Errors while Filing GST Returns and How to Avoid them

GST is a significant tax system introduced in India to simplify the indirect tax system. However, filing GST returns can be daunting for taxpayers, requiring them to comply with various rules and regulations. Any mistake made while filing GST returns can result in penalties and interest, leading to an unnecessary financial burden. Therefore, taxpayers must be aware of common errors while filing GST returns and take the necessary steps to avoid them. 

Below are some common errors that the users face and their solutions. Following this, users can avoid unnecessary reconciliations. 

Uploading data invoice-by-invoice in GSTR-1

All outward supplies must have invoice-specific data uploaded to GSTR-1, including the invoice’s date, number, location, tax rate, and other information. Due to the enormous amount of data that must be supplied, taxpayers sometimes enter the data incorrectly, which results in a discrepancy between GSTR-1 and GSTR-3B. Since taxpayers cannot change a return after filing, they must exercise extreme care. 

Claiming an incorrect input tax credit

The relevant supplier declares the registered purchases made by the taxpayer and the applicable input tax credit in the GSTR-2A, an automatically prepared return. Whereas taxpayers must separately report their input tax credit while filing returns. While doing so, they must disclose and submit the correct amount of input tax credit. Since there is no option to change the return if a higher amount is declared, the difference must be paid with interest in the next month’s return.

Failing to file NIL return

Taxpayers with no transactions to report for a particular tax period may assume they do not need to file their GST returns. However, failing to file GST returns when they are due can result in penalties or incomplete return submissions. It’s worth noting that the GSTN system prevents taxpayers from filing returns for the current period if they have not filed returns for the previous period. Hence, taxpayers need to file a NIL return even if they have no transactions to report for the given period.

Reporting and paying the tax under incorrect GST head

When submitting GST returns, taxpayers are required to declare tax under several headings. However, it’s not uncommon for taxpayers to mistakenly register their GST liability or input tax credit under the wrong GST head. In some cases, taxes may even be paid under the wrong heads, or interest may be paid under the tax head, leading to further confusion.

As the GSTN system prohibits the inter-utilisation of taxes, it’s crucial to ensure that taxes are paid under the correct heads. Failing to do so can result in unanticipated cash flows and create a working capital that is less advantageous for taxpayers. Therefore, it’s essential to pay attention to the correct GST heads while filing GST returns and making payments to avoid any penalties or financial losses.

Classifying zero-rated tax supplies as NIL-rated or vice-versa

Many taxpayers often confuse zero-rated supplies with nil-rated supplies, even though they have different meanings. Zero-rated supplies typically include exports and supplies to Special Economic Zones (SEZs). On the other hand, goods and services that are taxed at a 0% rate fall under the category of nil-rated supplies. It’s worth noting that for nil-rated supplies, taxpayers cannot claim input tax credit.

When submitting taxes, taxpayers should be cautious not to classify exports under the nil-rated category. This could lead to incorrect reporting and create confusion in tax calculations. Hence, it’s important for taxpayers to understand the difference between zero-rated and nil-rated supplies and ensure that they are correctly classified while filing their GST returns.

Knowing the use of the reverse-charge mechanism

Restricting the use of reverse charges only to specific goods and services has made things easier for businesses. However, businesses still need to determine whether these requirements apply to them, even though the list of goods and services has not yet been released.

Service providers should ensure they do not pay GST on services for which the reverse charge mechanism is applicable to avoid paying taxes repeatedly. Moreover, taxpayers must know that input tax credits cannot be used for reverse-charge payments, and such payments can only be made in cash.

Reversal under input tax credit and blocking of credits

As per the GST law, input tax credits need to be reversed in specific situations, such as when suppliers are not paid within 180 days, inputs are partially used for personal purposes, capital goods are sold, free samples are given to clients or business partners, or items are destroyed.

Furthermore, certain products and services are not eligible for tax credits, and taxpayers must be mindful of the consequences of making such claims. Failure to comply with the regulations could result in notices being issued by the GST department, which may lead to interest and penalties being assessed on the taxpayer. Therefore, taxpayers must adhere to the guidelines and ensure they do not claim input tax credits in situations where it’s not permitted under the law.

Modifications made to GST Returns

Before GST was implemented, invoices relevant to a given period could not be modified or added later. However, failing to report an invoice for a particular period could charge interest on the invoice date. In such cases, businesses prefer to issue credit or debit notes.

Conclusion

Filing GST returns can be complex and challenging, and errors can occur even without any intentions. However, being aware of taxpayers’ common mistakes while filing GST returns and taking the necessary precautions can help avoid any penalties or financial losses. Taxpayers should ensure that they file their returns on time, pay taxes under the correct GST heads, classify their supplies accurately, and comply with input tax credit regulations. By doing so, they can ensure smooth and hassle-free GST return filings and maintain compliance with GST laws and regulations.