The Goods and Services Tax (GST) has brought a revolution in the Indian Tax system. It has unified complex tax structure into one. Though, GST has opened new doors to new opportunities for businesses to grow, businesses had to learn new methods of operation as per new laws and compliance requirements.
GST is a single tax that is applicable to the supply of goods and services. The tax is dependent on consumption, which means that it is paid by the consumer, and the businesses collect it and remit it to the government. GST is divided into three main types:
- CGST (Central GST): It is collected by the Central Government on intra-state sales.
- SGST (State GST): It is collected by the State Government on intra-state sales.
- IGST (Integrated GST): It is collected by the Central Government on inter-state sales or imports.
Central Goods and Service Tax Act, 2017 is the central tax legislation that controls the levy and collection of Goods and Services Tax (GST) on the supply of goods and services in India. Every business has to comply with the provisions of the act and non-compliance can lead to heavy penalties. One such compliance requirement includes GST compliance rating.
GST compliance rating is an important indicator that tell us how businesses are effectively managing its tax responsibilities. Lower rating can have detrimental impact on the business. Higher rating shows that the business is effectively managing its tax responsibilities. In this blog, we shall understand the meaning and importance of GST rating on the business.
What is GST Compliance Rating?
The GST Compliance Rating is a score ranging from 1 to 10 given to the businesses by the government on the basis of the adherence of the business to the GST laws and regulations. A score of 10 shows descent compliance of the company with laws, whereas the rating of 1 shows poor performance of the company in adherence to the tax system.
GST rating system was introduced by the Goods and Services Tax Network (GSTN) through the Central Goods and Services Act, 2017 CGST to access the compliance behavior of the taxpayers. It evaluates the performance of the business in several aspects as timely filing of returns, accurate payment of taxes, consistency in records, and avoiding discrepancies in tax filings.
As per Section 149, CGST Act, 2017 states that GST compliance rating score can by given by the Government on the basis of record of the compliances of the business with the provision of CGST Act, 2017. Rating scores may be updated at periodic intervals and published in the public domain.
Why Is GST Compliance Rating Important?
Good GST compliance rating provides various benefits to businesses and some of them include:
- Good Reputation: A high compliance rating has good impact on the reputation of the business as it shows compliance rate of business with rules and regulations. Good reputation attracts more customers and stakeholders.
- Easy Access to Credit: Financial institutions, including banks and lenders, often consider compliance GST rating of a company when deciding whether to approve loans or credit lines to companies. A higher rating shows low financial risk and make the business more attractive to lenders.
- Competitive Edge: In the contemporary era, where market is highly competitive, good GST compliance record offers a significant edge to the business. Business partners and customers prefer working with companies that shows consistent track record of compliance. Good GST rating can lead to increased opportunities, contract, and relationships for growth of business.
- Eligibility for Government Contracts and Tenders: Many government departments and public sector organizations require a minimum GST compliance rating for businesses to qualify for tenders or contracts. If the rating of a business falls below the required threshold, it may be disqualified from bidding on lucrative government projects.
- Avoid Penalties: Poor GST rating means the business is not complying with provisions of GST regulations, and non-compliance with the essential conditions can lead to penalties, including interest on fines.
How Is GST Compliance Rating Calculated?
The GST Compliance Rating is determined by several factors that include:
- Timely Filing of GST Returns: One of the most important factors that impact the business’s compliance rating is whether it submitting its GST returns on time. GST requires businesses to file returns on a monthly, quarterly, and annual basis. If there is a delay or failure on part of the business to submit the return within the prescribed deadlines, its compliance rating can drop significantly. Make sure that the you file the returns on time.
- On-Time Payment of Taxes: It is mandatory to pay taxes within due date and businesses are expected to remit GST payments like GST-3B and GST-1 on time. Any failure to make payment on time or delay in payment will affect the compliance rating of the business directly.
- Accuracy in Tax Filings: It is mandatory as well as expected from the business to report its sales, purchases, and input tax credits correctly in its GST returns. Incorrect filing like overstating input tax credit or underreporting amount and number of sales can lead discrepancies and inconsistency and it can potentially harm the reputation of the business and compliance rating.
- Accurate Books of Accounts: All the businesses need to maintain accurate financial records in their books of accounts. Any mismatch between the data in the books and the return filed returns can lead to huge blunder and lower the compliance score. Therefore, it advised to consult a professional before filing GST return.
- GST Audits: GST compliance rating is dependent on the GST audits. It is pertinent to note that a clean track of your business with fewer to minimum number of audits shows that your business stays in compliant GST laws and it positively impacts the GST rating.
- History of the Taxpayer: The historical behaviour of a taxpayer is also an important factor that influences the GST rating. If a business has consistently complied with GST laws, it shall be rated better than a business with a history of penalties, tax evasion, or disputes with tax authorities.
What Happens in Case of Low GST Compliance Rating?
A low GST compliance rating can result in several severe consequences for businesses:
- Penalties and Interest Charges: It is mandatory to maintain good GST compliance rating as low compliance rating can lead to penalties and interest charges. The rate of interest may vary between 18% to 24% on the unpaid tax.
- Suspension or Cancellation of GST Registration: In worst cases, when there is a continuously failure on the part to business to comply with GST regulations, the tax authorities may suspend or cancel its GST registration. Cancellation of GST license can severely disrupt the operation of business.
- Increased Audits and Scrutiny: A poor compliance rating leads to heightened scrutiny from the tax authorities like frequent audits, investigations, and other forms of inspection, which can disrupt day-to-day activities of the business.
- Loss of Trust with Business Partners: A low compliance rating can severely damage the relationship of business with its suppliers, customers, and investors. Business partners may hesitate to continue or enter into new contracts with a company that is flagged for non-compliance, fearing potential disruptions or legal issues.
- Ineligibility for Government Projects: Many government tenders and contracts require businesses to meet a minimum GST compliance rating. If a company has a low rating, it will be disqualified from participating in such projects, limiting its potential revenue and growth opportunities.
How to Improve Your GST Compliance Rating?
If your GST compliance rating is low or you simply want to maintain a high score, here are some key steps to improve or sustain it:
- Ensure Timely Filing of Returns: Make sure you file your GST returns on or before the due dates.
- Pay Taxes on Time: Always ensure that your GST dues are paid within the stipulated timelines.
- Ensure Accuracy in Your Tax Filings: Double-check your tax returns before filing to ensure all information is accurate.
- Stay Updated on Amendments: Tax law is an evolving subject matter and is constantly evolving. You need to stay updated with the latest amendments in GST law to make sure that your business doesn’t miss out any important compliance.
- Consult a GST Expert: GST compliances are complex in nature and it is advisable to consult professional before filing GST returns. Expert opinion from a professional will guide you at every step.
Conclusion
The GST Compliance Rating is an important part of the Indian tax system that shows how businesses follow GST laws and regulations. A high compliance rating means the business is accurately complying with the provisions of GST, and a low rating means there has been a default on the part of the business to follow regulations diligently. Maintaining a high GST compliance rating for businesses can give them a competitive edge that can significantly aid in long-term growth and profitability. It is advisable to consult a professional to make sure that you don’t miss out on an important obligation. The expert will help you understand the meaning and the importance of compliance and shall make GST return filing a high priority along with other accurate reporting, proper tax payments, and better record keeping.
FAQs
1. What is the GST Compliance Rating range?
The GST Compliance Rating is a score ranging from 1 to 10.
2. What happens if the GST Compliance Rating is low?
A low rating can lead to penalties, interest charges, suspension of GST registration, increased audits, and loss of eligibility for government tenders.
3. How can I improve my GST Compliance Rating?
File accurate GST returns on time, pay taxes timely, and maintain transparent financial records.
4. Is the GST Compliance Rating visible to the public?
Yes, it is available on the GST portal and you need to type your GST registration number and the rating will be visible.
5. Do penalties impact my GST Compliance Rating?
Yes, penalties and non-compliance will adversely affect your GST compliance rating that will potentially impact the operation of your business.
