extreme cases, financial distress. Businesses must conduct a comprehensive financial audit to identify and address any spill-over effects affecting their fiscal health.
Conducting thorough audits across financial, operational, and compliance domains is the first step in identifying spill-over effects. This includes reviewing financial statements, operational processes, and compliance frameworks to uncover any lingering issues.
For instance, within the GST framework, a trader is obligated to maintain the following accounts, in addition to accounts like purchase, sales, and stock:
● Input CGST account
● Output CGST account
● Input SGST account
● Output SGST account
● Input IGST account
● Output IGST account
● Electronic Cash Ledger (to be managed on the Government GST portal for GST payments)
Every registered taxpayer will have three ledgers under GST, automatically generated at the time of registration and maintained electronically:
● Electronic Cash Ledger: This ledger functions as an electronic wallet where the taxpayer deposits money for making GST payments.
● Electronic Credit Ledger: This ledger reflects the input tax credit on purchases under IGST, CGST, and SGST categories. The balance in this account can only be utilized for the payment of tax (not for interest, penalty, etc.).
● E-Liability Ledger: This ledger displays the total tax liability of a taxpayer after netting off for a specific month. It is auto-populated.
Period for Retention of Accounts under GST:
According to the GST Act, every registered taxable person is required to maintain accounting books and records for a minimum of 72 months (6 years). The calculation of this period begins from the last date of filing the Annual Return for that year.
Consequences of Not Maintaining Proper Records
Failure to maintain proper records for goods or services may lead the proper officer to treat unaccounted goods or services as if the taxpayer had supplied them. The officer will then determine the tax liability on such unaccounted goods or services.
GST Returns -1 v/s GSTR-3B Alignment
GSTR-1 is a monthly/quarterly return that summarises all sales (outward supplies) of a taxpayer.
GSTR-3B is a self-declared summary GST return filed every month (quarterly for the HYPERLINK “https://cleartax.in/s/quarterly-return-monthly-payment-qrmp-scheme-gst”QRMP scheme). Taxpayers need to report the summary figures of sales, ITC claimed, and net tax payable in GSTR-3B.
Causes of discrepancies Between GSTR 3B and GSTR 1
Inaccurate reporting of supplies placed under the incorrect section in GSTR 3B, while accurately detailing the same information when reported in GSTR 1. For instance, correctly stating zero-rated supplies under Table 6A of GSTR 1 but erroneously providing details of zero-rated supplies under Table 3.1(a) in GSTR 3B.Overlooking Inter-State supplies conducted by an unregistered individual, which are declared in GSTR 1 but omitted in GSTR 3B.Displaying the accurate value of the supply, but erroneously remitting the tax under an inappropriate category, such as depicting IGST instead of CGST and SGST.
Amendments to supplies made subsequent to filing GSTR 1, indicating alterations in tax liabilities occurring between the submission of GSTR 1 and GSTR 3B.Discrepancies in the timing of reporting invoices in GSTR 1 compared to GSTR 3B.GSTR 3B and GSTR 1 are two very important forms for taxpayers as the details mentioned in them often correspond with one another. A mismatch between them can lead to many complications for the taxpayer which include paying additional penalties or fines and a constant mismatch between form GSTR 3B and GSTR 1 can also lead to the cancellation of GSTR registration.
Reconciliation of GSTR 3B with GSTR 1
In the event of any discrepancies detected between GSTR 3B and GSTR 1 forms throughout the months, it becomes the responsibility of the taxpayer to remit any applicable interest or penalty for the belated filing of GSTR 3B to address all outstanding tax liabilities. Consequently, it is imperative for taxpayers to conduct regular reconciliations between GSTR 3B and GSTR 1 during each filing period to ensure the accuracy of the reported details. This proactive approach not only facilitates proper filing of annual returns under GST but also safeguards against potential fines, penalties, or the risk of GSTR registration cancellation, as all aspects of the GST return filing system are integrated, and any discrepancies may have serious repercussions.
Input Tax Credit Reconciliation
Under Section 2(63) of the CGST Act, 2017, Input Tax Credit is defined as the credit of input tax. This implies that a registered entity can claim a credit for the tax paid on purchases, offsetting it when remitting taxes to the government on the sale of goods or services.
It is crucial to note that Section 155 mandates that a person claiming ITC bears the responsibility of substantiating such a claim.
Why is GST ITC Reconciliation Significant?
Every participant in a specific supply chain, from manufacturers to end consumers, should capitalize on ITC to offset taxes paid earlier against those paid later.
When can GST ITC Reconciliation be Utilized?
To be eligible for ITC under GST provisions, certain logical conditions must be met:
● Registration under GST is mandatory.
● Goods or services must be utilized for business purposes (Section 16(1)).
● Possession of the invoice, a tax-paying document with necessary information (Section 16(2)(a)).
● Receipt of goods or services for which payment was made (Section 16(2)(b)).
● Tax must have been paid to the government by the vendor who collected it.
● The vendor with whom the transaction occurred should have filed the necessary returns, i.e., GSTR 2B.
Consequences of Not Using GST ITC Reconciliation:
There are several alternatives available to a registered person under GST if they choose not to utilize ITC:
● Carry Forward:If the registered person cannot utilize the ITC in the month it is due, it can be carried forward to the next month or any subsequent period.
● Refund of ITC:The registered person may opt to claim a refund of ITC under Section 54 of the CGST Act, 2017.
● ITC Lapse:ITC must be claimed within one year of the invoice date. After this period, ITC lapses, favoring the Government fund, and the individual loses access to ITC.
Consequences of Incorrectly Availing GST ITC Reconciliation:
Incorrectly claiming ITC, often due to inaccurate reconciliation, can have severe consequences, including:
● Reversal of Incorrectly Claimed ITC:Reversal of ITC that was incorrectly claimed.
● Interest Levy:Interest may be charged at a rate of 24%.
● Demand and Recovery:Demand and recovery of the ITC reversal amount and interest under sections 73 and 74.
● Penalty:Imposition of a penalty equal to the amount of ITC incorrectly claimed under section 122.
● Prosecution and Incarceration:Prosecution and possible incarceration under section 132.
Intra-Head Adjustments
Identifying and rectifying intra-head adjustments ensures the optimal utilization of Input Tax Credit. Businesses can leverage ITC to offset their tax liabilities, reducing the overall tax burden. Failure to make necessary adjustments may lead to underutilization of ITC, resulting in increased tax outflows for the business.
Businesses can demonstrate their commitment to compliance, reducing the likelihood of facing severe legal consequences for unintentional non-compliance.
Accurate reporting lays the groundwork for seamless GST audits. When businesses maintain meticulous records and rectify intra-head adjustments promptly, the audit process becomes more straightforward. It helps businesses demonstrate transparency and cooperation during regulatory assessments.
Documentation Review
A comprehensive documentation review of invoices and supporting records is fundamental for ensuring the accuracy of financial records and compliance with GST regulations. Inaccurate or incomplete documentation can lead to errors in GST returns, exposing businesses to penalties, fines, and legal consequences. A thorough review helps identify and rectify any discrepancies, fostering adherence to the law.
In the absence of a robust documentation review, there is a risk of tax leakages. Unaccounted transactions, missing invoices, or inaccuracies in recording transactions can result in underreporting of tax liabilities. A thorough review acts as a preventive measure against tax leakages, safeguarding the financial interests of the business.
Communication with GSTN:
The GSTN portal often introduces new features and functionalities to enhance user experience and streamline processes. Regular monitoring enables businesses to efficiently adapt to these new features, maximizing the benefits offered by the GSTN platform and optimizing operational efficiency.
Keeping up to date with GSTN helps to overcome the discrepancies in filings or data mismatches can occur, leading to potential audit triggers. Regularly monitoring GSTN communications allows businesses to identify and rectify discrepancies promptly. Timely action minimizes the chances of escalated issues and ensures smooth interactions with tax authorities.Regularly checking GSTN communications helps businesses stay informed about cybersecurity measures, updates, and best practices. This knowledge is instrumental in safeguarding sensitive financial and business data from potential threats.
GSTN communications often include announcements about changes in compliance deadlines. Regular monitoring ensures that businesses are aware of any extensions or modifications to filing timelines, helping them avoid late fees and maintain a positive compliance record.
The GSTN portal provides educational resources such as webinars, and guides as well to assist taxpayers in understanding complex aspects of GST. Regularly checking for such resources enables businesses to stay well-informed, enhance their knowledge base, and train their teams for better compliance.
Professional Assistance:
Engaging with tax experts, consultants, or legal professionals specializing in GST law is a strategic move. These experts can provide insights, interpret complex changes, and guide businesses in ensuring comprehensive compliance. The expertise offered from professionals can help business firms navigate the complex regulatory frameworks under GST which are subject to frequent changes. Staying abreast of these changes requires dedicated effort and expertise. Professional advisors specialize in monitoring regulatory shifts, ensuring that businesses remain compliant with the latest requirements.
Every business is unique, and compliance strategies should be tailored to the specific needs and operations of each firm. Professional advisors customize compliance strategies, taking into account the nature of the business, industry dynamics, and the regulatory environment.
CONCLUSION
This checklist covered crucial elements of GST filing such as the reconciliation of GSTR-3B and GSTR-1, input tax credit reconciliation, intra-head adjustments, documentation review, communication with GSTN, and the guidance of seasoned professionals, enterprises are set for a streamlined tax filing experience.
The article has encompassed a thorough examination of the reconciliation of GSTR-3B and GSTR-1, underscoring the paramount importance of precision in reporting outward supplies. The article has also looked at various aspects related to HSN codes, e-invoicing compliance, and intricate time of supply rules. The significance of maintaining accurate accounts, aligning GST returns, and optimizing input tax credit have also been looked at thoroughly, revealing the keys to efficient ITC utilization and seamless GST audits.
Crucially, our exploration highlighted the role of thorough documentation reviews in fortifying financial records and preventing tax leakages. The imperative for regular communication with GSTN was emphasized, ensuring businesses stay abreast of compliance deadlines, cybersecurity measures, and potential discrepancies. Finally, the call to seek professional assistance emerged as a strategic move, emphasizing the expertise of tax professionals in interpreting regulatory changes and tailoring compliance strategies to the unique needs of each business.
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