Overview of GST Compliance

GST registration brings numerous benefits to businesses, including increased credibility, cost savings, and improved market opportunities. Some of the major benefits are mentioned hereunder:

Legal Recognition

GST registration gives a legal recognition to the business as supplier of goods or services. It establishes the credibility and authenticity of the business in the eyes of customers, suppliers, and other stakeholders.

Input Tax Credit

GST registration provides an ability to claim input tax credit. Registered businesses can offset the GST paid on purchases against the GST liability on sales. It results in a reduction in overall tax liability. It also helps to eliminate the cascading effect of taxes and promotes cost efficiency.

Inter-State Trade

GST registration is mandatory for businesses engaged in inter-state trade or e-commerce activities. Without GST registration, businesses cannot avail themselves of the benefits of seamless input tax credit and have to face hurdles in expanding their operations across the state boundaries.

Business Expansion

GST registration eliminates barriers to entry into new markets. It enables businesses to expand their operations across different states or territories without the need to comply with multiple state-specific taxes. This simplification of the tax structure encourages business growth and market access.

Competitive Advantage

GST registration enhances the competitiveness of a business. Many customers, especially larger enterprises and government entities, prefer to deal with GST-registered suppliers only. It gives an assurance of transparency, accountability, and adherence to tax regulations, hence, improving business opportunities and market credibility.

Access to Input and Output Suppliers

GST registration allows businesses to engage with other registered suppliers and customers. This expands the network of potential business partners and increases the availability of input suppliers, leading to better sourcing options and potentially improved pricing.

Compliance Benefits

Being GST registered ensures compliance with the tax laws and regulations. It enables businesses to fulfil their legal obligations, such as issuing proper invoices, filing regular returns, and remitting taxes on time. Compliance reduces the risk of penalties, fines, or legal actions by tax authorities.

Ease with system

The GST regime aims to simplify tax administration and reduce the compliance burden on businesses. GST registration facilitates the use of online portals for various tax-related activities, such as return filing, tax payment etc. It has also ease the communication with tax authorities and making compliance processes more streamlined and efficient.

GST Rates in India

• Standard Rate: The standard GST rate in India is 18%. It is applicable to most goods and services that do not fall under any specific tax brackets.
• Lower Rate: Some essential goods and services fall under the lower GST rate of 5%.
• Zero Rate: Certain goods and services like basic food items, educational services, and healthcare services, are fully exempted from GST and are taxed at a zero rate.
• Compensation Cess: Additional compensation cess may be applicable on specific goods, such as luxury items, tobacco products, and aerated drinks, i.e. over and above the GST rates.

There are four essential GST compliances required in every business which are:

GST Registration Compliance

GST registration compliance refers to the completing of the legal requirements related to GST registration. In a case when business is registered under the GST system, then it must comply with various other compliances in order to ensure adherence to the tax laws and regulations. Here are some key aspects of GST registration compliance:

Registration on Time: Businesses must obtain GST registration within a specified period of time frame after meeting the eligibility criteria for registration. In case of delay or failure within the prescribed period can result in penalties and other legal consequences.

True Information: While registering under the GST Act, businesses are require to mention accurate and complete information about their business activities, the turnover, and other following relevant information. Any discrepancies or false details will lead to penalties or rejection of the GST registration application.

Proper Invoicing: GST compliance requires businesses to issue GST-compliant invoices for all taxable supplies made to their customers. Invoices must contain specific details such as the GSTIN of the supplier and recipient, tax rates, and other relevant information as required by the GST laws.

Filing of GST Returns: Registered businesses are generally required to file regular GST returns, providing information about their sales, purchases, and tax liability. It is mandatory to file the GST returns within the specified due dates to avoid penalties and interest charges. The frequency of return filing will be based on the turnover or nature of the business.

Payment of GST: Compliance involves the timely payment of the GST liability to the tax authorities. Registered businesses must remit the collected GST to the designated government account within the specified time duration. In case of delay or non-payment will result in penalties and interest charges.

Maintenance of Records: GST compliance requires the maintenance of accurate and up-to-date records of all GST-related transactions. Proper record-keeping ensures transparency, facilitating audits, and addressing any queries from tax authorities. Hence, businesses must retain purchase invoices, financial statements, and other relevant documents.

GST Audits and Assessments: Tax authorities can conduct audits or assessments to verify compliance with GST regulations. It is always important to cooperate with audit process and respond to any queries asked by the tax authorities. At the time of audit, businesses are required to provide supporting documents, reconcile their accounts, and address any discrepancies identified by the authorities.

Tax Invoice Compliance

Tax invoice compliance refers to the adherence for rules set forth by tax authorities for issuing and maintaining proper tax invoices. Tax invoices plays an important role in the tax system as it is an evidence of a transaction that enable the proper calculation and reporting of taxes. Here are some key aspects of tax invoice compliance:

Mandatory Information: Tax invoices must include specific information as required by the tax laws. This typically includes the following details:

• Name, address, and GSTIN (Goods and Services Tax Identification Number) of the supplier
• Name, address, and GSTIN of the recipient (if they are registered under GST)
• Invoice number and date
• Description, quantity, and value of goods or services supplied
• Rate and amount of GST charged
• HSN (Harmonized System of Nomenclature) or SAC (Services Accounting Code) for goods or services, respectively
• Total amount payable (including GST)
• Place of supply (if it is different from the supplier's location)
• Signature or digital signature of the supplier or authorized representative

Sequential Invoice Numbering: Tax invoices must be issued sequentially in a series. Gaps or irregularities in the numbering may raise concerns during audits or inspections.

Timeframe for Issuance: Tax invoices must be issued within a specified timeframe, usually within a certain number of days from the date of supply. The exact time limit can vary across jurisdictions.

Language and Format: Tax invoices must be prepared in the language specified by the tax authorities and follow the prescribed format. Some jurisdictions have specific layout for the tax invoice.

Maintenance and Retention: Taxpayers must retain the copies of tax invoices issued and received for duration as specified by the tax laws. This helps in substantiating the transactions and facilitating audits or inspections by tax authorities.

Amendment or Correction: In case of errors or omissions in a tax invoice, then it is required to issue a revised tax invoice or a debit/credit note, depending on the nature of the correction or amendment required.

Electronic Invoicing: There are some states who have introduced electronic invoicing (e-invoicing) systems, which require businesses to issue and manage tax invoices electronically. Compliance with e-invoicing requirements has prescribed processes for digital signatures or electronic signatures.

GST Return Compliance

GST return compliance refers to the fulfilment of the obligations and requirements related to filing GST returns. Under the GST system, registered businesses required to file regular GST returns, with the details of sales, purchases, and tax liability. Here are some key aspects of GST return compliance:

Timely Filing: GST returns must be filed within the prescribed due dates. The frequency of GST return filing may vary based on the turnover or nature of the business. It is important to file within specified timelines to avoid penalties and interest charges.

Accurate Reporting: GST returns must report the sales, purchases, and tax liability for the relevant period. The accurate figures reported are reconciled with the corresponding invoices, financial records, and supporting documentation.

Input Tax Credit (ITC) Reconciliation: Businesses must reconcile the input tax credit claimed on their purchases with the details provided by their suppliers in their GST returns.

Amendments and Corrections: If case of any errors or omissions filled in GST return, then necessary amendments or corrections must be done. The tax laws specify the conditions and procedures for rectifying errors in GST returns.

Payment of GST Liability: GST returns include the calculation of the tax liability for the period. Registered businesses must remit the tax amount due to the designated government account within the specified time duration. In case of delay or non-payment will result in penalties and interest charges.

Records Maintenance: Proper maintenance of records is important for GST return compliance. These records can be helpful during audits or inspections by the tax authorities. Hence, businesses must retain purchase invoices, financial statements, and other relevant documents.

Reconciliation with GSTR-2A: GSTR-2A is an auto-generated form that provides details of the inward supplies (purchases) as reported by the suppliers. Businesses should reconcile their own purchase records with the details available in GSTR-2A to ensure accuracy and completeness in reporting.

GST Exemptions

GST exemption under Goods and Services Tax (GST) system is provision that grants relief from the imposition of GST on certain goods and services. Exemptions are granted to specific categories or items to provide relief to certain sectors, achieve policy objectives, or to promote social welfare. Here are some GST exemptions:

Basic Necessities: Some essential goods and services are exempted from GST to ensure affordability and accessibility. These items are like basic food items, healthcare services, educational services, and certain essential utilities such as water and electricity.

Financial Services: Some of the financial services, like interest on loans, deposits, and certain insurance services, are exempted from GST in order to avoid double taxation or relaxation on tax burden.

Export of Goods and Services: Export of goods and services which are zero-rated, are exempted from tax liability as GST is not levied on such supplies. It encourages international trade, and ensures that exports are not burdened with domestic taxes.

Government Services: The services provided by the government or local authorities are also exempted from GST; such include healthcare, education, or regulatory functions. It is done to prevent tax cascading and ensure cost efficiency.

Charitable and Non-profit Activities: Supplies made by charitable or non-profit organizations for charitable purposes are also exempted from GST to support their social welfare activities and encourage philanthropy.

Small-scale Businesses: Some states allow exemptions for small-scale businesses with less turnovers. These businesses are subject to simplified tax regimes to reduce compliance burdens.

Specific Industry Exemptions: Some industries or sectors may be granted specific exemptions or reduced rates based on policy considerations. For instance healthcare services, education services etc may have specific exemptions or lower tax rates.

Under the GST system, non-compliance with GST regulations will be responsible for penalties, fines, or other adverse consequences imposed by the tax authorities. The specific fines and penalties can vary across jurisdictions. It is important for businesses to understand and fulfil their GST compliance obligations to ensure smooth operations and avoid any legal implications. However, here are some penalties that can be imposed upon GST non-compliance:

Late Filing Penalty

Failure to file GST returns within the prescribed due dates can result in the imposition of a late filing penalty. The penalty amount may be a fixed sum or calculated based on a percentage of the tax liability.

Late Payment Penalty

Delay or non-payment of the GST liability within the prescribed timeframe can lead to a late payment penalty. This penalty is usually calculated as a percentage of the outstanding tax amount.

Incorrect Return Penalty

Submitting incorrect or inaccurate GST returns can attract penalties. This may include penalties for misreporting sales, purchases, or tax liability, or for not rectifying errors or discrepancies identified by the tax authorities.

Non-registration Penalty

Operating a business without obtaining the required GST registration can result in penalties. The penalties may be imposed based on factors such as the duration of non-registration or the amount of tax liability evaded.

Non-maintenance of Records Penalty

Failure to maintain proper records as required by the GST laws can result in penalties. This includes penalties for not retaining invoices, purchase records, financial statements, or other relevant documents for the prescribed retention period.

Obstruction of Tax Authorities

Obstructing or impeding the work of tax authorities, providing false information, or not cooperating during audits or inspections can lead to penalties.

Fraud, Evasion, or Tax Offenses

Engaging in fraudulent activities, deliberate tax evasion, or other serious tax offenses can result in significant penalties, including monetary fines and, in some cases, criminal prosecution.

The introduction of GST Compliance in the businesses has more regulatory formalities as far as GST is concerned. So it is advisable for all businesses to consult with Startupfino tax professionals to understand the specific compliance requirements and obligations applicable to your business. In case you have any other queries or questions with regards to GST or any other tax related matters, get in touch with us and we will ensure that you receive the best professional help for your requirements from our team of taxation experts.