Goods and Services Tax (GST) is a tax system introduced in 2017 that has replaced a total of 7 (seven) central taxation and nine state taxation. The pre-GST era was complex and fragmented, with multiple indirect taxes levied at various levels of government. At the central level, Central Excise Duty, Service Tax, and Customs Duty were imposed, and at the state level, Sales Tax, VAT (Value Added Tax), and State Excise Duty were imposed. This multiple-tax system was cumbersome and had laid down a huge burden on the taxpayer. There was also an issue of tax evasion and lack of transparency in the tax administration.
To combat the complications of the traditional tax system, the new tax system was introduced in 2017 by the central government of India. It follows a multi-tiered system that aims to streamline the taxation system. However, GST registration is not mandatory for all taxpayers in India. It is only mandatory for the business if it surpasses a particular threshold. GST has proven to be efficient to businesspersons as well as payers with respect to the claim of input tax credit on business purchases, attaining credibility and trust in the eyes of customers, suppliers, and government authorities, and much more. Central Goods and Service Tax Act 2017 is the central legislative act that governs all the GST tax regulations. Compliance with GST regulation is not just mandatory but also essential for the smooth running of the business.
What is GST?
It is a tax which is levied on the supply of goods and services sold within the boundaries of India for consumption. The tax is paid by the customers on the purchase of goods or services. There are three main components of the GST which are:
- Central GST (CGST): Imposed by the central government.
- State GST (SGST): Imposed by the state government.
- Integrated GST (IGST): Imposed on the inter-state transactions.
What are the compliances under GST in India?
Under the GST system in India, businesses and taxpayers are required to adhere to certain sets of procedures and requirements. Compliance with these procedures and conditions ensures that businesses pay the correct taxes, maintain proper records, file returns within the due time, and follow the regulations set out by the GST authorities. GST users are mandated by law to follow the following compliances:
1. GST Registration
When the yearly turnover of the business engaged in the supply of goods exceeds Rs. 40 lakhs, the companies have to mandatorily register GST. When the business is located in a special category union territory and states Jammu Kashmir, Himachal Pradesh, Uttarakhand, and the Northeastern states, the turnover limit is Rs. 20 lakhs.
When the yearly turnover of the business engaged in supply of service exceeds Rs. 20 lakhs, the companies have to mandatorily register GST. When the business is located in a special category union territory and states Jammu Kashmir, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Tripura, Uttarakhand, and the North-Eastern states, the turnover limit is Rs. 10 lakhs.
2. Mandatory Registration
If the annual turnover of the business is below the aforementioned threshold, there are certain businesses that have to mandatorily apply for GST registration, including:
- If a business supplies goods or services across state borders (inter-state);
- Business on the e-commerce platforms;
- Businesses that occasionally engage in taxable supplies in a state where they don’t have a fixed place of business;
- Foreign businesses or non-resident entities supplying goods or services in India;
- Persons acting as agents for another taxpayer who is engaged in the business of either goods or services;
- Businesses distributing input tax credits to different units;
- The businesses that are liable to pay tax under the Reverse Charge Mechanism (RCM)
3. Tax Invoice Compliance
All the businesses registered under the GST Act have to comply with the invoicing complaint to take advantage of an input tax credit. The Tax Invoice should include the following:
GSTIN of the supplier and recipient
- Details of the goods or services provided
- HSN/SAC codes
- Applicable GST rate (CGST, SGST, IGST)
- Invoice number, date, and payment details.
- In case of continuous supply (such as subscriptions), businesses have to issue invoices depending on the frequency of payment.
- A new register have to issue a revised invoice within 1 month of registration against the invoices that were issued during the time between the effective date of registration till the date of issuance of certificate of registration.
Note: HSN and SAC Codes are the standard codes used to classify goods (HSN) and services (SAC).
4. GST Returns
GST returns are the essential compliance that the businesses need to comply. Returns have to be filed monthly, quarterly, and annually, depending on the nature of the business and the turnover.
- GSTR-1: It has the detail of outward supplies (sales) made during the month. It is filed monthly.
- GSTR-2A: Auto-populated details of inward supplies (purchases) from suppliers.
- GSTR-3B: Summary of inward and outward supplies, along with tax liability for the period. It is filed monthly.
- GSTR-9: Annual return that summarizes all business activities of the year. It is filed monthly.
- GSTR-9C: Audit reconciliation for businesses with a turnover above ₹2 crore.
- GSTR-5: For non-resident taxable persons.
- GSTR-6: For Input Service Distributors (ISD).
- GSTR-7: For TDS deductors.
- GSTR-8: For e-commerce operators who collect tax at source (TCS).
5. Payment of Taxes
The taxes like CGST, SGST, and IGST have to be paid through the electronic cash ledger.
- Input Tax Credit (ITC): ITC is used to offset GST liability (e.g., input tax on purchases can be set off against output tax on sales).
- Due dates for payment: Taxes must be paid by the 20th of each month for monthly return filers or quarterly for eligible businesses.
6. Maintenance of Books of Accounts and Records
Every GST-registered user is required to maintain accounts and records that include:
- Sales and purchase invoices
- Tax payment records
- Input Tax Credit (ITC) records
- Stock registers
- Returns filed
- Any other documents prescribed by the GST authorities
Period of Retention: Accounts and records must be maintained for at least 6 years from the end of the relevant financial year.
7. Filing of GST Returns
- GSTR-1: For outward supplies (sales) on or before the 11th of the month following the tax period.
- GSTR-3B: Summary of sales and purchases, filed by the 20th of the next month.
Late Filing Fees: ₹50 per day (₹25 for CGST and ₹25 for SGST) for delay in filing GSTR-1 and GSTR-3B.
8. Payment of Interest and Penalties for Non-Compliance
- Interest: Interest at 18% per annum is applicable for late payment of taxes.
- Late Filing Fee: ₹50 per day (₹25 for CGST and ₹25 for SGST), subject to a maximum of ₹5,000.
- Penalties: Can range from ₹10,000 to ₹1,00,000 or 10% of the tax due, whichever is higher, for incorrect or late filing of returns.
9. Reconciliation of GST Returns
- Annual Reconciliation: Businesses with a turnover of over ₹2 crore are required to file GSTR-9C (audit reconciliation) along with their annual return (GSTR-9). This ensures that the financial statements match the data filed in the GST returns.
10. Input Tax Credit (ITC)
- Eligibility for ITC: Businesses can claim ITC on the taxes paid on their purchases, provided the goods/services are used for business purposes.
- ITC Conditions: Valid invoices have to be maintained, the supplier must have paid taxes, and ITC must be claimed within the prescribed timelines.
- Reversal of ITC: If the goods or services are not used for business purposes or if the tax invoice is not paid to the government, the ITC must be reversed.
11. Tax Deducted at Source (TDS) and Tax Collected at Source (TCS)
- TDS: Certain specified persons (e.g., government agencies) must deduct TDS on payments to suppliers under GST. The rate is generally 2% for GST-registered suppliers.
- TCS: E-commerce operators are required to collect 1% TCS on the value of taxable supplies made through their platform.
12. Reverse Charge Mechanism (RCM)
- RCM Applicability: Under certain circumstances (e.g., services provided by an unregistered person or import of goods), the recipient of goods/services is liable to pay GST instead of the supplier.
- RCM Returns: The recipient must account for and pay tax under RCM and include it in the returns (GSTR-3B).
13. GST Audit
- Mandatory for Turnover above ₹2 Crore: Businesses with turnover over ₹2 crore are required to have their GST records audited by a Chartered Accountant (CA) or Cost Accountant.
- Annual Filing of GSTR-9C: Along with the GSTR-9 annual return, a reconciliation statement (GSTR-9C) needs to be filed to verify the correctness of the filed returns and the financial statements.
14. Maintaining Specific Records for Certain Transactions
- Export of Goods and Services: Specific records must be maintained for exports, and the proper documentation (shipping bills, export invoices) must be kept to claim exemptions.
- Composition Scheme: Businesses under the Composition Scheme must maintain records of sales and purchases in a simplified format and file quarterly returns (GSTR-4).
- E-commerce: E-commerce operators must maintain specific records related to the transactions of sellers on their platforms, including details of the tax collected at source (TCS).
Conclusion
GST compliance is essential for businesses in India. All the registered users are mandated by law to comply with all the requirements are set by CSGT Act, 2017. The non-compliance can result into penalties that can harm the reputation of business. Therefore, it is important to understand these compliances first and then follow it. By adhering to the obligations, businesses can smoothly operate in India and avoid any legal issues.
FAQs
- What is the threshold for GST registration?
The threshold for GST registration is ₹40 lakhs for goods and ₹20 lakhs for services.
- What happens if I miss the GST return filing deadline?
The penalty of a late fee of ₹50 per day shall be imposed on you, and interest charges on the outstanding tax liability.
- How can I claim an Input Tax Credit (ITC)?
To claim ITC, the goods or services must be used for business purposes, and you must have a valid GST invoice.
- Can I claim ITC on capital goods?
Yes, ITC on capital goods can be claimed in a similar way as other purchases.
- What is the penalty for incorrect GST returns?
The penalty for incorrect returns can range from ₹10,000 to ₹1,00,000, depending on the severity of the discrepancy.
- Is GST applicable to e-commerce transactions?
Yes, GST is applicable to e-commerce transactions, and e-commerce operators must comply with TCS provisions.
References
- Section 22 of the Central Goods and Services Tax Act, 2017
- Section 24 of the Central Goods and Services Tax Act, 2017
- Section 31 of the Central Goods and Services Tax Act, 2017
- Sections 39, 44, and 45 of the Central Goods and Services Tax Act, 2017
- Section 49 of the Central Goods and Services Tax Act, 2017
- Section 35, Rule 56 of the Central Goods and Services Tax Act, 2017
- Section 50 and 122 of the Central Goods and Services Tax Act, 2017
- Section 44 and Rule 80 of the Central Goods and Services Tax Act, 2017
- Sections 16 and 17 of the Central Goods and Services Tax Act, 2017
- Section 51 and 52 of the Central Goods and Services Tax Act, 2017
- Section 9(3) and (4) of the Central Goods and Services Tax Act, 2017
- Section 35(5), Rule 80 of the Central Goods and Services Tax Act, 2017
