New Returns in GST – An overview of proposed returns and expected challenges by CA Manoj Malpani, Senior Advisor, Bizsolindia Services Pvt. Ltd
At the time of implementation of the GST in July 2017, the GST laws & rules notified,
- GSTR-1 (return for outward supplies),
- GSTR-2 (return for inward supplies) and
- GSTR-3 (final returns).
The due date for filing the returns were staggered over the period 20 days from the end of the month. The GSTN glitches ensured that these returns never see the light of the day except for GSTR-1. The basic reason for failure of these returns was fact that the “reconciliation of invoices” was to be carried out on the portal. This idea failed miserably as the GSTN portal slowed down due to the volume of the information uploaded by the supplier and the recipients. The CGST and SGST laws still provides for matching of the credits even though the GSTR-2 & GSTR-3 are postponed in Section 39, Section 41 & 42. These sections are not amended even after postponement of GSTR-2 & 3.
After this flop show, the GST council decided to defer the filing GSTR-2 and GSTR-3 and at the same time introduced a new one pager return GSTR-3B in addition to GSTR-1 which was getting successfully uploaded on portal. Since last more than 2 years, the taxpayers got used to these two returns.
But the dream of “matching the credits” was still unfulfilled as GSTR-3B was allowing the credits without check w.r.t actual payment of the tax by the supplier in the Government treasury. Thereafter, the GST council formed task force to review the existing returns and to suggest new returns. Also, Infosys, who is managing GSTN, led by Mr. Nandan Nilekani made presentation to the GST council wherein the possible solutions were presented to the GST council.
After the lot of deliberations, the GST council announced simplified GST return (Sahaj & Sugam) filing mechanism which would be introduced for taxpayers with a turnover below Rs. 5 crores and also new return for the large taxpayers. Sahaj & Sugam would require lesser information to be declared as compared to a return to be filed by the regular taxpayer. The draft of the new returns is published for public at large and also available on the portal to trial.
The broad highlights of the new return format are,
- Payment of tax continues to be monthly.
- The taxpayers are bifurcated into two baskets large taxpayers and small taxpayers.
- Small taxpayers are further bifurcated into nature of outward supplies they make like B2C, B2B, Exports etc basis which applicability of Sahaj & Sugam will be decided.
- Large Taxpayers needs to file monthly return in new format.
- Small tax payers have option to file the returns monthly or quarterly.
- The return has two annexures to it,
- Annexure – I: (Details of outward supplies, inward supplies on which tax to be paid under RCM, import of goods and services)
- Annexure – II: (Details of inward supplies from registered suppliers, supplies to SEZ Unit & developers, Deemed export supplies)
The GST council had released below transition plan for the proposed GST new return system. It was planned to be implemented phase-wise from October 2019 onwards. The implementation plan given was,
In 37th GST Council meeting, the council decided to defer the implementation of new returns. Now it has been postponed till 01.04.2020. The implementation plan will be more or less in similar manner as mentioned above. Also, there are possibilities of amendments due to technical difficulties of GSTN and / or taxpayers will face based on the testing done by the taxpayers and feedback received by them.
In the new returns, the responsibility of matching is shifted from GSTN portal to the taxpayer. The proposed return system is also increasing the threshold of small taxpayers from current 1.5 Cr to 5 Cr.
The new return format is expected to face below initial issues,
- The Government issued trial version of the returns in July 2019 but the taxpayer outreach programs to educate the taxpayers are less than expected.
- In last three months, the taxpayers & the professionals are busy in Annual returns / Audit report, Statutory audits, Tax audits and hence hardly anyone got chance to look into the new return formats and its modalities.
- Modalities for matching the invoices pertaining to earlier period (i.e period prior to period pertaining to new returns) is not clear and reporting of such credits is not clear.
Apart from above mentioned initial issues, the new return format will have some perennial issues like,
- Small taxpayer will have to pay monthly tax in PMT-08 form which is incarnation of GSTR-3B. The liability and the credit declared will be provisional in nature. In case of errors in reporting may lead to penal interest.
- The provisional credit will be allowed in case the suppliers have not filed the return, however month to month reconciliation provisional credit availed and its reporting by the supplier will be a huge task.
- Invoice wise details of the provisional credit taken needs to be uploaded after period of 2 months.
- If provisional credit is not reconciled with in period of 2 months from the date of availment it will be added to liability and will also lead to penal interest.
- The tax payer cannot accept all the invoices as there can be cases wherein the goods supplied by the supplier are in transit. In these cases, the specific invoices need to be kept on hold /pending while completing the Annexure-II.
- Accepting / rejecting invoices on the portal will be huge task to the taxpayers. If no action is taken, then it is deemed locking. i.e “Deemed Acceptance”. In nutshell, the tax payer will have to take action on all the line items in Annexure-II.
- Modifying, rejecting or accepting the transactions will be tedious exercise and will have to preform diligently, if the taxpayer ops for keeping the invoices in “pending” tab then ITC will get postponed till matching is done.
- Manual punching of the data w.r.t import of goods as the GSTN portal still not linked to ICEGATE website.
- Modalities for Change from one format of reporting to another format like Sahaj to Sugam or vice-a-versa is not yet specified.
- The new return (Annexure-I) requires invoice wise HSN details to be reported. Invoice having goods having different HSN needs to be reported accurately. The current GSTR-1 requires reporting of HSN details at summary level and not invoice wise.
- Providing HSN wise details in GST RET-1 cannot be done correctly without controls and automated system.
- No option to edit the invoice details, Invoice can be either accepted or rejected. The only option left will be amendments.
The new return formats, in particular Annexure-II, is designed to fulfil the dream of “matching the invoices” for allowing the credits. But looking the past records / history of the GSTN portal, it would be interesting to see how the portal will respond to proposed changes. But overall, it can be said that this is nothing but “Old Wine in New Bottle”.