A man holds out Indian rupee banknotes at a market in Ahmedabad. Photographer: Dhiraj Singh/Bloomberg

GST Return Filing: Companies Staring At Huge Loss Of Tax Credit

Reconciliation of what a buyer bought and a seller sold was supposed to be the bedrock of availing input tax credit under the Goods and Services Tax. The absence of a mechanism that would’ve enabled taxpayers to reconcile invoices may now lead to the loss of significant amount of tax credit, experts told BloombergQuint.

Input tax credit means that a supplier can reduce the tax paid on inputs from tax payable on outward supplies.

The Due Date Confusion

According to the Central GST Act, a taxpayer can avail input tax credit in a fiscal up to the due date of filing returns for September or the annual return, whichever is earlier. For instance, for the year ended March 2018, the last date for availing input tax credit was Oct. 20—the date of filing returns for September.

But that’s one interpretation.

When one refers to filing of returns for a month, section 39 of the CGST Act contemplates GST return form 1, 2 and 3, but GSTR 2 and 3 haven’t been notified, Ritesh Kanodia, an indirect tax partner at Dhruva Advisors, pointed out. In the absence of GSTR 2 and 3, Form 3B—for summary returns—was notified pursuant to a rule and not as per section 39. It can be argued the last date isn’t sacrosanct for availing input tax credit and it’s instead the annual return, he explained.

GSTR-1 is a reflection of all sales, GSTR-2 is a record of purchases and GSTR-3 is the monthly summary of all sales, purchases and tax liability.

A lot of companies had taken a conservative approach to say that let’s treat Oct. 20 as the last date for availing input tax credit. This (was) despite the challenges they faced in reconciling their data with that of their vendors because the transactions ran into lakhs, there were a lot of errors and even missing invoices.
Ritesh Kanodia, Partner, Dhruva Advisors

The conservative approach hasn’t been rewarded, though, Jigar Doshi, an indirect tax partner at consulting firm SKP Group, said. This was because on Oct. 21, the government extended the due date for filing returns for September by five days, which meant the last date for availing input tax credit was Oct. 25.

Taxpayers who ensured filing of returns and input tax credit by Oct. 20 won’t be able to amend the data even though timelines have been extended. Taxpayers who were non-compliant got more time instead.
Jigar Doshi, Partner, SKP Group

Lapsing Of Credit

Last month, the government extended the due date for filing GSTR 1 for July 2017-Sept. 2018 to Oct. 31. The data in GSTR 1 can be seen by the buyer on the GST portal in GSTR 2A—an auto-populated return form. This helps buyers reconcile their purchase data with what their vendors or sellers have disclosed.

The extension of GSTR 1 deadline meant that taxpayers had to avail input tax credit by Oct. 20 without having the benefit of reconciling their purchases with the data uploaded by their vendors.

Doshi said this could result in five scenarios:

  • Whatever credit a buyer has claimed matches with GSTR 2A—that’s a safe zone.
  • Credit sitting in a buyer’s books but isn’t reflecting in GSTR 2A—in such situations, taxpayers have claimed credit based on purchases recorded in their own books even though it’s not recorded in GSTR 2A as the data possibly may not have been disclosed by the seller appropriately in its GSTR 1. Taxpayers are now asking vendors to either disclose such invoices by Oct. 31, which is the due date of September GSTR 1 or refund the GST amount with interest.
  • Credit which is in GSTR 2A but not in the buyer’s books—in this situation, most taxpayers have claimed credit based on their own data despite GSTR 2A reflecting a higher credit that they can avail. This is because taxpayers are sure of their own data and GSTR 2A isn’t always recording the correct information.
  • Mismatch due to incorrect information, such as invoice date or tax value not matching. Here the buyer must go to the vendor to get the information rectified.
  • Finally, where the vendor has deposited tax with the government which isn’t reflecting in GSTR 2A. Such situations would lead to disputes.

The issue will arise in the annual return—the due date for which is Dec. 31. The annual return form will pick up data from GSTR 2A. If a taxpayer has credit worth Rs 100 in his books but GSTR 2A is reflecting only Rs 80, Rs 20 worth of credit will lapse, Doshi said. Since this amount will be available as a gross number, the taxpayer won’t even know which vendor to chase for this lapsed credit unless the taxpayer has completed its reconciliation, line item or invoice-wise, Doshi said.

For some companies, the mismatch in credits amounts to Rs 16-20 crore since the vendors aren’t geared up and their filings are extremely poor—both quantity and quality-wise, Kanodia said. “If a taxpayer has taken excess credit, they are liable to reverse it with interest,” he said. “And if you’ve not booked this credit by Oct. 20 or Oct. 25, it will lapse.”