The GST Council on Friday unveiled a new simplified return that would require a taxpayer to file only one return every month and set a period of six months for the transition to take place.
“It will take about six months for GSTN to prepare for it, so for that period the current arrangement of GSTR3B and GSTR 1 will continue. This will be the first phase of transition where the current system will continue for the next six months,” said Finance Secretary Hasmukh Adhia.
Adhia added that in the next six months the new system of return will have a single system of return for every taxpayer. “Composition dealer and zero transaction dealers will continue to file on a quarterly basis. Today, we find that the returns which are filed, 30% are nil returns, which means there is no transaction on them,” Adhia said.
In the case of B2C, the new return will contain the details of total turnover and in case of B2B it will contain the details of all sales invoices with the dealers. “The taxpayer would have to put invoice-wise details along with HSN code,” says Adhia.
In the transition phase, which is after six months of the return being prepared, there will be a separate column for the dealer to claim provisional credit based on his own calculation. “This will continue for a period of six months and this will be the second phase of transition, which means during this period we will allow provisional credit to be carried by the dealer irrespective of whether the seller from who he has bought the goods has uploaded the invoice,” said Adhia.
The finance Secretary added that during this six months the GSTN will continuously feed the taxpayer with information about the gap between what he is claiming as credit and what he is supposed to get basis the invoice uploaded by the seller. “That gap percentage will be known to the taxpayer and he would get time of six month to bring it down,” said Adhia.
The third phase, which would start after the six months or around April 2019, would see invoice matching happening on a monthly basis.
According to KPMG India, Partner, Priyajit Ghosh, continuance of existing system of summary return (3B) and invoice level return (GSTR 1) for next six months is a good move as GSTN would need time to implement the new system.
“Decision on introduction of a single return after six months with provisional credit would allow sufficient window to GSTN and the buyers to reconcile the credit. After six months finally, credit would be allowed to the buyer only upon filing of return by the supplier and payment of tax. Implementation of the last phase would depend upon experience of the tax payers and GSTN which needs to be watched out for. The last phase would require an ecosystem of timely filing and payment of tax leading to redesign of the existing processes around supplier payment, indemnity, etc. at the buyers end,” says Ghosh.
“The GST Council, in today’s meeting, approved the new model for filing GST returns. Such model of filing single monthly return would reduce the compliance burden significantly from the multiple filings currently required in a month. There were several meetings with industry forums held by the Group of Ministers that was examining a new system of returns,” said Saloni Roy, Senior Director, Deloitte India.
Here are the details:
One monthly Return: All taxpayers excluding a few exceptions like composition dealer shall file one monthly return. Return filing dates shall be staggered based on the turnover of the registered person to manage load on the IT system. Composition dealers and dealers having nil transaction shall have facility to file quarterly return.
Unidirectional Flow of invoices: There shall be unidirectional flow of invoices uploaded by the seller on anytime basis during the month which would be the valid document to avail input tax credit by the buyer. Buyer would also be able to continuously see the uploaded invoices during the month.There shall not be any need to upload the purchase invoices also. Invoices for B2B transaction shall need to use HSN at four digit level or more to achieve uniformity in the reporting system.
Simple Return design and easy IT interface: The B2Bdealers will have to fill invoice-wise details of the outward supply made by them, based on which the system will automatically calculate his tax liability. The input tax credit will be calculated automatically by the system based on invoices uploaded by his sellers. Taxpayer shall be also given user friendly IT interface and offline IT tool to upload the invoices.
No automatic reversal of credit: There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.
Due process for recovery and reversal: Recovery of tax or reversal of input tax credit shall be through a due process of issuing notice and order. The process would be online and automated to reduce the human interface.
Supplier side control: Unloading of invoices by the seller to pass input tax credit who has defaulted in payment of tax above a threshold amount shall be blocked to control misuse of input tax credit facility. Similar safeguards would be built with regard to newly registered dealers also. Analytical tools would be used to identify such transactions at the earliest and prevent loss of revenue.
Transition: There will be a three stage transition to the new system. Stage I shall be the present system of filing of return GSTR 3B and GSTR 1. GSTR 2 and GSTR 3 shall continue to remain suspended. Stage I will continue for a period not exceeding 6 months by which time new return software would be ready. In stage 2, the new return will have facility for invoice-wise data upload and also facility for claiming input tax credit on self declaration basis, as in case of GSTR 3B now.
Content of the return and implementation: The government said return shall be simplified also by reducing the content/information required to be filled in the return. The details of the design of the return form, business process and legal changes would be worked out by the law committee based on these principles. The Government in a statement said it is keen to introduce the simplified return design at the earliest to reduce the compliance burden on the trade in keeping with the philosophy of ease of doing business.
According to Abhishek Jain, Tax Partner, EY India, “Some of the highlights being a single return with staggered due dates basis turnover, real time credit eligibility basis invoices uploaded by suppliers, no reversal or recoveries in most scenarios from buyer on non- payment of tax, etc. While some of these ideas are welcome, impossibility of the buyer uploading missing invoices or to take provisional credit may lead to losses for businesses where the suppliers are not traceable and tax has been paid to them. It may also impact cash flows on account of delayed credit in case of delay in upload of invoices by the sellers.”
The Government has deferred a decision on Sugar cess and has instead constituted a five member panel to look in to the matter. Given the disparity between the production cost of sugar and the cost of sugar in the market, there has been a shortfall of about Rs 19,000 crore for the sector. The Government in Wednesday unveiled a special subsidy scheme for the sector. A cess would have taken care of the money needed for this subsidy.
Jaitle added that since this was the first instance of a special need after the GST regime came into operation; there was a need to constitute a committee to figure out how such eventualities can be tackled. States and experts are of the opinion that a cess goes against the principles of GST.
“It is thoughtful of the GST Council to not give in to the revenue pressure mounting on account of sugarcane arrears. Levying Additional Sugar Cess is against the founding principle of GST of one tax one nation. In order to garner more revenue from select sectors, I hope the Government would look at other measures like increasing the base GST rate, expanding the tax net etc,” said KPMG India, Partner, Harpreet Singh.