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Useful Information for Your Business

Time is precious, and this is the saying we heard from the well-wishers, teachers, and parents when we were kids, and the same is true, even know also. And they say that once the time is lost, it cannot be earned, and the same is true for the business. Especially for Goods and Service Tax, the timing of the filing of returns by the supplier, timing of availing input tax credit or rectifications, is vital and determines your impact on the bottom line. Filing of September month returns is the only option for availing or rectifying the credits related to transaction penetrating to the previous financial year, and for the financial year, 2019-20 September month return filing due date is 20th Oct 2020. While filing the GST returns for September 2020, the taxpayers/professionals have to consider the following points

  • Availing Input Tax Credit
  • ITC Matching
  • Issue of Debit / Credit Notes
  • Reconciliation of Data between GST Returns & Books
  • Rectification of Errors in GST Returns  

Availing Input Tax Credit

One of GST rollout's major benefits for the trade and industry is the availability of input tax credit seamlessly across the supply chain cycle. Though input tax credit is available, there are certain restrictions on the same, and they are given in Section 16, Section 17(5), and in the corresponding rules. 

The input tax credit can be availed only when the recipient has received the goods or services as per the provisions of Section 16(2)(b) of the CGST Act 2017.  In this context, verify that the goods and services are received. There can be challenges, especially in the case of services like Annual Maintenance Contracts, the invoice is issued before the completion of service, and it is spread over some time. In such cases, properly informed decisions have to be taken else the input tax credit claimed has to be reversed along with the interest if found during scrutiny or audit or as part of some investigation by the departments.

 Verify the inward register maintained at the factory gate with the Purchase register and ensure that the input tax credit is claimed on all the supplier's invoices and if any are not claimed, claim the same before filing the GSTR – 3B for September 2020.

 Section 16(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Verify for any invoices filed by suppliers in GSTR – 1, and the same is missing in the purchase register. Track such invoices in the organization, account for the same, and avail the input tax credit else will lapse.

ITC Matching

One of GST's major changes compared to the erstwhile tax regime is the matching of the input tax credit. The Government has to resort to this stringent condition based on some of the black sheep in the industry, resulting in revenue leakages.

Matching is applicable in GST from the day of rollout as Matching is falling under section 42 of the CGST Act 2017 and notified wide Notification No 9/2017 – Central Tax dated 28th June 2017. Though it is notified, enforcement was lacking, and some of the errant taxpayers where claiming input tax credits without receipt of goods or services. To curb this menace, the Government has notified with restriction of matching wide Notification No 49/Central Tax – dated 9th Oct 2020, where it made mandatory for matching with 20% restriction. The same was relaxed with effective from 1st Jan 2020 wide Notification No 75/Central Tax dated 26th Dec 2020. The same has been relaxed on account of the pandemic like situation, and matching for availing input tax credit has been relaxed for the months Feb 2020 to September 2020 wide Notification No 30/2020 – Central Tax dated 3rd April 2020.

The taxpayers have to do matching of their purchase registers with the GSTR – 2A, and then only the final input tax credit has to be claimed. The input tax credit, if reversed or claimed, has to be done only in the September GSTR – 3B only else the same will lapse. Matching has to be especially for February and March 2020 and included in the September GSTR – 3B.

Issue of Debit / Credit Notes

As per the normal business process, the supplier of goods or services, or both issues tax invoices. If there is any change in price or issues in the quality of goods or services delivered for any other business reason, it is common to issue a Debit or a Credit Note. There is a time limit for the issue of Credit Notes but not for the issue of Debit Notes.

The sales and billing department has to be advised to issue the credit notes before the filing of GSTR – 3B for Sep 2020. This will help in closing the pending issues and minimize the cash flows as the Credit Notes being issued, will reduce the tax liability. Many taxpayers would be required to issue Credit Notes on account of lockdowns and business disruptions caused due to the pandemic.

Section 34(2) - Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

Though there is no time limit for the issue of Debit Note but is advised to issue the same as the same will minimize the pending issues, the issue of debit notes brings is additional cash into the system, which has become scarce due to the business disruptions on account of the pandemic.

 Reconciliation between GST Returns & Books of Accounts

The outward supplies returns filed from 1st April 2019 to 31st March 2020 has to be matched or reconciled with the books of accounts and the liability declared and paid through GSTR – 3B. This will ensure no differences between the three sets of data and enabled filing of GSTR – 9 and GSTR – 9C easily without any issues.

Section 37 (3), First Proviso

Provided that no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

If there are any missing invoices where they are updated in GSTR – 1 but liability is not paid, the same should be updated in the GSTR – 3B liability for Sep 2020.

If any excess tax paid for the said period through GSTR – 3B, then the same should be reduced from the GST liability in Sep 2020, this will reduce the cash outflows. Also, please maintain a reconciliation statement for the same for future reference.

If any accounting entries are missing in the books of accounts but recoded in GSTR – 1 and the corresponding tax has been paid, update the books of accounts accordingly. 

Identify all the debit notes and credits notes have been accounted for properly, and they are reported in GSTR – 1 and tax liability is adjusted in GSTR – 3B.

Rectification of Errors 

To error is human, and it is a human tendency to commit errors. While filing the GST returns, the data may be wrongly punched. All such records have to be identified and rectified before filing o GSTR – 3B of September.

  • GSTIN  may be entered wrongly
  • The GSTIN of the supplier entered wrongly – for state A, state B might be entered
  • B2B supplies wrongly classified under B2C
  • Date of the tax invoice wrongly entered
  • GSTIN of customer A is entered as customer B
  • Invoice amount wrongly entered - Rs 10,000 entered as Rs 1,000 or Rs 1,00,000
  • SEZ supplies reported as B2C supplies
  • Exempted supplies not reported
  • Non-GST Supplies not reported

Section 38 (5) first proviso

Provided that no rectification of error or omission in respect of the details furnished under sub-section (2) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

Section 39(9) first proviso

Provided that no such rectification of any omission or incorrect particulars shall be allowed after the due date for furnishing of return for the month of September or second quarter following the end of the financial year, or the actual date of furnishing of relevant annual return, whichever is earlier.  

TCS – Section 52(6) first proviso

Provided that no such rectification of any omission or incorrect particulars shall be allowed after the due date for furnishing of return for the month of September or second quarter following the end of the financial year, or the actual date of furnishing of relevant annual return, whichever is earlier.

Those mentioned above are some of the errors, and they have to be rectified in the GST Returns before the filing of the GST Return for Sep 2020. As per the provisions and the taxpayer has to rectify the above errors. Most of the above-reported errors have to be rectified in GSTR – 1 / GSTR – 6,7 & 8.

The above data entry errors have to be rectified through the Amendments, and the provision of rectifying through amendments may be disabled after the filing of Sep 2020 returns. To avoid any challenges in the filing of GSTR – 9 and 9C, it is recommended for the taxpayers to rectify the same through amendments else it will be a challenge while preparing the data for the annual or audit return.

The points mentioned above are indicative and may vary from taxpayer to taxpayer. It is also recommended to address the following during the September return filing

  1. Inputs sent on job work if not returned within the stipulated period; tax invoice has to be issued
  2. Avail the input tax credits if any is missed out
  3. If the supplier is not paid within 180 days, the input tax credit claimed should be reversed
  4. There is an exemption for reporting input tax credit by classification for the first two years only; the taxpayers must classify and claim input tax credit accordingly. If not done, prepare a reconciliation statement and validate that the same match the input tax credit claimed in GSTR – 3B.
  5. Verify If any employee gifts above Rs 50,000 on which tax liability has to be paid
  6. Verify if any input tax credit has to be reversed for the goods given without any consideration
  7. Verify if any shortages or damage to stock on which input tax credit has been claimed? If any such items are there, reverse the input tax credit
  8. Validate the input tax credit reversed on common inputs for taxable and exempted supplies being reversed
  9. Verify input tax credit has been reversed on a pro-rata basis on capital goods from one state to another state
  10. Verify the financial credit notes and debit notes issued are as per the provisions of the law else issue GST Credit / Debit Notes.

Wherever possible, if any ITC has to be reversed or tax has to be paid, account it and discharge it through GSTR – 3B. The same can be done at the time of filing of Annual return, but at that time, additional interest has to be paid.

Verification of the above tasks is a time-consuming process, and it is recommended to start the process ASAP and ensure that no input tax credit benefit lapses. As of now, there is no removal of difficulties order has been issued for availing input tax credit for an extra period on account of a pandemic like situation.

Disclaimer

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions, or organizations that the author may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

Read More:https://www.ftcci.in/source/ftapcci/FR 2020/FR 2020%2010 14.pdf

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