7 deadly GST sins and what you can do about them
- Feb 5, 2020 | Divita S Gupta
Common mistakes you should avoid for GST compliance
It has been more than 2 years since the implementation of the Goods and Services Tax (GST), but India’s biggest tax reform is yet a cause for concern among taxpayers across the country. This is mainly because of two reasons; first, the continuous amendments and second, non-clarity / confusion regarding the applicability of legal provisions.
After addressing in more than 200 GST seminars, this author observed that due to the non-clarity of many legal concepts, taxpayers continue making certain errors / mistakes of non-compliance which need rectification before undergoing a GST audit. Based on many GST seminars and interactions with trade, the author identified certain common mistakes in GST compliance, of which a few are summarized below. This article outlines common mistakes made by taxpayers and the precautions they must undertake before their GST audit in order to solve / rectify them before starting the GST audit, thereby saving the cost of interest and penalties.
Here is what might be wrong with your GST filing.
A. OUTWARD SUPPLY
- Non-payment of GST on recovery from employees.
- Wrong selection of place of supply in case of “Bill To Ship To” transactions especially where Bill To is HO and Ship To is factory located in another State.
- Non-following all the required formalities in case of supply to merchant exporter.
- Non-reporting of interest income under non-GST supply.
- Non-payment of GST on commissions received in foreign currency under Intermediary Services.
- Non-payment of GST in case of free of cost service transactions with group companies.
- Non-payment of GST on penalties charged by companies – such penalties are recovered by issuing a Debit Note instead of a Tax Invoice.
- Avoid knock off entries of advance received and its billing.
B. REVERSE CHARGE MECHANISM (RCM)
- Non-payment of GST under RCM especially in case of Government fees and ocean freight in case of import of goods.
- In some cases, CHA pays IGST on ocean freight and has the same reimbursed from the importer. This practice is incorrect and needs to be stopped.
- Non-payment of GST under RCM on out of pocket expenses of advocate and advocacy services.
- Non-payment of GST on import of services for free.
C. INPUT TAX CREDIT (ITC)
- ITC availed without tracking date of payment – condition of payment within 180 days.
- Availment of 100% credit on prepaid expenses. 100% ITC will not be available in the same month since the condition of receipt of service is not satisfied.
- Non-reversal of ITC in case of free sample / write off / gift / personal consumption.
- Non-availment of ITC on banking transactions due to non-receipt of invoices OR ITC is availed on back statement but not on bank invoice.
- Non-payment of GST / non-reversal of ITC in case of receipt of insurance claim.
- Non-availment of ITC on air tickets since air travel agent provides his GSTIN instead of company. OR in other cases, the air travel agent provides the GSTIN of the company however, ITC is not available due to non-availability of tax invoice of airline company.
- Non-availment of ITC on repairs / renovation of office or factory when such expenses are not capitalised.
- Availment of ITC on canteen / employee transport service from September 2018 without issue of Notification to give effect. ITC on such services will be available w.e.f. 1st February 2019.
- ITC of CGST and SGST of one State is claimed in another State, for instance, hotel accommodation.
- Availment of ITC on RCM in the subsequent month instead of in the same month.
- Carry forward of credit in TRAN-1 which was not reported in returns filed under excise, service tax and VAT but availed in books.
D. E-WAY BILL
- Supplying goods against which validity of e-way bill is expired.
- Non-generation of e-way bill in case of return of goods after job work.
- Tax invoice cancelled without cancellation of e-way bill or without rejection of e-way bill.
E. REFUND RELATED TO EXPORT OF GOODS / SERVICES
- Reporting of export under NIL or exempted supply
- Taxpayers must consider the following while exporting on payment of IGST:
a. Correct Shipping Bill number to be mentioned in GSTR-1 return;
b. Export amount should be correctly mentioned in 3.1.b of GSTR-3B;
c. Port code should be correctly mentioned in GSTR-1 return;
d. The invoice number mentioned in GSTR-1 and the invoice number mentioned in the Shipping Bill should match;
e. The IGST paid amount indicated in GSTR-1 should match with IGST paid amount indicated in the Shipping Bill;
f. Details reported in EGM should match with export details mentioned in the Shipping Bill; and finally,
g. Bank account details available with Customs should be correct.
F. DOCUMENTATION / RECORD
- Non-issue of Tax Invoice (self-invoice) in case of RCM credit
- Non-fixing / display of GST registration Certificate / GSTIN at the entrance of the office / factory
- Non-issue of Receipt Voucher / Payment Voucher / Refund Voucher
- Non-filing of ITC-04 related to job work transactions
- Non-maintenance of ITC Register in a proper manner. Mainly not updating GSTIN of all suppliers which is essential at the time of reconciliation of ITC with GSTR-2A
- Raising of Debit Note first in case of purchase return rather than supplier raising Credit Note
- Issuing of separate delivery challan by job worker for returning of processed goods to the principal manufacturer
G. GST RETURNS
- Many suppliers file GSTR-3B but not GSTR-1 or vice versa
- Wrongly reporting outward supply liability under RCM or vice versa
- Non-reconciliation of GSTR-1 and GSTR-3B for the same month
The above list of common mistakes and precautions is not exhaustive, it is, however, an attempt to highlight common mistakes so that efforts can be taken to solve or rectify them before starting a GST audit.
For more information on GST Return Filing, E-way Bills and E-invoicing software, reach out to us at www.avalara.com