Introduction
In its 31st GST Council Meeting, which was held in December 2018, the GST Council proposed the idea of a new system of GST Return filing.
This system of Return filing was supposed to be implemented at the beginning of this year. But the date of implementation got extended from April 2020 to October 2020.
The New GST Returns System will apply to all the Taxpayers & all the forms nationwide and will replace the major aspects of the current System.
New GST Returns system will swap the following Forms, GSTR-1, GSTR-3B, & GSTR-2A. Forms GSTR-2 & GSTR-3 are inactive & are anticipated to stay the same in the New System as well.
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The Composition Taxpayers can continue to file their Form GSTR-4 in the New GST Returns as they are doing currently.
Also, other return Forms such as GSTR-5 (Non-Resident Taxpayer Returns), GSTR-6 (ISD Returns), GSTR-7 (TDS Returns), GSTR-8 (TCS Returns), GSTR-11 (Casual Taxpayer's Returns) shall remain unchanged even in the New System.
Although New GST Returns is only making changes in a few Forms but the changes are going to be massive. Massive in intensity & in number, given that a majority of Taxpayers File these forms that are being revamped.
Certainly, the changes are going to string along a series of challenges for both Businesses as well as Tax Practitioners. Though the Government tries its best to draft improved & better systems, there may still be some loopholes when looked from the Businesses & the practical perspectives.
In order to understand the challenges that you & your Business may face due to the transition, let us try to understand the New GST Return System better.
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Structure of the New system of GST Return Filing
The construction & designing of the New GST Return Filing System has been done by the Government with the intent of easing up Compliance.
Although, it is speculated that the New GST Return System may not ease the compliance as much due to the increase in steps in the process, increase demand for accuracy & various other reasons.
Under the New Returns Businesses with an annual aggregate turnover of up to Rs. 5 Crores shall be considered Small Business, unlike the current Return Filing system where the limit is Rs. 1.5 Crores.
A Total of three Forms are introduced in the New System, namely- GST RET-1 (Normal), GST RET-2 (Sahaj) & GST RET-3 (Sugam).
Apart from the three forms, there are 2 Annexures- Annexure-1 ( Outward Supplies) & Annexure-2 ( Inward Supplies ).
All these Forms & Annexures shall replace From GSTR-1, GSTR-2A & GSTR-3B of the Current System. Given below is the tabular representation of the same-
Particulars | Normal | Sahaj | Sugam |
|---|---|---|---|
Turnover Limit | Mandatory for above Rs. 5 Crores. Optional for below Rs. 5 Crores | Below Rs. 5 Crores (Optional) | Below Rs. 5 Crores (Optional) |
Return Period | Monthly (above Rs.5 crores turnover) Quarterly (below Rs.5 crores turnover) | Quarterly | Quarterly |
Tax Payment Period | Monthly | Monthly | Monthly |
Forms to be filled | ANX-1, ANX-2, GST-RET 1 | ANX-1, ANX-2, GST-RET 2 | ANX-1, ANX-2, GST-RET 3 |
Allowed declaration | B2B, B2CS, RCM, Exports, SEZ supplies, E-commerce, Nil rated, exempt, etc. (All types) | B2C & RCM Nil rated, exempt, non-GST supply allowed only. | B2C, B2B & RCM Nil rated, exempt, non-GST supply allowed only. |
Other Information |
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A short summary based on the table can be- Small Businesses can opt for any of the three forms Sahaj, Sugam & GST RET-1 or Normal Filing Form, although the Return Filing shall be a quarterly occurrence the payment of GST will be monthly.
As for Businesses with annual aggregate turnover more than Rs. 5 Crores, the Form GST RET-1 is to be filed monthly & GST liability shall also be released on a monthly basis.
This may look like simplification of the GST Return Filing process & it is correct up to some extent but it attracts various additional requirements, increases the workload & can be more of a challenge for the Taxpayers.
You must note that the Compliance load shall increase for the Businesses due to these loopholes in the New System.
The New GST Returns is like an evolution for your Business, the better you comply & keep up with the system the better.
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10 Major Loopholes in the New Proposed GST Return Filing
The New GST Return is a Government initiative to help Businesses comply better & no doubt it may ease things up to an extent for the Businesses too, but no system is perfect especially in the beginning.
This has been the case multiple times & it is common that not all the plans unfold the way that they are intended to, hence even though GST 2.0 is a smart plan its success will only be determined with time depending on how Businesses adapt with the change & how the Government implements the change.
The New GST Return Filing also has a set of initial loopholes & challenges for Businesses. These challenges may be managed by the Business once they settle down & accept the changes with time.
We have listed down the most anticipated & severe challenges your Business can face upon the implementation of the New GST Returns-
1. Invoice Uploading Complications: A Potential Problem
Uploading the Invoices to the System on a real-time basis has multiple issues, especially for the small businesses, who may not have the required resources to do the same.
Even for other Businesses, it will require extra manual efforts or heavy changes in their system to comply with this change.
Some may even have to create a new system altogether to keep their Invoices up-to-date on the Portal in real-time & very accurately to avoid any losses of ITC.
2. Vendor Communication- An addition to the existing Problem
Vendor Communication is a problem even in the current System, if anything, the New GST Return System only increases the trouble with Vendor communication.
As a Supplier, you have to keep a track of whether your Vendor has opted for a monthly or Quarterly Filing, to save your Credits from being affected.
You have to constantly follow up for filing the missing the Invoices as incorrect ITC can attract penalization.
You have to keep a track of the vendors for timely filing of their GSTRs as your Credit shall be at risk of getting revered if your Vendors have more than 2 pending GSTRs.
3. Revamping your ERPs & Billing System, from scratch?
The answer to this would be, almost. As the Filing System & the Invoicing System is changing you may also have to bring critical changes to your Billing Systems & ERPs.
The change in the Reporting of details shall demand heavy changes in the ERPs & Billing Systems. Businesses & Tax Practitioners need to be prepared for it.
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4. Revamping of the Workflow & Staff Training
Apart from the changes in your ERPs, it would not be incorrect to say that even the Staff & accountants are required to change their set of knowledge on Indirect Taxation.
Proper training for the staff is vital at this point which may take some time & efforts.
It can be a challenge for companies to train the staff until they adapt to the change, which is time-taking.
Learning the new system & workflow can be a slow process varying from each individual.
5. Educating the Clients & Businesses
The Taxpayers & even accountants may take some time to learn, understand & adapt to the new system & the changes brought by the New GST Return System.
It will take some time for them to comply properly with the New System.
For say, it will primarily be the responsibility of the Chartered Accountants & Expert Tax Practitioners to educate their clients & businesses regarding the changes, important facts & the new process of GST Return Filing.
6. Adjustment Entries Issues in ITC
Businesses need to be extremely careful while dealing with ITC & Reversal of ITC in the New GST Return.
New GST Returns complicates the handling of ITC & Reversed ITC especially for Large enterprises or Businesses with high data volume.
The declaration of Reversed ITC needs to be done on a summary level & not on Invoice level. This means that you will have to be extra careful with the data entry process.
Any mistakes in the entry of ITC or Reversed ITC value can lead your Business towards losing the ITC.
Example - A Buyer Mr. Hari did not receive the goods but had claimed the ITC based on the Invoices uploaded by their seller in GSTR-1.
He Reverses the credits but he has not received the Credit Note for the same yet. In such a case, he will have to make a duplicate entry as he actually receives the Credit Note for the transaction.
Similarly, if he claims a Provisional Credit for which later the Invoice is declared by the Supplier in their GSTR-1, Mr. Hari will have to reverse the Provisional Credit in the entry and enter a fresh data of the same Invoice as ITC.
If not he is likely to lose his ITC & PC (Provisional Credit).
This has increased workload & may cause confusion to the accountants who deal with ITC.
7. Call to action hustle
The implementation of New GST Returns is expected to keep the accountants on their toes
Unlike the current system where the filing & Invoice reporting is done consolidated in the month-end, the new system demands the reporting of Invoices on a real-time basis.
Constant actions are required by the Businesses if they do not want to lose Credits & gain penalties.
The Suppliers must upload their Invoices in real-time as the Invoices demand action from the Buyer's end as well.
The delayed the actions taken by Businesses the more issues are created for them. Timely actions play a vital role in the New GST Return System.
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8. 6 digit HSN maintenance in Sugam & Normal
Taxpayers who opt for Form Sugam & Normal- GST RET-1, shall have to maintain in HSN in 6-digit instead of 4-digit.
This implies that you must be very cautious while dealing with HSN Codes as well, as errors in HSN Codes also attract penalties.
Though there is no such notification of penalties on HSN Codes, it has been declared that the HSNs are to be maintained accurately by the two classes of Taxpayers.
9. Complication of the RCM
All Taxpayers are required to declare their Reverse Charge Liabilities in the GST Returns (Sahaj, Sugam & GST RET-1) as per the New System.
The RCM liabilities need to be declared in a detailed form including details of GSTIN & HSN Codes.
PAN declaration is the least requirement even if the RCM Supplier is an unregistered person.
10. Manual Entry & Detailed declaration of Imports in Anx-1
This is trouble for Businesses with high Import transactions. There are two problems here-
- - Detailed Declaration of the Imports- The New Returns demand a highly detailed declaration of Imports- Invoice-wise, HSN-wise & document wise.
- - Manual Entry of Imports- The Import details are to declared manually for now in ANX-1. This can be a problem for Businesses, as they need to do a very detailed declaration manually.
11. Increase in overall workload & efforts
The New system can surely increase the workload for Businesses at least in the initial state of its implementation.
- More actions are required from the Supplier & the Buyer in Anx-1 & Anx-2, even though it was expected that these Annexures were going to be auto-populated.
More accuracy & real-time reporting approach is expected from the accountants & Businesses.
There is a great need of updation of the Billing System for this matter.
Conclusion
To conclude it can be said that though the New GST Returns are intended to make GST Filing better & simplified, it, however, has some issues in it.
The New System no doubt automates the filing process up to a large extent & can sophisticate the Return Filing Process for Businesses but at the cost of extra workload & demands dynamic sincerity.
It shall demand a lot of changes, in knowledge, in Billing Systems, & in Workflow of Businesses & increase the pressure of deadlines & extra work.
Initially, the New System can create complications & confusion, but only time shall reveal how the System actually works out for Large Enterprises, MSMEs, & all the other types of Businesses.
However, Businesses can comply with the New GST Return System with the help of APIs & GSPs authorized by the Government itself.
GST Suvidha Providers such as GSTHero can help Businesses in various ways in complying with The New GST Return System by integrating with their ERPs & Billing Softwares.