New proposed GST Returns and challenges - Hiregange & Associates

Introduction

The GST council in its 27^th council meeting on 4^th May 2018 had approved the proposed simplified GST returns format.

In the 31^st GST council meeting dated 22^nd December 2018, the new return filing system has been proposed to be introduced on a trial basis with effect from April 2019 and make it mandatory from July 2019 which is after the results of general elections. The formats along with detailed instructions were made available on the GST portal on 8^th March 2019. Readers could find it in portal https://www.gst.gov.in/ > Downloads > Proposed Return Documents.

The new returns are being introduced replacing GSTR 1 and GSTR 3B which is being filed by majority of the assessee. Those who are under composition scheme could continue to file GSTR 4. It is estimated that around 17% of the assessee are under composition scheme. Other returns such as Non-Resident Foreign Taxpayer Returns (GSTR 5), ISD returns (GSTR 6), TDS returns (GSTR 7), TCS Returns (GSTR 8), and Casual Taxable Person (GSTR 11) would continue as it is.

The tax payers were kept in the dark about requirement of filing GSTR 2 & 3 from July 2017 onwards. Only recently, it was understood that the new GST returns formats would be introduced by April/July 2019, which could render GSTR 2 & 3 ineffective for the past also. But this is not yet made clear. 

Basic structure of new returns:

There are three types of GST returns proposed to be introduced based on turnover limit and type of transactions. The tax payers could choose the type of return based on these factors. Alternatively, irrespective of turnover, the tax payer could choose to file the new NORMAL return. More details provided in below table:

** - According to press release of GST council in July 2018, taking ITC on invoices not uploaded by vendor could be allowed only for first 6 months after introduction of new returns (expected) being transitional phase. Thereafter, ITC could be allowed only based on invoice details uploaded by vendor while filing returns.   

It is also necessary to note that the interest would be auto-computed by system for delayed filing of returns, delayed payment of taxes, late reporting of invoices of preceding tax periods and rejection of accepted documents, i.e. ITC considered eligible instead of ineligible.

Additional requirements

The new formats require more information from tax payers which otherwise not expected in present return forms such as GSTR-1 and GSTR-3B. This could increase the time and effort for monthly / quarterly compliance. Few such additional information required are listed below:

• HSN to be maintained at 6-digit level (not 4-digit level) in SUGAM and NORMAL return
• Reverse charge liability details with GSTIN & HSN to be provided in all returns
• Where RCM supplier is unregistered, disclosure of PAN is mandatory in all returns
• Details of import of goods POS-wise, HSN-wise & document wise to be provided. (GSTIN also required for SEZ transaction). Tax payers could consider obtaining these details from CHA.
• Details of import of service POS-wise and HSN-wise needed.

Challenges expected upon implementation:

The new returns could pose new challenges for the tax payers. In previous para, the additional information required have been discussed. Appropriate measures such as training of staff, understanding the new returns and necessary changes in the system of report generation could be considered by the tax payers. Following is the list of additional challenges which could be expected by the tax payers:

• Need of filing 2 forms ANX-1 & ANX-2. Even though ANX-2 is auto populated, to ensure correctness of information, cross verification with invoices necessary. There certain information which needs manual intervention.
• Supplier to obtain data as to whether the vendor is filing monthly/quarterly returns which otherwise could impact credits. 
• Real-time uploading of invoices allowed. Once, accepted by recipient, until it is reset/ unlocked by recipient, supplier cannot make amendments. This could increase efforts to supplier uploading ANX-1.
• Amendments can be made only by the supplier
• Recipient has the option of ‘reject’ or ‘keep pending’ the auto-populated invoices. If not opted for either, it would be deemed acceptance.
• Credit taken on missing invoices can be availed upto 20% of the ITC that auto-populates based on vendors GST return filings. [Based on Section 43A of CGST Amendment Act which is yet to be notified].
• For import of goods, until GST portal is linked to ICEGATE portal, details need to be manually entered in ANX-1. Once linked will auto-populate in ANX-2. This could increase the work in case of high import transactions.
• There is a need to disclose of GSTIN-wise invoice-level details and re-payment of ITC claimed where vendor not filed his returns for 2 months.  For this having track of invoices filed/ not filed by vendors would be necessary.
• The ITC claim is linked to vendor payment & filing. This requires reconsideration of payment terms with vendor including change in agreements to take care of non-compliance by vendors.
• Change in ERP/ software required to fetch details such as HSN wise summary, POS summary etc. to meet the reporting requirements of new return including tracking data of vendors.

Issues which needs clarity

Though detailed instructions including additional notes have been provided in the formats released, there are few issues which are not addressed / clarity not provided. Unless otherwise clarified, the tax payers should consider the following issues before proceeding to submit information in the new returns:

• Amendments of FY 2019-20 (before July 2019) in the new GST returns. No clarity on disclosure and tax payment.
• Clarity on number of times the details in new GST returns could be amended. As per the old press release of July 2018, amendments would be allowed a maximum of 2 times only. This may have to be increased.
• It is not clear if auto computation of interest would be on gross liability or net liability. In-principle, press release mentioned that interest should be on net liability. However, no amendment in law/ notification till date. 
• There could be outward liability where taxes discharged through GSTR 3B, but not disclosed in GSTR 1 till June 2019. No clarity on disclosure of such transactions in new returns, if needed.
• Tracking and claiming ITC on missing invoice upto 20% of auto-populated ITC only.
• Table 3L of the NORMAL return requires disclosure of GSTIN and invoice-level data of vendors who have not filed GST returns for 2 tax periods. However, this table cannot be amended. No clarity on alternative option to correct any errors made.

There could be various other issues could crop up during actual filling of returns. Readers could refer to the annexed document to understand the format of NORMAL return in detailed manner.

Conclusion:

Although, the press release names it as “Simplified Returns”, based on preliminary study of the various disclosure requirements, challenges and changes, the returns may not be accepted as ‘simplified returns’ by the tax payers. Not aligning the systems of business with GST requirements could have multi-fold impact on the business which could include following:

• Operations - Losing top compliant customers
• Working Capital - Having stringent payment terms forced on by customers
• Cost to Company - Bearing high interest and penalty costs for non-compliance, if any
• Compliance - Facing show cause notices and demands after 1 or 2 years.

When the new returns are mandated, the tax payers could consider opting for ‘NORMAL’ returns which could avoid need of keeping track of conditions to be fulfilled for the other returns. Ensure ERP/ software application is customised to meet the new requirements.

For the initial period, professionals could be approached to understand and file the returns as per the new requirements. They could also help in setting the standard operating procedures for better GST compliance, periodic review of compliance including GST ITC, liability etc. 

Note: This article would be updated post-April 2019 returns and related amendments.

Annexure to Above:

SUMMARY OF NORMAL RETURN:

This document contains discussion on various details to be filled in the new ‘NORMAL’ return. Readers could refer to the formats with instructions provided on the GST portal. In the mail also, it is being shared. 

Coverage:

• Introduction
• Profile Updation
• Form GST ANX-1 & Amendment ANX-01A
• Form GST ANX-2
• Form RET-1 & Amendment RET-1A

Introduction Normal monthly return:

The registered person whose aggregate turnover during preceding financial year exceeded Rs. 5 crores, have to file normal return (i.e. RET-1) on monthly basis mandatorily. The registered person has to file 3 returns such as Form GST ANX-1, Form GST ANX-2 and Form GST RET-1 every month. In case of lesser turnover also, there is an option to file normal returns instead of SAHAJ / SUGAM return.

Here we would discuss each type of return form to be filed in details.

Profile Updation:

At beginning of every financial year, a profile updation form needs to be filled online by the registered person to intimate the department about type of GST return he wishes to file.

There are 3 types of returns such as Normal (monthly/quarterly), Sahaj and Sugam which could be selected for filing based on registered person’s aggregate turnover during the preceding financial year.

The registered person could switch from one type of return to another in the following scenario.

Form GST ANX-1: Annexure of outward supplies, imports and inward supplies attracting reverse charge:

Form GST ANX-1 would be for uploading the details of outward supplies, import of goods, import of services and inward supplies on which GST to be discharged under reverse charge.

Form GST ANX-1 would pop up with a questionnaire which is divided into 2 parts.

In Part A, registered person has to declare that all the details uploaded are deemed to be tax payable for such period and an option whether any changes in Part B questionnaire filed for last tax period.

In Part B, registered person has to select which type of transaction details to be uploaded by him.

Coverage and analysis of the contents of the form GST ANX-1:

To obtain clarity in relation to the contents below, it is suggested to view the ANX-01 format simultaneously (attached in email – page 5).

Analysis of tables of Form GST ANX-1:

Here, we would analyse the tables given for different type of transactions and comparison with the present GST returns.

Other important points:

1. Registered person could upload the document details on real time basis during the month or of prior period on or before due date for filing return for September from end of FY or actual date of filing annual return, whichever is earlier.

Exceptions: Details would not be allowed for uploading from 18^th to 20^th in case of monthly returns and 23^rd to 25^th in case of quarterly return.

• Any documents details uploaded after filing return for month would be added to liability of such subsequent month in which details are uploaded.
• Advances & advance adjustments would not be reported in GST ANX-1, instead RET-01.
• Recipient would get credit based on documents uploaded by supplier up to 10^th of following month to which such documents pertain to.
• Details of documents prior to introduction of new return scheme disclosed in the new return would be subject to payment.
• Only supplier can make edits/amendments.
• Editing of documents up to 10^th of following month – The supplier could edit or amend details if recipient has not accepted. If recipient accepted, then he has to reset / unlock such documents. All the amendments could be done only by supplier.
• Edit/Amendment after 10^th of the following month – Details uploaded up to 10^th of following month would be auto-populated to recipient and he has to accept/reject or pending such documents.
• Rejected documents would be conveyed to supplier only on filing of return by recipient.
• Edited documents would auto-populate for recipient once more.
• Shifting of documents – Where particulars of documents are correct but disclosed in wrong table. The recipient would reject the same. Instead of amending it, a facility to shifting such documents to appropriate table would be provided.
• In relation to amendments to documents issued to person not filing GST returns, supplier could amend any time.

Amendment in Form GST ANX-01A:

1. Table 3B, 3E, 3F and 3G – B2B, Supplies to SEZ and Deemed exports – amendments to be done through GST ANX-01 only.
2. Other Tables being 3A, 3C, 3D, 3H, 3I, 3J, 3K amendment to be made through Form GST ANX-01A.
3. Table 3L cannot form part of amendment table. Edit and amendments also may not be allowed in Form ANX-01.
4. For changes in Supplies made through ECO liable under TCS (Table 4) – Original and revised GSTIN to be provided.
5. Invoices/documents on which refund has already been claimed, would not be open for amendment.
6. Although not notified, in the press releases it was provided that Amendments would be allowed for a maximum of 2 times only.

Form GST ANX-2: Details of auto-drafted inward supplies:

To obtain clarity in relation to the contents below, it is suggested to view the ANX-02 format simultaneously (attached in email – page 12)

1. In Table 3A of form GST ANX-2, the details of outward supplies uploaded by the supplier would be auto populated to the recipient with the option to either accept, reject or keep pending.
2. In Table 3B and 3C of form GST ANX-2, ITC details of import of goods from SEZ and overseas would be taken from Table 3J and 3K of form GST ANX-1 for initial period and then same is expected to be auto populated from ICEGATE in future.
3. Recipient could accept (only) upto 10^th of the following month. After 10^th of following month, recipient may accept, reject or keep pending of documents auto populated in his annexure.
4. If no action taken on documents, it is deemed accepted upon filing the return and ITC would appear in table 4A of GST RET-01. Therefore, to reduce burden on administrative team, suggested to perform reject and keep pending function only, rest would be deemed accepted.
5. Once the tax payer completes the process of accept, reject or keep pending, a summary of ITC would be generated.
6. Accepted documents means supplies received and details given in documents reported in form GST ANX-1 of supplier are correct and same would not be available for amendments for supplier.
7. Any errors in the documents such as wrong HSN, tax rate, wrong GSTIN which cannot be corrected through financial DN/CN, are to be rejected.
8. Rejected documents would be shown to supplier and he could make corrections in subsequent GST ANX-1.
9. Pending documents would be where recipient deferred the decision of accepting or rejecting the invoices. Ex: Not received goods and would not be available to supplier for amendments.
10. Supplier return filing status would be made known to recipient after the due date for filing the return.
11. Where document accepted and ITC availed and in future such documents need to be rejected, a separate functionality would be given for reversal along with interest.
12. There could be situation where the supplier has not filed the GST RET-01 for two consecutive tax periods but continues to upload the documents in form GST ANX-1. In such scenarios, the documents are auto populated to recipient only with option of either reject or keeping pending. Accept function would be allowed after the supplier files the return in form GST RET-1 (along with payment). 

Form GST RET-1: Monthly / Quarterly (Normal) Returns:

Form GST RET -1 would be auto populated from the data uploaded in form GST ANX-1 and form GST ANX-2 by the registered person. There would be few tables where the registered person has to key in the details.

The details which the registered person needs to key in are discussed below: