Look into your GSTR 2 and GSTR 2A reconciliation and plan to take available tax credit before filing the return for September 2020.
In this article, we have analysed the various provisions under the GST law including notifications, circulars, etc, so as to bring before you a list of key action points for September 2020 that are of prime importance.
Time limit of claiming of ITC and conditions thereonITC on invoices pertaining to 2019-20 or debit notes relating to invoices pertaining to 2019-20 can be availed any time till the due date of filing of the return for the month of September 2020 or the date of filing of the relevant annual return, whichever is earlier. Thereby, we advise you to look into your GSTR 2 and GSTR 2A reconciliation and plan to take available tax credit before filing the return for September 2020. Strong vigilance is needed for ITC pertaining to 2019-20 as the last date to avail the ITC is the due date of Sep GSTR-3B i.e. 20th Oct. Rigorous follow up is needed with the vendors who have not shown or there is a mismatch in the ITC in their GSTR-1. Further, no debit notes and invoices pertaining to FY 2019-20 shall be accepted post-Sep 2020.
Cumulative adjustment of ITC up to 110% of the eligible credit for Feb 2020 to Aug 2020
The restriction attached to the ITC up to 110% of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers in GSTR-1 has to been seen cumulatively for the period February 2020 to August 2020 and the adjustments therein have to be made in Sep 2020 GSTR-3B.
Since the two financial years are involved, we believe that the detailed GSTR 2 & GSTR 2A reconciliation for Feb to March and April to Aug shall be done separately for the ease of filing of annual return and handling of departmental notices. Further, below are the key checks that shall be performed:
- Two-way reconciliation: GSTIN wise and then invoice level reconciliation so that all the invoices pertaining to FY2019-20 are accounted for.
- Identification of key non-compliant vendors: Identify the key vendors who have not reported the transactions on which ITC has been taken from Feb to July and follow up with them to report the same in Aug 2020 GSTR-1.
- ITC reflecting in Sep 2020 return: In case the ITC has been taken in Feb to Aug, however the same gets reflecting in Sep 2020 GSTR-2A, the question arises whether the ITC shall be available or not. We believe no reversal is needed for such ITC and it shall be available to the taxpayer.
- Tracking of Reverse charge transactions: Reconcile reverse charge transactions appearing in GSTR-2A with the books so as to avoid any omission and interest thereon.
Reversal of input of exempt supplies and supplies used for non- business purposes
The exercise of computation of reversal of ITC in respect of supplies used for non-business purposes or exempt supplies needs to be done for every tax period on a provisional basis and then finally at the end of the financial year before the due date of the filing of GSTR-3B for September month i.e. 20th Oct or through annual return through DRC-03.
Debit note has to be issued
Where the tax charged or taxable value in a tax invoice is found to be less than the taxable value or tax payable in respect of that supply, the debit note has to be issued for the residual value. Although there is no time limit to issue a debit note, debit note pertaining to any invoice for FY 2019-20 should be issued before the due date of filing GSTR 3B for September 2020 so that the recipient can take ITC on it.
Debit note for invoice raised in February 2020 shall be issued by September 2020 to enable the recipient to avail ITC on the same in his return for September 2020.
Rectification in Monthly Statement by ECO
Electronic commerce operators can make any rectification of any omission or incorrect particulars made in a statement under sub-section (4) (i.e. containing the details of tax collected at source) subject to payment of interest, as specified in sub-section (1) of section 50 by the due date for furnishing of statement for the month of September following the end of the financial year or the actual date of furnishing of the relevant annual statement, whichever is earlier.
Time limitation: Rectification allowed maximum by Oct 10, 2020(after the end of the financial year), and Interest @18% p.a. is payable. As per section 52(6) of the CGST Act, 2017 interest is applicable to omission as well in case of incorrect particulars noticed. A further penalty under section 122(vi) of the CGST Act, 2017 would also be leviable amounting to INR 10,000 or tax not collected under section 52 or short collected or collected but not paid to the Government.
Time limit for issuance of the credit note
- No issuance of credit note post-September
Credit note pertaining to supplies made in FY 2019-20 can be issued not later than the due date of filing of GSTR-3B for Sep 2020 month i.e. Oct 20, 2020 or due date of filing of annual return, whichever is earlier.
Hence, if a credit note is issued after September 2020 for any supply made during FY2019-20, then GST liability cannot be reduced i.e. it can be routed only through financial credit notes.
Outward supplies made in Sep 2019: INR 10,000 and GST discharged @ 18% i.e. INR 1,800.
Case 1: Credit note amounting to INR 1,000 issued on 1st Sep 2020. Keynote: GST liability to the extent of INR 180 shall be reduced from outward tax liability and reported in the return provided the corresponding ITC has been reduced by the recipient (in case of post-sale discount and in other cases, the burden of outward tax should not have been transferred i.e. no recovery of GST to the extent pertaining to credit note from the recipient)
Case 2: Credit note amounting to INR 1,000 issued on 1st Oct 2020 & Case 3: Credit note amounting to INR 1,000 issued on 1st Nov 2020.
Keynote: Financial credit note can be issued. GST liability cannot be reduced.
- No acceptance of credit note from vendors post-September
No GST credit note for any procurements in FY 2019-20 shall be accepted post-Sep 2020. Only a financial credit note shall be accepted.
Rectification in outward supplies pertains to FY2019-20
For any amendments or rectifications in outward supply pertaining to FY 2019-20, the maximum time limit as permissible by the GST law is earlier of the following dates. Date of filing of monthly return under section 39 for the month of September 2020 following the end of the financial year to which such details pertain i.e. Oct 20, 2020, or date of filing of the relevant annual return, whichever is earlier. Hence, it is advised to reconcile the books of accounts and data furnished in returns and do all the rectifications and amendments in Sep 2020 return.
An entity has furnished the annual return for the financial year 2019-20 on August 15. Later on, an error is discovered in respect of a transaction pertaining to November 2019 of FY2019-20. The entity has filed the returns for the month of Sep 2020 on the due date. In this case, the rectification of the error pertaining to the transaction in the November month of the year 2019-2020 cannot be rectified beyond August 15 as an annual return filed already.
Filing of Annual return for FY 2018-19
The due date of filing of annual return for FY 2018-19 was extended to Sep 30, 2020. Hence, it shall be filed by the said date to avoid any late fees.
Filing of GSTR-3B for previous tax periods for late fee waiver
A taxpayer having turnover more than INR 5 crore shall file GSTR-3B for tax periods Feb 2020 till July, 2020 (if not filed till date) by Sep 30, 2020 to save late fees (it will be Nil in case of Nil return and will be restricted to INR 250 each under CGST and SGST in case there is a liability).
Further, in case GSTR-3B has not been filed from July 2017 to Jan 2020 by any taxpayer, it shall be filed before Sep 30, 2020 to save late fees (it will be Nil in case of nil return and will be restricted to INR 250 each under CGST and SGST in case there is a liability).
Filing of GSTR-3B for previous tax periods for reduced rate of interest @9% p.a. In case of taxpayers having turnover upto INR 5 crores.
A taxpayer having turnover up to INR 5 crore shall file GSTR-3B for tax periods Feb 2020 till July 2020 (if not filed to date) by Sep 30, 2020 to avail the benefit of reduced interest rate @9% p.a.
Other key compliances
As per the notifications issued, the compliances which were falling due between 20th March 2020 to 30th Aug 2020, the date was extended to 31st Aug 2020. Thereby, below are the key compliances that need to be taken care of:
- Reversal of ITC if payment is not made within 180 days
The payments which were due to be paid between the said periods but not paid due to the extension shall be identified and paid to avoid reversal of ITC along with interest. However, it is still not clear if the said extension was applicable to this provision also. Several tax officers expect no extension is available in relation to this provision. Businesses are expected to be ready with an answer to this issue.
- Goods to be received back from job worker
The inputs/capital goods are to be received back from the job worker within 1 year /3 years. In case, they are not received back, the value of goods sent shall be added to the output tax liability of the principal along with interest. Hence, there is a need for identification of goods which were to be received back between 20th March 2020 and 30th Aug 2020 but were not received due to the above extension to avoid the tax and interest obligation.
There is a time limit for claiming a refund of any tax and interest up to two years from the relevant date. Hence, in case any refund of whose time limit was expiring in the above stated period and was not filed due to extension shall be filed before 31st Aug 2020.
- Merchant exporters
One of the key conditions for availing the benefit of concessional rate of .1% is that the export should have been done within three months. In case, the export transaction is not proved to have taken place within the said period, the differential tax liability shall be added to the output tax liability of the supplier along with interest. Hence, if for any such transaction for which the due date was falling within the aforesaid period, the suppliers shall ensure to follow up with the exporter to provide them the requisite proof of export before 31st Aug 2020.
- Deposit of TDS/Deduction of TCS
The date of deposit of TDS / deduction of TCS was also extended to 31st Aug 2020. Hence, please review whether all the transactions are matching or not and follow with the concerned authority for timely deposit/deduction and disclosure in returns.
- Filing of LUT
Date of filing LUT for FY 2020-21 was extended till Aug 31, 2020 and reference was given for LUT of 2019-20. Businesses must ensure that Exporters have LUT by August 31, 2020.
Matching and Reconciliation of Books and returns
Matching of the following should be done:
1) Credit showed as per GSTR 3B of the vendor and GSTR 2A as stated in point 1.
2) Supply as per GSTR 3B and GSTR 1
3) Provisional Credit claimed and the credit actually claimable
4) Sales and Purchases as per the Books of Accounts and as per the returns
5) Expenses on which GST is payable and expenses on which GST is payable on Reverse Charge basis as per Financial Statements with GSTR 3B
The above points should be kept in mind to avoid any scrutiny notices being issued by the department. It should be also done to identify any liability which has been declared by the vendor but credit is not taken on the same by the due date for filing returns for September or the due date of filing annual returns. It can also be used to identify any mistakes in GSTIN, Invoice/debit note number, etc.
Rajat Mohan is Senior Partner at AMRG & Associates. Views expressed are the author’s personal.