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Introduction

The GST council in its 27th council meeting on 4th May 2018 had approved the proposed simplified GST returns format.

In the 31st GST council meeting dated 22nd December 2018, the new return filing system has been proposed to be introduced on a trial basis with effect from April 2019 and make it mandatory from July 2019 which is after the results of general elections. The formats along with detailed instructions were made available on the GST portal on 8th March 2019. Readers could find it in portal https://www.gst.gov.in/ > Downloads > Proposed Return Documents.

The new returns are being introduced replacing GSTR 1 and GSTR 3B which is being filed by majority of the assessee. Those who are under composition scheme could continue to file GSTR 4. It is estimated that around 17% of the assessee are under composition scheme. Other returns such as Non-Resident Foreign Taxpayer Returns (GSTR 5), ISD returns (GSTR 6), TDS returns (GSTR 7), TCS Returns (GSTR 8), and Casual Taxable Person (GSTR 11) would continue as it is.

The tax payers were kept in the dark about requirement of filing GSTR 2 & 3 from July 2017 onwards. Only recently, it was understood that the new GST returns formats would be introduced by April/July 2019, which could render GSTR 2 & 3 ineffective for the past also. But this is not yet made clear.

Basic structure of new returns:

There are three types of GST returns proposed to be introduced based on turnover limit and type of transactions. The tax payers could choose the type of return based on these factors. Alternatively, irrespective of turnover, the tax payer could choose to file the new NORMAL return. More details provided in below table:


Particulars

SAHAJ

SUGAM

NORMAL

Threshold limit– Turnover

Below Rs.5 crore (optional)

Below Rs.5 crore (optional)

Above Rs.5 crore (mandatory)

Below Rs.5 cr. (optional)

Periodicity of payment

Monthly

Monthly

Monthly

Periodicity of returns

Quarterly

Quarterly

Monthly (above Rs.5 crores turnover)

Quarterly (below Rs.5 crores turnover)

Forms to fill

ANX-1, ANX-2 & RET-02

ANX-1, ANX-2 & RET-03

ANX-1, ANX-2 & RET-01

Allowed to file(OUTPUT)

  • B2C & RCM
  • Nil rated, exempt, non-GST supply allowed.
  • B2C, B2B & RCM
  • Nil rated, exempt, non-GST supply allowed.

B2B, B2CS, RCM, Exports, E-commerce, Nil rated, exempt, etc.

(All types)

Not allowed to file(OUTPUT)

B2B, Exports, E-commerce, etc.

(Anything other than B2C& RCM cannot be filled)

Exports, E-commerce, etc.

(Anything other than B2B, B2C& RCM cannot be filled)

-NA-

Allowed to File(INPUT)

Auto-populated ITC

Auto-populated ITC

Suo-moto**& auto-populated ITC

Not allowed to File(INPUT)

ITC disallowed on invoices not uploaded by vendor

ITC disallowed on invoices not uploaded by vendor

No restriction

ANX -1

Outward liability, imports, and inward supplies attracting reverse charge.

ANX-2

Detailed of auto-drafted inward supplies

RET 1

NORMAL - Refer separate note shared as annexure to this document.

RET 2

SAHAJ - Most of the information auto populated.

RET 3

SUGAM - Most of the information auto populated.


** -According to press release of GST council in July 2018, taking ITC on invoices not uploaded by vendor could be allowed only for first 6 months after introduction of new returns (expected) being transitional phase. Thereafter, ITC could be allowed only based on invoice details uploaded by vendor while filing returns.

It is also necessary to note that the interest would be auto-computed by system for delayed filing of returns, delayed payment of taxes, late reporting of invoices of preceding tax periods and rejection of accepted documents, i.e. ITC considered eligible instead of ineligible.

Additional requirements

The new formats require more information from tax payers which otherwise not expected in present return forms such as GSTR-1 and GSTR-3B. This could increase the time and effort for monthly / quarterly compliance. Few such additional information required are listed below:

  • HSN to be maintained at 6-digit level (not 4-digit level) in SUGAM and NORMAL return
  • Reverse charge liability details with GSTIN & HSN to be provided in all returns
  • Where RCM supplier is unregistered,disclosure of PAN is mandatory in all returns
  • Details of import of goods POS-wise, HSN-wise &document wise to be provided. (GSTIN also required for SEZ transaction). Tax payers could consider obtaining these details from CHA.
  • Details of import of service POS-wise and HSN-wise needed.

Challenges expected upon implementation:

The new returns could pose new challenges for the tax payers. In previous para, the additional information required have been discussed. Appropriate measures such as training of staff, understanding the new returns and necessary changes in the system of report generation could be considered by the tax payers. Following is the list of additional challenges which could be expected by the tax payers:

  • Need of filing 2 forms ANX-1 & ANX-2. Even though ANX-2 is auto populated, to ensure correctness of information, cross verification with invoices necessary. There certain information which needs manual intervention.
  • Supplier to obtain data as to whether the vendor is filing monthly/quarterly returns which otherwise could impact credits.
  • Real-time uploading of invoices allowed. Once, accepted by recipient, until it is reset/unlocked by recipient, supplier cannot make amendments. This could increase efforts to supplier uploading ANX-1.
  • Amendments can be made only by the supplier.
  • Recipient has the option of ‘reject’ or ‘keep pending’ the auto-populated invoices. If not opted for either, it would be deemed acceptance.
  • Credit taken on missing invoices can be availed upto 20% of the ITC that auto-populates based on vendors GST return filings. [Based on Section 43A of CGST Amendment Act which is yet to be notified].
  • For import of goods, until GST portal is linked to ICEGATE portal, details need to be manually enteredin ANX-1. Once linked will auto-populate in ANX-2. This could increase the work in case of high import transactions.
  • There is a need to disclose of GSTIN-wise invoice-level details and re-paymentof ITC claimed where vendor not filed his returns for 2 months. For this having trackof invoices filed/not filed by vendors would be necessary.
  • The ITC claim is linked to vendor payment & filing. This requires reconsideration of payment terms with vendor including change in agreements to take care of non-compliance by vendors.
  • Change in ERP/software required to fetch details such as HSN wise summary, POS summary etc. to meet the reporting requirements of new return including tracking dataof vendors.

Issues which needs clarity

Though detailed instructions including additional notes have been provided in the formats released, there are few issues which are not addressed / clarity not provided. Unless otherwise clarified, the tax payers should consider the following issues before proceeding to submit information in the new returns:

  • Amendments of FY 2019-20 (before July 2019) in the new GST returns. No clarity on disclosure and tax payment.
  • Clarity on number of times the details in new GST returns could be amended. As per the old press release of July 2018, amendments would be allowed a maximum of 2 times only. This may have to be increased.
  • It is not clear if auto computation of interest would be on gross liability or net liability. In-principle, press release mentioned that interest should be on net liability. However, no amendment in law/notification till date.
  • There could be outward liability where taxes discharged through GSTR 3B, but not disclosed in GSTR 1 till June 2019. No clarity on disclosure of such transactions in new returns, if needed.
  • Tracking and claiming ITC on missing invoice upto 20% of auto-populated ITC only.
  • Table 3L of the NORMAL return requires disclosure of GSTIN and invoice-level data of vendors who have not filed GST returns for 2 tax periods. However, this table cannot be amended. No clarity on alternative option to correct any errors made.

There could be various other issues could crop up during actual filling of returns. Readers could refer to the annexed document to understand the format of NORMAL return in detailed manner.

Conclusion:

Although, the press release names it as "Simplified Returns", based on preliminary study of the various disclosure requirements, challenges and changes, the returns may not be accepted as 'simplified returns' by the tax payers. Not aligning the systems of business with GST requirements could have multi-fold impact on the business which could include following:

  • Operations - Losing top compliant customers
  • Working Capital - Having stringent payment terms forced on by customers
  • Cost to Company - Bearing high interest and penalty costs for non-compliance, if any
  • Compliance - Facing show cause notices and demands after 1 or 2 years.

When the new returns are mandated, the tax payers could consider opting for ‘NORMAL’ returns which could avoid need of keeping track of conditions to be fulfilled for the other returns. Ensure ERP/software application is customized to meet the new requirements.

For the initial period, professionals could be approached to understand and file the returns as per the new requirements. They could also help in setting the standard operating procedures for better GST compliance, periodic review of compliance including GST ITC, liability etc. 

Note: This article would be updated post April 2019 returns and related amendments.

The authors can also be reached at mahadev@hiregange.com, akshay@hiregange.com and abhilash@hiregange.com


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Category GST, Other Articles by - CA Akshay Hiregange 



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