Common Mistakes to Avoid in GST Return Filing: A Detailed Guide for Businesses
Since the introduction of Goods and Services Tax (GST) in India in July 2017, the process of filing returns has been an essential, yet challenging, aspect for businesses. Despite the government’s efforts to simplify taxation, businesses frequently encounter errors during return filing, resulting in penalties, loss of Input Tax Credit (ITC), or even suspension of their GST registration.
This blog provides a detailed breakdown of the most common mistakes to avoid when filing GST returns, along with practical steps to ensure smooth compliance.
1. Errors in Claiming Input Tax Credit (ITC)
ITC is one of the main advantages of the GST framework, allowing businesses to reduce their overall tax liability by claiming credit on the taxes paid on purchases. However, improper ITC claims can lead to rejections and penalties.
Frequent ITC Mistakes:
- Claiming ITC without a valid tax invoice from the supplier.
- Availing ITC on blocked credit items like motor vehicles for personal use.
- Not reversing ITC within 180 days if payment to the supplier is not made.
How to Avoid:
- Regularly reconcile GSTR-2B with GSTR-3B to ensure correct ITC claims.
- Maintain proper documentation for all purchases and ensure suppliers are compliant by filing their returns on time.
2. Mismatches Between GSTR-1 and GSTR-3B
A common issue arises from discrepancies between GSTR-1 (outward supplies) and GSTR-3B (summary returns). These mismatches attract scrutiny from tax authorities and can lead to demands for explanations or penalties.
Example:
- A business might report sales of ₹10 lakh in GSTR-1 but only ₹8 lakh in GSTR-3B. Such mismatches raise red flags for auditors.
How to Avoid:
- Use automated reconciliation tools to ensure consistency across returns.
- Cross-verify invoices before filing to prevent discrepancies.
3. Incorrect HSN Code Usage
The Harmonized System of Nomenclature (HSN) codes classify goods under GST, helping determine applicable tax rates. Incorrect HSN codes can lead to incorrect tax payments and potential penalties.
How to Avoid:
- Refer to the latest HSN directory or GST portal for accurate codes.
- Train accounting teams to stay updated on any HSN changes applicable to your sector.
4. Late Filing of Returns and Its Impact
Filing returns after the due date attracts late fees and interest on unpaid taxes. Persistent delays may also lead to the suspension of GST registration.
How to Avoid:
- Maintain a filing calendar to track due dates for all GST returns.
- File nil returns even if there is no tax liability to avoid penalties.
Penalties for Late Filing:
- ₹50 per day for non-filing of GSTR-3B.
- ₹200 per day for GSTR-1 and GSTR-9 delays.
5. Non-Reconciliation of E-Way Bills with GST Returns
E-Way bills are mandatory for goods movement above certain thresholds. Failing to match E-Way bills with invoices in GST returns can attract penalties or allegations of tax evasion.
How to Avoid:
- Automate the E-Way bill generation process and reconcile it with GSTR-1 regularly.
- Keep transport and delivery documentation ready for inspections.
6. Ignoring Reverse Charge Mechanism (RCM) Compliance
The Reverse Charge Mechanism (RCM) requires the recipient, not the supplier, to pay GST in certain cases. Many businesses overlook these transactions, leading to incorrect tax filings.
Examples of RCM Transactions:
- Import of services from abroad.
- Procurement of goods or services from unregistered dealers.
How to Avoid:
- Identify all transactions subject to RCM and track liabilities separately in accounting systems.
- Regularly file RCM liabilities in GSTR-3B.
7. Making Frequent Amendments to Returns
Although GST allows amendments, multiple changes can complicate filings and trigger scrutiny. Errors in amendments, such as incorrect invoice details, often cause confusion during audits.
How to Avoid:
- Verify data thoroughly before filing returns to minimize the need for amendments.
- Keep a record of all amendments made, as authorities may question frequent changes.
8. Non-Filing of Nil Returns
Even if your business has no sales or taxable transactions, filing nil GST returns is mandatory. Non-compliance could lead to penalties or suspension of GST registration.
How to Avoid:
- Automate the filing of nil returns using GST compliance software.
- Cancel unused GST registrations to avoid unnecessary filings.
9. Errors in Filing Annual Returns (GSTR-9) and Reconciliation Statements (GSTR-9C)
Annual returns require a comprehensive reconciliation of all monthly returns filed during the financial year. Many businesses struggle with GSTR-9 and GSTR-9C filings due to their complexity.
How to Avoid:
- Start preparing for annual returns early by reconciling monthly filings.
- Seek assistance from Chartered Accountants for proper filing.
10. Overlooking GST Notifications and Updates
The GST Council frequently issues rate changes, notifications, and circulars that businesses must comply with. Ignoring these updates can lead to incorrect filings and penalties.
How to Avoid:
- Subscribe to GST newsletters and follow official channels for updates.
- Use consultants or compliance services to stay informed of the latest changes.
11. Failing to Utilize Composition Scheme Correctly
The Composition Scheme is designed for small businesses with turnover up to ₹1.5 crore. However, many businesses fail to comply with its conditions, leading to penalties.
How to Avoid:
- Ensure compliance with the scheme’s conditions, such as non-issuance of tax invoices.
- Maintain proper records, as composition dealers cannot avail ITC.
12. Ignoring GST Audit Requirements
If your business turnover exceeds the specified threshold, you are required to undergo a GST audit conducted by a Chartered Accountant or Cost Accountant. Non-compliance with audit requirements can lead to penalties.
How to Avoid:
- Schedule audits well in advance and prepare all required documentation.
- Ensure timely communication with auditors to address any discrepancies.
Conclusion: A Smooth GST Filing Experience
Filing GST returns accurately and on time is critical for maintaining compliance and avoiding penalties. Businesses must focus on proper reconciliation, accurate ITC claims, and staying updated with GST notifications to avoid common pitfalls. Leveraging automated accounting tools and consulting with experts can further ease the process.
By avoiding the mistakes highlighted in this guide, businesses can enhance their GST compliance and focus on growth without worrying about legal complications.
For further guidance and professional assistance, businesses can seek help from Anil Bohra & Associates Chartered Accountants.