- By Sivaramakrishnan Iswaran
GST and Taxation for MSMEs: The Goods and Services Tax (GST), was introduced as a single, straightforward tax system to replace multiple indirect taxes. The GST has served as an efficient tax system by bringing in more transparency and streamlining the tax filing process for both the government and the taxpayers. In order to simplify the compliance procedure further for GST-registered businesses, the 31st GST Council meeting proposed a new return system. This system is likely to be introduced on October 1st, 2020. Here, we will discuss the forms under the new system, the key differences between the old and new returns, and how small business owners can use a cloud accounting solution to stay compliant at all times.
New GST Return
Under the new system, there will be three main return forms – Normal (RET-1), Sahaj (RET-2) and Sugam (RET-3). The type of return to be filed and the filing frequency is determined based on the turnover of a business.
More than Rs 5 crore annual turnover: Businesses fulfilling this criterion must compulsorily file the Normal return on a monthly basis.
Less than Rs 5 crore annual turnover: Businesses that fall under this threshold and carry out B2C transactions must file Sahaj on a quarterly basis. Those businesses that carry out both B2B and B2C transactions must file Sugam on a quarterly basis. If a business has a turnover of less than Rs.5 crore but is not eligible to file Sahaj or Sugam return, then they can file the normal return on a quarterly basis.
Annexures of Main Returns
All three main return forms will have two annexures (GST ANX-1 and GST ANX-2).
- GST ANX-1 (also called Annexure of Supplies) is used for reporting outward supplies, inward supplies that are subject to reverse charge, and imports of goods and services. The supplier can upload related documents on a real-time basis in GST ANX-1.
- GST ANX-2 will have details related to all the inward supplies (except the ones that fall under the reverse charge mechanism) received from a registered supplier including imports and supplies received from an SEZ unit. Some of the details uploaded by the supplier in ANX-1 will be automatically available for the recipients in ANX-2 to verify and accept, reject or keep it pending.
Amendments and Payment Form
In the new return system, the taxpayer has the option to amend details filed in the main returns and ANX-1. These amendments can be filed for each tax period. Any tax payments and claiming of eligible Input Tax Credit (ITC) must be done using form PMT-08.
Current vs New Return
The new GST returns have brought in several changes, Here are the key differences between the current and the new GST return.
Turnover limit for small taxpayers: Rs 1.5 crore for the previous financial year under current GST returns and Rs 5 crore under new GST returns.
Number of return forms: Multiple return forms, like GSTR1, GSTR 3B, etc., depending on the taxpayer’s category. MSME taxpayers had to file up to 16 returns on a quarterly basis under the current system. Under the new system, there is a single return form (Normal/Sahaj/Sugam), containing two annexures. MSME taxpayers will file 4 returns.
Claiming Input Tax Credit (ITC): ITC is claimed by self-declaration under current returns, while under new returns, ITC can be claimed by matching auto-uploaded transactions in ANX-2 with the purchase register. Taxpayers can take provisional credit for missing invoices and can report them later.
Reporting of missing invoices: Missing invoices were reported using GSTR-3B in the current system. Missing invoices will be reported using RET-1 in the new system.
Filing a return while cancelling registration: Under the current system, taxpayers had to file return forms even if their application for cancellation was being processed. Under the new system, taxpayers need not file return forms if they have filed for cancellation of registration.
Reporting of supplies under Reverse Charge Mechanism (RCM): Inward supplies attracting reverse charge were reported in GSTR-3B under current returns but under new returns, inward supplies under RCM will be reported at the GSTIN level in the ANX-1.
Reporting Harmonised System Nomenclature (HSN) codes: HSN codes had to be reported separately in the existing system but in the upcoming system, HSN will be reported at an invoice level.
Reporting imports: In the current returns, ITC on imports was separately reported in GSTR-3B. However, ITC reports will be recorded under GST ANX-1 in the new returns system.
Challenges Posed by New GST Return
The new system focuses on matching transactions at the invoice level. It allows taxpayers to upload invoices continuously in real-time, to be recorded in GST ANX-1. It is bound to be challenging for taxpayers to upload accurate, error-free invoices and related documents into the portal.
In situations where the ITC was claimed on a provisional basis by the recipient, but the relevant invoices were not been uploaded into the portal by the supplier within a certain period, the recipient will need to reverse the ITC claimed in the earlier period. So, in order to claim Input Tax Credit, business owners will now have to keep their records clean and frequently match their invoices with their accounting.
Need for Cloud Accounting
A GST-compliant accounting system is the best way to cope with the changes introduced by the new GST return. It will relieve the taxpayers from the agony of manual data entry into the forms by auto-populating the fields. This would aid in filing error-free forms in a short span of time. An efficient accounting system will allow you to track those transactions which are eligible for ITC by matching them with the ones on the purchase registers. Having the receipts of these transactions in your cloud account can simplify your return filing, as they will directly get uploaded to the GSTN portal.
The new GST return has paved way for e-invoicing in India, where the taxpayers will now have to upload invoices in real-time. In such situations, cloud accounting software can help you create GST compliant e-invoices and instantaneously send them to the central system for validation. Since your accounting software will be connected with the government portal, it will allow you to retrieve invoices anytime to clarify the inconsistencies in your books.
With a new GST return system coming up, it is a good time for all businesses to switch to GST-compliant cloud accounting software. By adopting the right software and processes now, businesses can avoid penalties or other repercussions for non-compliance when the new return is implemented in October 2020.
Sivaramakrishnan Iswaran is the Vice President at Zoho Corporation. Views expressed are the author’s own.