GST Compliance Rating - An Introduction


Date: 28 Jan 2023

GST Compliance Rating - An Introduction

GST Compliance Rating is a crucial score to show how tax compliant and transparent a business is with regard to their transactions. It is an important indicator of the financial and legal standing of a business in India. In this article, we will discuss the GST Compliance Rating in detail, including how it works, how ratings are determined, and how you can maintain a high score.


What is the GST compliance rating?

It is a government-issued score to all the registered businesses based on the willingness to comply with all GST-related rules and regulations. It is also known as a performance ranking. It is granted irrespective of the business's size, nature or turnover. It is a system that operates much like any other rating system, between 1 to 10, with one being least compliant and ten being most compliant.


What is the purpose of introducing a rating system under GST?

In any ecosystem, be it a classroom or a business, a ranking or a rating system works as an enabler for better performance. Similarly, under GST, the introduction of a rating system encourages better compliance from tax-paying persons and businesses. A business can be considered fully compliant if the documents related to taxation are filled and submitted on the proposed deadline. It helps prevent any delay of credit for regular buyers.


How does GST compliance rating work?

Under this provision, a business and the business holder can enjoy certain benefits. The refunds a taxpayer is entitled to are made on a percentage basis of his GST-compliant rating. E.g., if a taxpayer's rating is an 8, he is entitled to a refund of 10,000. Of which 8000 is refunded soon after he applies for a refund, and the remaining 2000 is returned after scrutiny.  The compliance rating is updated regularly. It is intimated to the vendor or the business.


How is a business rated under GST?

There are no fixed criteria for the rating of a business or an individual, but experts understand that the following factors can play a role:

  • Taxes are filed on time 

  • Returns are filed within the prescribed deadline 

  • Timely reconciliations 

  • Compliance with all GST regulations 

  • Cooperation with authorities


Benefits for businesses and Vendors under GST compliance rating 

As a vendor, there are certain benefits that a person can enjoy. They include-

  • Immediate refunds 

  • Immediate Input tax credit

  • More business opportunities 

  • The chances of audit from tax authorities are reduced 

  • There is a positive impact on the reputation of an individual 

As a business, the higher the compliant rating, the higher the profit margins owing to a better reputation among customers and investors. 

  • Effect on buyers- To avail of the benefits of input credit tax, buyers prefer sellers with a higher rating. 

  • Effect on sellers- Customers will be drawn to sellers with higher ratings. As a result, the GST rating will encourage healthy competition among businesses. Before entering a deal, a prospective client will inquire about the compliance ratings of suppliers.


Disadvantages of GST compliance rating 

Unlike bigger businesses which can afford to outsource specific responsibilities, small companies lack the resources to do so. Thus, under the rating system, where compliance to remain competitive can be seen as encouraging for a big business, it can strain a small business. It is natural for a company to err when it comes to GST because it is a relatively new implementation. Still, an industry prone to delays and errors cannot build a healthy reputation to attract business.