The Quarterly Return filing and Monthly Payment of taxes (QRMP) scheme came into force on January 1, 2021, under GST. It is expected to simplify the compliance process for small taxpayers with an annual aggregate turnover of up to Rs 5 crore in the preceding financial year. The highlight of the scheme is the shift in the filing of GSTR-3B from a monthly to quarterly cycle. The scheme’s flexibility and reduction in the number of returns to be filed per annum are laudable.
Comparison of tax payments before and under the QRMP scheme
The previous system that allowed quarterly GSTR-1 and monthly GSTR-3B involved tax payments to be made along with filing of GSTR-3B. Hence, small taxpayers had to pay taxes monthly at the time of filing GSTR-3B. The current system of the QRMP scheme also offers monthly tax payments. To some extent, it does not serve the purpose of the intended simplification. Taxpayers will have to continue to work out their monthly tax liability by collating monthly sales and purchase data.
Let’s look at tax payment rules notified for taxpayers opting for the QRMP scheme to understand this further.
Tax payments in months 1 and 2 of a quarter
The tax liability must be paid for the first two months of the quarter by the 25th of the subsequent month by QRMP taxpayers. For example, suppose the quarter being referred to is January-March 2021. In that case, taxes must be paid by February 25 and March 25 for January and February 2021, respectively. The scheme provides two options for taxpayers to choose from while computing the tax liability for the first two months — the fixed sum method and the self-assessment method.
Fixed Sum or 35% challan method
The fixed sum method is popularly referred to as the ’35 % challan’ method on the GST portal. Under this method, a taxpayer must pay his tax dues using a pre-filled challan in form PMT-06 auto-generated by the GST portal. The amount is calculated at a specific percentage of tax paid in the previous tax period, i.e. 35 per cent of the tax paid in the previous quarter for quarterly returns filers. Suppose, a business that was previously a monthly filer has newly joined the QRMP scheme, then the business is liable to pay 100 per cent of the tax paid for the last month of the previous quarter, instead of the fixed rate of 35 per cent.
Under the self-assessment method of tax payment, a taxpayer must pay the tax due on inward and outward supplies after considering the input tax credit (ITC) available for that month. Under this method, the tax liability will be ascertained by the taxpayer. An auto-drafted ITC statement is available in Form GSTR-2B for the taxpayer to arrive at the amount of ITC that he or she can consider for that month.
Tax payment in month 3 of a quarter
Next up in the rules are details for tax payment for the third month of the quarter. The taxpayer must pay tax dues along with the GSTR-3B filing, mostly by the 22nd or 24th of the month following the quarter. It must include any shortfall in tax payment from the first and second months of the same quarter.
Special points to consider
The rules also state that a taxpayer who has not filed his return for a complete tax period preceding the month of making such tax payment cannot use the fixed sum method. A complete tax period is where the taxpayer is registered from the first day to the last day of the tax period.
It is not necessary that the business must cough up cash every time for making monthly tax payments. It can so happen that the balance in the electronic cash ledger is sufficient for the payment. Cash payment is required if the balance in the electronic cash ledger is insufficient.
The rule also makes another point clear. The amount paid by the taxpayer for the first two months of the quarter shall be solely debited for offsetting the liability in the quarterly GSTR-3B. Any amount remaining after filing that quarter’s GSTR-3B may be claimed as a refund or used for any other purpose in the next quarter.
In the case of cancellation of a taxpayer’s registration during any of the first two months of the quarter, he would still be required to furnish his GSTR-3B for that relevant tax period with details up to the date of cancellation.
Choosing between fixed sum and self-assessment
The rules about how a taxpayer can make a choice between the two options for tax payment remain unclear. In other words, the choice of which of the two options or methods would be financially beneficial for the small taxpayer is left to the taxpayer. For instance, if the fixed sum method is chosen for tax payment in a particular month, it might happen that the actual GST liability for the current quarter may be relatively lower when compared to 35 per cent of the liability of the last quarter.
In such a scenario, if the business inadvertently goes with the fixed sum method, he may end up expending more. The liability getting pre-populated for the current quarter under this method may eventually lead to the blockage of the taxpayer’s working capital. Suppose the taxpayer’s business in a quarter is less than the previous quarter; he may opt for the self-assessment method. Likewise, he can opt for the fixed sum method in the opposite situation. The rationale may vary with many factors involved. As can be seen, taxpayers will take time to understand the ropes of QRMP and choose what works best for them.
Therefore, it is crucial for taxpayers under the QRMP scheme to make appropriate decisions on how they want to pay tax due to the implications on their working capital for a relevant quarter. It also becomes necessary for these businesses to reconcile and self-compute the tax liability every month, even if they plan to go for a fixed sum method. Otherwise, there is always a chance of excess tax being paid.
The author is Founder and CEO of ClearTax