GST calculation can be challenging and error-free. Many factors can affect the GST amount, such as the type of goods or services, the place of supply, the input tax credit, the reverse charge mechanism, and the exemptions and concessions. If GST calculation errors occur, they can have severe consequences for taxpayers and the government. They can lead to penalties, interest, audits, disputes, and loss of revenue. Therefore, avoiding GST calculation mistakes and ensuring accuracy and consistency in GST filing is crucial. This blog will talk about the mistakes in GST calculation and how to rectify them.
Common GST Filing Errors and Challenges
Incorrect Reporting Of GST Identification Numbers:
- Taxpayers often inadvertently report wrong GSTINs or have mismatches between supplier and recipient GSTINs in sales and purchase returns.
- This creates reconciliation headaches.
Wrong Classification Of Goods And Services:
- Incorrect classification under HSN codes is frequent, resulting in the payment of higher or lower GST than is applicable.
- It impacts tax costs.
Omission Of Deemed Supply Transactions:
Failing to account for deemed supplies like stock transfers to other states leads to under-reporting of turnover.
Claiming Ineligible Input Tax Credits:
Taking credit on expenses where ITC is restricted, like motor vehicles, staff meals, etc., leads to reversals and penalties.
Errors In Tax Liability Computation:
Inaccurate calculation of GST liability in periodic returns leads to interest costs or cash flow issues.
Data Entry Mistakes In Invoice Details:
Manual GST data entry mistakes for voluminous B2B invoices include typos and inaccuracies, leading to mismatches.
Non-reconciliation Of Annual GSTR-9 Return:
Not reconciling books with the auto-drafted GSTR-9 can hide significant errors in turnover or taxes.
Not Filing Nil Returns:
Even nil filing periods require the submission of nil returns to avoid non-compliance consequences.
Delayed Invoice Matching And ITC Claims:
A delay in matching supplier invoices leads to delayed input credit claims and cash flows.
Belated Opting For Composition Scheme:
Not opting for a composition scheme in time results in lost savings for small businesses.
Lack Of Tax Payment Records:
The absence of detailed documentation makes supporting ITC claims difficult during audits.
Impact of incorrect GST filing:
Interest Liability:
Interest at 18% per annum on short-paid taxes disrupts cash flows, impacting businesses, especially MSMEs with limited working capital.
Late Fees:
Steep late fees, such as Rs. 200 per day, apply for non-filing of returns beyond the due dates.
Penalties:
Penalties of up to 10% of the tax amount are imposed for errors in returns or claiming ineligible input credits.
Additional Liability:
Additional liability arises from the disallowance of wrongful ITC claims and output tax mismatches.
Loss of Input Tax Credits:
Complete loss of input tax credits if returns are filed after the September deadline for the previous financial year.
Demand Notices and Scrutiny Assessments:
Issuance of demand notices and scrutiny assessments by tax officers for discrepancies in filings, leading to the lock-up of working capital.
Prosecution:
Prosecution for tax evasion in extreme cases, especially for serious misreporting of transaction details.
Cancellation of GST Registration:
Cancellation of GST registration for continuous default in filing returns or payment of taxes.
Reputation Risk:
Reputation risk and deterioration of compliance score if GST audit reveals significant errors.
Reconciliation Headaches:
Additional reconciliation headaches at year-end for differences between books and return filings.
Strategies to Avoid GST Errors:
GST training for error prevention
Maintain fully trained internal teams or engage to ensure compliance is handled by experts.
Robust ERP Software:
Implement robust GST software for accuracy with built-in validations and integration with e-invoicing and returns.
User Acceptance Testing:
Conduct extensive user acceptance testing for new GST-enabled IT systems before rollout.
Supplier Data Verification:
Ensure supplier data on invoices matches GSTINs to prevent input credit issues.
GST Reconciliation Before Filing:
Reconcile the auto-drafted GSTR-9 before filing to identify and rectify discrepancies between books and returns.
Internal Audits:
Conduct periodic internal audits to proactively identify and correct errors.
Compliance Review Committee:
Form a cross-functional GST Compliance Review Committee with representatives from Finance, IT, Legal, etc.
Mismatches Resolution:
Track and resolve mismatches highlighted in GSTN notices through effective supplier follow-ups.
Adherence to E-invoicing:
Comply with e-invoicing mandates and ensure accurate matching of supplier invoices to optimize credit flow.
Stay Informed:
Keep abreast of frequent changes in GST law and procedural updates to maintain compliance.
Learn from Past Errors:
Analyze errors made in previous returns and strengthen preventive checks to avoid repetition.
Rectify GST Errors
- Filing Revised Returns: File revised returns within the prescribed time limits to rectify any mistakes made in the original filings.
- Requesting Corrections for Refunds: Apply to the tax officer to request corrections in cases of inaccurate refunds, ensuring proper documentation is provided.
- Reconciliation for Timely Filings: Request reconciliation for delayed filings to prevent the imposition of late fees and maintain compliance.
- Meticulous Record-Keeping: Maintain meticulous records to support the reclaim of incorrectly lapsed input credits, ensuring accurate and complete documentation.
- Responding to Notices: Respond to notices promptly and provide necessary clarifications to tax authorities to avoid penalties and legal complications.
Also Read: Common Errors And Mistakes In Tax Invoices For Goods: Prevention And Correction
Conclusion
GST calculation errors can harm the taxpayers’ business operations, cash flow, reputation, and legal compliance. They can also affect the tax collection and administration of the government. To avoid GST calculation mistakes, taxpayers should follow the GST rules and regulations, use reliable software and tools, verify the GST rates and invoices, reconcile the GST returns and ledgers, and seek professional guidance if needed. By doing so, they can ensure that they pay the correct amount of GST and disputes in the future.
Frequently Asked Questions(FAQs)
What strategies can businesses adopt to avoid common GST filing mistakes?
Strategies include maintaining trained internal teams, using ERP software with validations, performing user acceptance testing, reconciling GSTR-9, conducting internal audits, and staying updated on law changes.
What are the consequences of late filings, and how can they be prevented?
Late filings result in steep late fees. To prevent this, businesses should reconcile auto-drafted GSTR-9, comply with e-invoicing mandates, and form a cross-functional GST Compliance Review Committee.
How should businesses correct mistakes in GST filings?
Correct mistakes by filing revised returns within the prescribed time limits, applying for corrections in inaccurate refunds, and maintaining meticulous records to support reclaiming input credits.
