GST cheer for MSMEs: Small businesses to have more filing options in new return filing system

September 9, 2019 2:19 PM

The upcoming new GST returns system is being designed to help the small taxpayers to comply faster and with efficient use of resources.

goods and services tax, gst, annual return, gst return, GSTR-9 GSTR-9A, GSTR-9The GST Council has already begun with the simplification of GST compliance for taxpayers.

By Archit Gupta

In the coming days with the proposed launch of the new GST return filing system, the MSMEs and small businesses are going to find the return filing process more functional and easy. The GST Council has already begun with the simplification of GST compliance for taxpayers. There has been an increase in threshold limit of turnover for GST registration to Rs 40 lakhs (for a supplier of goods). Also, the ambit of composition scheme has been widened to cover small service providers. The upcoming new GST returns system is being designed to help the small taxpayers to comply faster and with efficient use of resources.

Faster Compliance

With the ‘upload-lock-pay’ facility, businesses can report sales invoices in ANX-1 as and when possible before a deadline. The corresponding recipients can take actions on them in ANX-2 on a real-time basis such as accept invoices to claim ITC or reject invoices for errors or mark them as pending to defer actions. ANX-1 and ANX-2 will be auto-populated into the main return (RET-1/2/3) to be filed by the 20th of the month for monthly filers (25th of the month following the quarter for quarterly filers).

A government statement on July 21, 2018, had said that small businesses having annual turnover below Rs 5 crore account for 93 per cent of the total taxpayer base although these do not majorly contribute to GST revenue. Accordingly, a friendly system that caters to ease of doing business is required. At present, the small taxpayers can file quarterly GSTR-1 if the turnover is below Rs 1.5 crore. The limit has been raised to Rs 5 crore, benefitting the major chunk of the taxpayer base under the new GST returns system.

Apart from the existing composition scheme, regular taxpayers can choose either of the following four returns:

Main Return optionsName of the FormFrequencyApplicabilityConditions
SahajRET-2QuarterlyOption for those with annual turnover less than or equal to Rs 5 Crore and making only B2C supplies (supplies to unregistered persons under GST).– Cannot avail provisional ITC/ ITC on missing invoices.


-Cannot be making B2B supplies.


– Cannot report exports/ imports/supplies to & from SEZ.

SugamRET-3QuarterlyOption for those with annual turnover less than or equal to Rs 5Crore and making both B2B & B2C supplies (supplies to both GST registered and unregistered persons).-Cannot avail provisional ITC/ ITC on missing invoices.


-Cannot report exports/ imports/supplies to & from SEZ.

Normal RET-1QuarterlyOption for those with annual turnover less than or equal to Rs 5 crore.None; suitable for reporting all kinds of transactions
Normal RET-1MonthlyMust be filed those with annual turnover more than Rs 5 Crore; taxpayers with an annual turnover of less than Rs 5 crore may choose monthly return too.None; suitable for reporting all kinds of transactions.

Filing Multiple Returns

MSMEs and small businesses are allowed to file either of the four return types. However, the return preparation complexity just increases as one covers the list from top to bottom. These profiles help taxpayers complete filing in less time and efforts. It also enables the GSTN sort the taxpayers at source allowing an effective verification of filed returns. Furthermore, there is an option to switch between the three quarterly return types at the beginning of the quarter whereas once a year for those switching between monthly and quarterly returns.

On the flip side, the need for different returns in the name of RET-2 and RET-3 can still be debatable since a single return could have been structured to display only the filtered fields relevant for a particular taxpayer type. Therefore, small businesses must evaluate the pros and cons before choosing the right return suited to their business model.

Delayed Payments

Moreover, small businesses that are registered under the MSMED Act, 2006 – MSME Samadhaan have a worrying factor if they are vendors to a business filing returns monthly. Such MSMEs may want to choose quarterly filing of returns, leading to delay in the uploading of invoices. The delay, in turn, affects the recipients who suffer a delay in ITC claims. They may eventually hold back the payments to their MSME vendors. However, the MSME Act stipulates a credit period of 45 days, thereby forcing recipients to pay the dues within this period or else face consequences. Many enterprises and big businesses are resistant to this rule. The limitation may leave such a big enterprise to reconsider continuing business contracts with small vendors forcing the small businesses/vendors to change the frequency of filing to monthly. 

A simple monthly tax payment challan in PMT-08 for the first two months of the quarter takes over the monthly summary returns making it conducive for small taxpayers to comply with lesser efforts. It can be difficult for taxpayers with high volume transactions as regular reconciliation will still be required for tax payments.

Under the present system, the sales details have to be reported after the quarter is over, whereas the new system encourages anytime upload of invoices at the convenience of the supplier with deadlines. A generous amount of regular reconciliation is needed to avoid any excess tax payment in cash. Ultimately, the new GST return system is aimed to set up a foolproof system of reconciliation of details reported by vendors and buyers and hence aiding the technologically ill-informed taxpayers to plain sail through filing compliance.

(Archit Gupta is the Founder and CEO at ClearTax. Views expressed are the author’s own.)

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