Correct filing of GST return is key for peaceful compliance. Generally, we are required to file two returns in GST. The first is GSTR 1 and the other is GSTR 3b. Both of these can be filed monthly or quarterly. It depends on the turnover of the taxpayer in the preceding financial year. The quarterly filers can also file IFF to reflect the ITC on their tax invoices. But it is optional.
In any case, filing a correct return is very important. Return is self declaration of the taxpayer. In fact, GSTR 3b is also equal to self assessment as per section 59. Any information given in the GST return is binding on the taxpayer. Data filed in GSTR 1 gets auto reflected and makes the recipient eligible for the input tax credit.
In the case of Kabir reality, it was held that a liability declared via GSTR 1 is bound on the taxpayer. In that case, the supplier was filing the GSTR 1 but did not pay tax by filing GSTR 3b. It was held that he is liable to pay the tax and no need to raise demand. As he has already declared his liability while filing GSTR 1.
Here are the top 10 common common mistakes in GST returns.
- Reconciliation
- Entering data into the return
- A claim of Input Tax Credit
- Reversal of Input Tax Credit
- Adjustment of Input Tax Credit
- Entering the turnover in the wrong head
- Incomplete information
- Missing entry of advance
- Adjustment of advance
- Export turnover
#1. Reconciliation
Data in GST returns should be properly reconciled. But many taxpayers fill the data in GST returns without a proper reconciliation. This results in a mismatch. These mismatches can be harmful. The data from the financials should match with the returns. Also, the data in GSTR 1 and GSTR 3b should also match with each other. The mismatch in GSTR 1 and 3b can result in cancellation of GST registration.
It is recommended to do the following reconciliations before you file the return.
- Sales in financials with GSTR 1.
- Headwise reconciliation of sales.
- Input tax credit in financials and GSTR 3b.
- There can be some instances of ITC where the ITC is not eligible even if it is booked in financials. There are many parameters to take ITC in GST. e.g. Receipt of the invoice, receipt of goods, Blocklist of section 17, and others.
- All of these criteria shall be checked before taking the input tax credit.
- Matching of ITC in GST 2B with the ITC claimed in GSTR 3b.
#2. Entering data into the return
There are some mistakes while entering the data into the GST return. Many taxpayers enter the export invoices in domestic sales. Exempt sales are also under-reported in most cases. The data should be entered into the correct table and head. E.g the receipts in the form of pure agents are sometimes reported in exempt supply. It seems to be not impacting the taxability. But we add exempt turnover to calculate various thresholds. Now a non supply item may be added to the exempt supply. This can be added to the threshold. Thus it may result in falling under the companies which were not applicable to the taxpayer.
#3. A claim of Input Tax Credit
The claim of the input tax credit is very vital. Over-claiming of it may result in various consequences. But if the ITC is skipped in GSTR 3b, it may lapse forever. This will again cause financial loss to the taxpayer.
#4. Reversal of Input Tax Credit
In some of the cases, the reversal of input tax credit is required. But many taxpayers skip these provisions.
- When inputs are used in making exempt supplies.
- When the inward supply is used for personal benefits.
- ITC of blocked items taken wrongly.
- ITC is required to be reversed if taken in case of outward supply is covered in reverse charge.
- ITC should be paid back in case of nonpayment to the creditors for 180 days. Although the ITC can be taken again if the payment is made later on by the taxpayer.
Thus there should be in-house scrutiny to trace the ITC needs reversal.
#5. Adjustment of Input Tax credit
The mechanism of adjusting the input tax credit is changed by CBIC. But some taxpayers adjust it without taking care of amendments by CBIC. It may result in excess ITC adjustment. Also, the output liability paid via cash ledger will be less. This may also result in penal action from the department. The taxpayer may be liable for interest and penalty. The current mechanism for adjustment of ITC is-
The ITC of IGST shall be exhausted first. Only then the ITC of CGST or SGAT will be adjusted. Generally, taxpayers utilize the ITC of CGST and SGST first to the tax payable under CGST and SGST. The IGST is saved for balance payment as it is available for all taxes. But CGST and SGST can be adjusted with their respective tax liability only.
This provision should be followed while filing the return. Its negligence may result in lesser payment of tax via cash ledger.
#6. Entering the turnover in the wrong head
The turnover should be entered in the correct heads. Sometimes inter-state turnover is entered as inter-state. Also, the B2B turnover entered under the B2C turnover has its own consequences. It may deprive the recipient of the relevant input tax credit. Also, we can’t edit the B2C turnover in return. Thus a mistake of entering the B2B sales into B2C may end up in loss of ITC.
#7. Incomplete information
Taxpayers miss the tables in GST returns. When we access GSTR 3b, there is a small list of information. Many times we fill incorrect information and it displays only limited tables. We fill those tables and file the return. But in reality, we miss those tables. Make sure to file all tables. The same is the case with GSTR 1 also. We miss information like details of documents issued. Taxpayers don’t issue receipt vouchers and payment vouchers. In the case of invoices also we are required to give the range of documents issued in a particular month. HSN summary is another such information. It is also under-reported in GST returns. Although it is mandatory for all taxpayers now.
#8. Missing entry of advance
Advance is taxable in the case of services. There is a separate table in GSTR 1 to fill in the information related to the advances. But many taxpayers miss that information. Although advance for the supply of goods is not taxable. In that case, taxability will arise when we raise the invoice.
#9. Adjustment of advance
Just like the entry of advance receipts, its adjustment is also required. There is another table in GSTR 1 to adjust the advance. We adjust the advances when an invoice is raised against that advance. But many filers miss this information. In some cases, the advance may be returned without the completion of supply. In those cases, the tax paid at the time of receipt of advance is required to be reversed.
#10. Export turnover
Correct entry of export turnover is very important. Under the GST provisions, the refund of tax paid on export is refunded if the return is filed properly. But refund may be stuck if the data in GSTR 1,3b and shipping bill is not matching. The sales figure in GSTR 1, 3b, and shipping bills should match. But when we raise an invoice it is raised for the value of goods. The shipping bill also includes the amount of freight. Thus to match the value with the shipping bill we add the amount of freight to the value of goods. Only then it will match with the shipping bill. Only after matching these returns will we get the refund.
Conclusion
A proper mechanism for filing returns should be made. Good quality software can be used for it. We suggest the following process to file correct returns:
- Complete accounting by the month-end.
- Reconciling financials turnover with GSTR 1.
- Reconciling GSTR 3b ITC with financials.
- Reconciling ITC is GSTR 2b with GSTR 3b amount.
- If the ITC in books is not matching with 2b, it should be noted with reasons.
- Reducing the ITC available in both financials and GSTR 2b but not eligible for the taxpayer.
- Entering the turnover incorrect heads. It’s better to segregate it into various heads at the time of accounting only.
- Match the amount of invoice with the shipping bills in case of export turnover.
- In case of late filing of returns, interest on tax liability should be paid.
The return should be filed only after these reconciliations. Then the amount of tax payable as per the return should match with the payable under the financials. The aging of various creditors is also required. The taxpayer is required to pay the ITC taken but the creditor is not paid within 180 days.
About the Author
CA Shaifaly Girdharwal
Shaifaly Girdharwal is a qualified chartered accountant practicing in GST. She is the co-founder of ConsultEase.Com and a famous YouTuber with more than 2,40,000 subscribers for her channel dedicated to the GST videos. She is also a trainer and author. She has written a book on GST for Taxmann Ltd.