Returns Process and Matching of Input Tax Credit in GST
Return provides a framework for working out the tax that becomes payable in the prescribed period applying the legal principles laid down in the tax law to the transactions during the period. A taxable person has a legal obligation
(i) to declare his tax liability for a given period in the return;
(ii) furnish details about the taxes paid in accordance with that return; and
(iii) file correct and complete return within stipulated time frame.
Returns in GST are totally electronic without any requirement of physical submission. The effort has been to make it as transaction based as possible so that once the tax payer gives the details of transactions, most part of the return is auto generated from details of underlying individual transactions. There shall be one common return for IGST, CGST and SGST that shall be submitted on the GST Common Portal and tax departments will pull the return data relevant to them from the portal for further processing and analysis.
Matching of Input Tax Credit and auto-reversal is one of the core features of GST. The primary reason for having this feature arises from the fact that one of the most important design specification of GST is that it should allow full credit of taxes paid across State boundaries, making it a truly national tax while keeping the federal structure intact.
Operationally, it allows a taxpayer registered in one State can take credit of IGST paid to a taxpayer registered in another State against SGST payable by him in his State and vice versa. This requires that whenever a taxpayer takes credit of IGST paid against SGST payable, the Centre transfers an equivalent amount to the relevant State and whenever a taxpayer takes credit of SGST paid against IGST payable, the relevant State transfers an equivalent amount to the relevant Centre.
For smooth operation of such a fund transfer mechanism, which is essential for smooth flow of credit, it is important that a system is in place which ensures that whenever a taxpayer takes credit of any tax paid on his inputs, the tax amount has either already been collected or gets collected in due course. It is also essential that such a system runs without any manual intervention. Matching of input tax credit and autoreversal provides exactly that mechanism
FAQs on Returns Process and Matching of Input Tax Credit in GST
Q 1. What is the purpose of returns?
a) Mode for transfer of information to tax administration;
b) Compliance verification program of tax administration;
c) Finalization of the tax liabilities of the taxpayer within stipulated period of limitation; to declare tax liability for a given period;
d) Providing necessary inputs for taking policy decision;
e) Management of audit and anti-evasion programs of tax administration.
Q 2. Who needs to file Return in GST regime?
Ans. Every registered taxable person – who crosses the threshold limit for payment of taxes. A supplier needs to be registered when the aggregate turnover crosses Rs. Nine lacs but he become taxable person ONLY when he crosses Rs. ten lacs. So he will be required to file returns when he crosses the threshold limit of Rs. ten lacs. There are some other class of persons who need to be registered and therefore will have to file returns like interstate suppliers, TDS deductors, e-commerce operators, suppliers supplying goods through e-commerce operators etc (reference Schedule-III and Question 6 of the Registration Chapter).
Q 3. What type of outward supply details are to be filed in the return?
Ans. A normal registered taxpayer has to file the outward supply details in GSTR-1 in relation to various types of supplies made in a month, namely outward supplies to registered persons, outward supplies to unregistered persons (consumers), details of Credit/Debit Notes, zero rated, exempted and non-GST supplies, exports, and advances received in relation to future supply.
Q 4. Is the scanned copy of invoices to be uploaded along with GSTR-1?
Ans. No, scanned copy of invoices is to be uploaded. Only certain prescribed fields of information from invoices need to be uploaded.
Q 5. Whether all invoices will have to be uploaded?
Ans. No. It depends on whether B2B or B2C plus whether Intra-state or Inter-state supplies.
For B2B supplies, all invoices, whether Intra-state or Interstate supplies, will have to be uploaded. Why So? Because ITC will be taken by the recipients, invoice matching is required to be done.
In B2C supplies, uploading in general may not be required as the buyer will not be taking ITC. However still in order to implement the destination based principle, invoices of value more than Rs.2.5 lacs in inter-state B2B supplies will have to be uploaded. For intra-state invoices below Rs. 2.5 lacs and all intra-state invoices, state wise summary will be sufficient.
Q 6. Whether description of each item in the invoice will have to be uploaded?
Ans. No. In fact description will not have to be uploaded.
Only HSN code in respect of supply of goods and Accounting code in respect of supply of services will have to be fed. The minimum number of digits that the filer will have to upload would depend on his turnover in the last year.
Q 7. Whether value for each transaction will have to be fed? What if no consideration?
Ans. Yes. Not only value but taxable value will also have to be fed. In some cases both may be different.
In case there is no consideration, but it is supply by virtue of schedule 1, the taxable value will have to be uploaded.
Q 8. Can a recipient feed information in his GSTR-2 which has been missed by the supplier?
Ans Yes, the recipient can himself feed the invoices not uploaded by his supplier. The credit on such invoices will also be given provisionally but will be subject to matching.
On matching, if the invoice is not uploaded by the supplier, both of them will be intimated. If the mismatch is rectified, provisional credit will be confirmed. But if mismatch continues even after intimation, the credit provisionally allowed will be reversed.
Q 9. Do the taxable person have to feed anything in the GSTR-2 or everything is auto-populated from GSTR-1?
Ans. While a large part of GSTR-2 will be auto-populated, there are some details that only recipient can fill like details of imports, details of purchases from non-registered or composition suppliers and exempt/non-GST/nil GST supplies etc.
Q 10. What if the invoices do not match? Whether ITC given or denied? If denied, what action is taken against supplier?
Ans. If invoices in GSTR-2 do not match with invoices in counter-party GSTR-1, the ITC will be reversed if the mismatch continues even after it is made known to both and still it is not rectified. Mismatch can be because of two reasons. First, it could be due to mistake at the side of the recipient, and in such a case, no further action is required.
Secondly, it could be possible that the said invoice was issued by supplier but he did not upload it and pay tax on it. In such a case, recovery action shall be taken against the supplier. In short, all mismatches will lead to proceedings if the supplier has made a supply but not paid tax on it.
Q 11. What will be the legal position in regard to the reversed input tax credit if the supplier later realises the mistake and feeds the information?
Ans. At any stage, but before September of the next financial year, supplier can upload the invoice and pay duty and interest on such missing invoices in his GSTR-3 of the month in which he uploaded the invoice. The recipient will then automatically get ITC on that invoice. The interest paid by the recipient at the time of reversal will also be returned to the recipient through an automated system on the GSTN.
Q 12. What is the special feature of GSTR-2?
Ans. The special feature of GSTR-2 is that the details of supplies received by a recipient can be auto populated on the basis of the details furnished by the counterparty supplier in his GSTR-1.
Q 13. Whether the ITC denied can be restored?
Ans. If the supplier uploads the invoice at any time after the reversal but by September of the next financial year, the credit reversed earlier gets restored along with refund of the interest paid during reversal.
Q 14. Do tax payers under the composition scheme also need to file GSTR-1 and GSTR-2?
Ans. No. Composition tax payers do not need to file any statement of outward or inward supplies. They have to file a quarterly return in Form GSTR-4 by the 1st of the month after the end of the quarter. Since they are not eligible for any input tax credit, there is no relevance of GSTR-2 for them and since they do not pass on any credit to their recipients, there is no relevance of GSTR-1 for them. In their return, they have to declare summary details of their outward supplies along with the details of tax payment. They also have to give details of their purchases in their quarterly return itself, most of which will be auto populated.
Q 15. Do Input Service Distributors (ISDs) need to file separate statement of outward and inward supplies with their return?
Ans. No, the ISDs need to file only a return in GSTR-6 and the return has the details of credit received by them from the service provider and the credit distributed by them to the subsidiaries. Since their return itself covers these aspects, there is no requirement to file separate statement of inward and outward supplies.
Q 16. How does a taxpayer get the credit of the tax deducted at source on his behalf? Does he need to produce TDS certificate from the deductee to get the credit?
Ans. Under GST, the deductor will be submitting the deductee wise details of all the deductions made by him in his return in Form GSTR-7 to be filed by 10th of the month next to the month in which deductions were made.
The details of the deductions as uploaded by the deductor shall be auto populated in the GSTR-2 of the deductee.
The taxpayer shall be required to confirm these details in his GSTR-2 to avail the credit for deductions made on his behalf. To avail this credit he does not require to produce any certificate in physical or electronic form.
The certificate will only be for record keeping of the tax payer and can be downloaded from the Common Portal.
Q 17. Who all need to file Annual Return?
Ans. All taxpayers filing return in GSTR-1 to 3 other than casual taxpayers and taxpayers under composition scheme are required to file an annual return. Casual taxpayers, non-resident taxpayers, ISDs and persons authorized to deduct tax at source are not required to file annual return.
Q 18. Is an Annual Return and a Final Return one and the same?
Ans. No. Annual Return has to be filed by every registered taxable person paying tax as a normal or a compounding taxpayer. Final Return has to be filed only by those registered taxable persons who have applied for cancellation of registration. This has to be filed within three months of the date of cancellation or the date of cancellation order.
Q 19. If a return has been filed, how can it be revised if some changes are required to be made?
Ans. In GST since the returns are built from details of individual transactions, there is no requirement for having a revised return. Any need to revise a return may arise due to the need to change a set of invoices or debit/ credit notes. Instead of revising the return already submitted, the system will allow changing the details of those transactions (invoices or debit/credit notes) that are required to be amended. They can be amended in any of the future GSTR- 1/2 in the tables specifically provided for the purposes of amending previously declared details.
Q 20. How can taxpayers file their returns?
Ans. Taxpayers will have various modes to file the statements and returns. Firstly, they can file their statement and returns directly on the Common Portal online. However, this may be tedious and time taking for taxpayers with large number of invoices. For such taxpayers, an offline utility will be provided that can be used for preparing the statements offline after downloading the auto populated details and uploading them on the Common Portal. GSTN has also developed an ecosystem of GST Suvidha Providers (GSP) that will integrate with the Common Portal.
Q 21. What all should a diligent taxpayer ensure for a hassle free compliance under GST?
Ans. One of the most important things under GST will be timely uploading of the details of outward supplies in Form GSTR-1 by 10th of next month. How best this can be ensured will depend on the number of B2B invoices that the taxpayer issues. If the number is small, the taxpayer can upload all the information in one go. However, if the number of invoices is large, the invoices (or debit/ credit notes) should be uploaded on a regular basis. GSTN will allow regular uploading of invoices even on a real time basis. Till the statement is actually submitted, the system will also allow the taxpayer to modify the uploaded invoices. Therefore, it would always be beneficial for the taxpayers to regularly upload the invoices.
Last minute rush will make uploading difficult and will come with higher risk of possible failure and default. The second thing would be to ensure that taxpayers follow up on uploading the invoices of their inward supplies by their suppliers. This would be helpful in ensuring that the input tax credit is available without any hassle and delay. Recipients can also encourage their suppliers to upload their invoices on a regular basis instead of doing it on or close to the due date.
The system would allow recipients to see if their suppliers have uploaded invoices pertaining to them. The GSTN system will also provide the track record about the compliance level of a tax payer, especially about his track record in respect of timely uploading of his supply invoices giving details about the auto reversals that have happened for invoices issued by a supplier.
The Common Portal of GST would have pan India data at one place which will enable valuable services to the taxpayers.
Efforts are being made to make regular uploading of invoices as easy as possible and it is expected that an enabling ecosystem will develop towards this objective. Taxpayers should make efficient use of this ecosystem for easy and hassle free compliance under GST.
Q 22. Is it compulsory for taxpayer to file return by himself?
Ans. No. A registered taxpayer person can also get his return filed through a Tax Return Preparer, duly approved by the Central or the State tax administration.
Q 23. What is the consequence of not filing the return within the prescribed date?
Ans. A registered taxable person who files return beyond the prescribed date will have to pay late fees of rupees one hundred for every day of delay subject to a maximum of rupees five thousand.