The new Goods and Services Tax (GST) return filing system has already been rolled out on a trial basis, and will be implemented in a phased manner from 1 October 2019. In this new return system are that the forms will be simple and concise, and will cater separately to the needs of small taxpayers. The system will also feature upload of documents and availability of input tax credit in real-time. This will be an advantage over the old system, which the government felt was inadequate to ensure proper input tax credit claim.
Under the new return system, there will be one return form called the GST RET-1/RET-2/RET-3, which will be the main return form, containing details of inward and outward supplies, input tax credit and taxes paid. This return will contain 2 annexures, namely GST ANX-1 and GST ANX-2.
GST ANX-1 is the annexure for reporting outward supplies, inward supplies liable to reverse charge, and the import of goods and services. GST ANX-2 is the annexure for reporting inward supplies, with a facility for the recipient of supplies to take action on the documents that it shows.
The main return GST RET-1 is eligible to be filed by all taxpayers, and also known as the 'Normal' return. GST RET-2 and GST RET-3, on the other hand, are eligible to be filed by only small taxpayers i.e., with turnovers less than Rs 5 crore in the preceding financial year. GST RET-2 is also known as the 'Sahaj' return, and can be filed by taxpayers making only B2C supplies. GST RET-3 is known as the 'Sugam' return, and can be filed by taxpayers making both B2B and B2C supplies. However, e-commerce suppliers cannot choose GST RET-2 or GST RET-3, even if they fall in the category of small taxpayers.
From a filing period perspective, the new return system has introduced a quarterly filing option for small taxpayers, who can choose to opt for it, in order to reduce their burden of compliance. Taxes will, however, still need to be paid monthly on a self-declaration basis. This definitely sounds great for small taxpayers, but in reality, how much more beneficial will opting for quarterly filing of returns be? Here are some of the deciding factors.
Availment period for ITC
A recipient of supplies can avail input tax credit (ITC) right up to the 10th of the month following the quarter. This is beneficial in cases where, a delay by the supplier in uploading invoices or filing their returns, because the recipients who opt for quarterly filing of returns have comparatively more time to claim the credit.
However, the counterpoint is that monthly tax filers may not be able to claim credit in time if their suppliers have opted for quarterly filing of returns, as quarterly filers do not have the pressure of uploading documents before the 10th of the succeeding month. Hence, it will be beneficial for small taxpayers to opt for monthly filing of returns if their business is dependant upon large customers, who will need regular credit, this way they can continue to source more business. The ITC can then be passed on to their recipients on a monthly basis.
Types of return forms available
A quarterly taxpayer has 3 types of return forms to choose from, based on the supplies he is making. While any taxpayer can choose to file GST RET-1 i.e., the Normal return, which can be filed monthly or quarterly, only small taxpayers can choose to file GST RET-2 (Sahaj) or GST RET-3 (Sugam), depending on their nature of supplies. These forms available to quarterly filers are simpler and better suited to small taxpayers, as compared to the Normal return form and its annexures. This is because they do not contain additional fields relating to exports, imports, supplies from SEZ units, deemed exports, etc. making them shorter, and hence easier to fill up.
Frequency of filing returns
Quarterly returns are to be filed just 4 times a year, as against filing returns every single month under the monthly return scheme. However, since tax needs to be paid on a self-declaration basis every month, computation of taxable supplies, tax liability and input tax credit will still need to be documented and declared in a summary statement.
While this reduces the burden of compliance to a large extent as quarterly taxpayers do not need to undergo the time-consuming upload of data in a return form every month, they must reconcile data on an ongoing and perhaps monthly basis. Payment of tax and calculation of ITC claim has a strong bearing on cash flows for small businesses.
Claiming of provisional credit
This is an important point to consider as persons who opt for the monthly filing of returns can only claim provisional credit in case their suppliers have defaulted in filing their returns on time. This provisional credit can be claimed at only 20 percent of the total credit available, subject to certain rules, which are yet to be notified. This could create unplanned cash outflows for the concerned monthly tax filer.
On the other hand, quarterly tax filers compute their input tax credit on a self-declaration basis only, for the first two months of the quarter. Hence, they are not as dependent on their suppliers to upload documents on time. Tax filers who have opted for the Normal return i.e., GST RET-1, can claim provisional credit at the end of the quarter, on documents that have not been uploaded.
Editing and finalising of documents
Under the new return system, if a recipient has found a document to be incorrect and rejected it, a supplier will be informed of these rejected documents and will need to correct the same at his end. Once revised, the input tax credit will be available to the recipient only in the month or quarter in which the supplier has filed these edited documents.
This is beneficial where suppliers are monthly return-filers as they can finalise documents and reconcile their books of accounts much quicker, and more effectively than quarterly return-filers. This is something small taxpayers need to keep in mind while choosing a return filing option, as this is a factor large business organisations will consider before initiating dealings with them.
With the above deciders in play, small taxpayers, under the new return scheme, can opt to file their returns either monthly or quarterly, and can choose whichever option benefits them the most, depending on their business operations, nature and type of suppliers, and the availability of assistance with tax compliance.