It has been three years since the introduction of Goods and Services Tax (‘GST’) in India, still, the aspect of compliances under GST have been quite challenging for the taxpayers. The transition into GST from pre-GST regime was itself a big change in terms of filing a minimum of 36 returns annually as originally proposed, which was later relaxed to 24 returns as compared to two returns each year in the service tax regime. In addition to the complex return filing process, technical glitches at GST portal has also made compliances a cumbersome task for taxpayers.
It is said that simple and smooth compliances are the backbone of taxation system. Considering the same and acknowledging difficulties of taxpayers, the Government is continuously making amendments in relation to compliances, be it the return filing system, introduction of e-invoicing, auto-drafted statement of supplies in Form GSTR 3B from GSTR 1 etc. Further, GST Council in its 42nd meeting announced certain amendments in compliances under GST to achieve its object of automated compliances and a progressive tax regime. Let’s discuss the existing compliance system vis-a-vis proposed system in light of recent amendments and its impact on the industry.
At the time of advent of GST regime, a system of filing three returns in Form GSTR 1, Form GSTR 2 and Form GSTR 3 was proposed, wherein outward supplies were to be reported in Form GSTR 1, inward supplies in Form GSTR 2 basis Form GSTR 1 filed by vendor and payment of taxes in Form GSTR 3. The purpose behind this system was to achieve automation in return filing and availment of input tax credit (ITC). However, the said system was never implemented on account of technical glitches at GST portal. To simplify the process of filing returns, the Government then introduced an interim two return format i.e., Form GSTR 1 for outward supplies and Form GSTR 3B which is summary return for payment of taxes till the time old process or other new system is put in place. Further, Form GSTR 2A was also introduced for reconciliation and availment of ITC in Form GSTR 3B returns, resulting in huge manual exercise in the hands of taxpayers. Also, no mechanism of amendment in returns was provided to taxpayers.
Subsequently after much hue and cry by industry and initiation of litigation on validity of returns like Form GSTR 3B, the Government proposed a new return filing process wherein a single return in Form RET 1 was proposed to be filed along with two Annexures i.e., ANX 1 for outward supplies and reverse charge mechanism transactions and ANX 2 for claiming ITC. It is pertinent to note that the proposed system was basically a modification and complex version of old system only. However, the same did not get approval from the GST Council and was ultimately abandoned.
In the 42nd GST Council meeting going by the call of the day, decision was taken to make the current process of filing of returns in Form GSTR 1 and Form GSTR 3B, as its default return filing mechanism to simplify the compliance process. Further, it was also decided that GST liability shall be auto populated in Form GSTR 3B basis Form GSTR 1 and Form GSTR 2B w.e.f. January 1, 2021. Further suitable amendments have been made in the GST Law to comply with the said proposals made in the meeting.
In addition, to ensure auto-population of GST liability and ITC as mentioned above, decision was taken to make filing of Form GSTR 1 mandatory prior to filing of Form GSTR 3B w.e.f. April 1, 2021.
It is imperative to note that Form GSTR 2B is a static statement unlike Form GSTR 2A, which gets updated on regular basis, due to which taxpayers are required to perform reconciliations on year-to-date basis every month. Further Form GSTR 2B will undoubtedly ease such compliances for taxpayers. Moreover, a matching tool has been launched by department to compare ITC in purchase register with Form GSTR 2B.
Additionally, in order to reduce compliances for small taxpayers having aggregate turnover less than INR 5 Crore, Quarterly Return Monthly Payment Scheme has been rolled out. The scheme provides an option to small taxpayers to file returns on quarterly basis. Such quarterly taxpayers have an option to pay 35% of the net cash tax liability of the last quarter using an auto-generated challan for the first two months of the quarter.
The said scheme will allow small taxpayers to upload invoices on monthly basis at GST portal, which will be reflected in Form GSTR 2A and Form GSTR 2B of the customer. It will allow the customers to take ITC of said invoices monthly, which they were not able to claim due to non-appearing of said invoices in their GSTR 2A on monthly basis.
The mechanism proposed by the GST Council is much simpler in comparison to the complex returns system introduced earlier and would result in ease of doing compliances for taxpayers which is the need of the day. Further, the most welcoming part is that the GST Council has not introduced any new returns this time but has made changes in the existing filing process to which the taxpayers are already used to. Various steps have been introduced to reduce the compliance burden for small taxpayers who have faced the brunt of the complexity of return system, which is a long-awaited move. Further, the matching tool introduced for ITC is also a good initiative to reduce little manual intervention in process of matching of ITC. Thus, such changes are definitely a step towards reducing the complications in GST compliance system which has been one of its criticism.
Mudita Bhadani, Senior Associate & Smita Singh, Partner Indirect Tax, Customs & Trade Group