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What MSMEs need to know about old vs new GST return system

  • Aug 6, 2020 | Divita S Gupta

In a bid to simplify the compliance procedure under the Goods and Services Tax system, the GST council in its 31st Council meeting proposed a new and simplified return filing system. This system which was due for release in April 2020 is now likely to be implemented in October 2020. This new return system will be greatly beneficial for small and medium sized businesses for filing their returns on time and without any compliance issues. Here are the key differences between the old and new returns system. 

Turnover based classification of taxpayers
Under the current returns system, taxpayers having a turnover up to Rs.1.5 crore in the preceding financial year will be considered as small taxpayers. This slab is being raised under the GST new returns system. Businesses with a turnover under ₹5 crores will now be considered as small taxpayers. Those carrying out Business to Customer (B2C) transactions will be required to file GST-RET2 (Sahaj) on a quarterly basis and those businesses that carry out both business to business (B2B) and business to customer (B2C) will be required to file GST-RET 3 (Sugam). 

If a business has a turnover above ₹5 crore in the preceding financial year, they will fall under the category of a large business and will be required to file GST-RET1 monthly. 

Reduced number of forms
Under the current GST filing system, taxpayers are required to file multiple number of forms - at different intervals and for different purposes. Not only is this process time consuming and cumbersome, it has led to erroneous filing. Any errors in filing automatically delay the refunds process as the next set of details cannot be auto populated. Additionally, as there are different categories of taxpayers, they are required to file different categories of forms like GSTR-1, GSTR-4, GSTR-5, GSTR-6, GSTR-7 etc. 

This will not be the case under the GST New Returns System. As the new returns system will be simplified for the benefit of the taxpayer, they will be required to file a simplified main return form viz.GST RET-1 or GST-RET2 or GST-RET3. Each return form will be containing 2 annexures ANX-1 and ANX-2. If you own a small or medium business, you will be required to file returns each quarter. 

Uploading invoices
Under the current system, taxpayers can only upload revenue invoices at the time of filing. Additionally, missing invoices, if any, can only be reported while filing GSTR3B. The new returns system has addressed and resolved this issue with a mechanism to upload revenue invoices on a real time basis. Missing invoices can now be reported while filing the main return form. 

Claiming input tax credit (ITC)
India has witnessed fraudulent claims on input tax credit worth thousands of crores since GST was first introduced in 2017. This happens because taxpayers can claim input tax credit on a self-declaration basis under the current returns system. 

The New Returns System, however, allows taxpayers to claim ITC by matching auto-uploaded transactions in ANX-2 with the purchase register. Taxpayers can take provisional credit for missing invoices and can report them later.

Filing of amendment returns
Under the current return filing system, any missing invoices or amendments that need to be filed after the submission of the taxpayer’s returns can only be made in the return that will be filed in the following tax period which means taxpayers have to wait for quite some time before their ITC claim is processed. 

The New Returns System, however, allows taxpayers to file an amendment return and submit missing invoices or make amendments to their previously submitted return thereby dramatically reducing the turnaround time on processing of input tax credit claims. 

Auto cancellation of registration
Under the current return system, taxpayers are required to file their GST returns until their registration has been cancelled. This applies even if the taxpayer has made an application for cancellation of registration. This will not be the case once the New Returns System is introduced. Once the taxpayer makes an application for cancellation of registration, their GST account will automatically be suspended. 

Taxpayers can get a first-hand experience of the differences between the old and new returns system by accessing the Offline Tool prototype of the new returns system to better understand the new and simplified changes.


Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.

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