India: Brief overview on proposed new GST Return filing system under GST Regulations

published on 7 May 2020 | reading time approx. 8 minutes

The Goods and Services Tax (‘GST’) Regulations have been introduced from July 2017, in India. Since the inception, the compliance under the said law has been a turbulent roller-coaster ride. One of the major challenges in implementation of the existing GST compliance framework lied in its complex multiple-form-structure for returns; reckoning continual round the clock compliances, tedious reconciliations and a need for a robust IT infrastructure.

Thus, the initial framework set-out in the GST Regulation (Form GSTR-1, GSTR-2 and GSTR-3), has never been made fully-functional, even as on today, after almost three years of enactment of the law in India. In a view above, to simply the difficulties faced with regard to the existing compliance layout, the 31st GST Council meeting, brought about various significant proposals on table, for compliance under the GST Regulations. One of the noteworthy proposal being the new GST return filing system. Initially it was proposed to be implemented from April 2020 and considering the challenges faced, it is proposed to be implemented in India, from October 2020.

An offline tool demo prototype of the proposed new return has already been made available on the GST common portal for the reference of taxpayers.

Structure and types of the GST Returns

Under the proposed new return filing system, a single return form would replace the existing multiple return forms. A single return would consist of three components: A Main Return, Form GST ANX-1, Form GST ANX-2 (the individual components would be discussed in detail later).

The said return-form is proposed to have four variants, to suit various taxpayers. Depending upon the turnover of preceding financial year and expected nature of supplies during the financial year, taxpayers would have an option to choose for the variant of return which is most convenient for their operations. Accordingly, following table summarizes all variants of the GST returns under the proposed new return filing system:

*These category of taxpayer can either opt for compliance as mentioned in table above depending up the nature of outward supply expected to be made by them or can opt for regular monthly compliance as applicable for taxpayer having turnover in excess of INR 50 Mio. on preceding financial year. Further, option once exercise would remain valid that financial year except for specified circumstances.

** Though the return filing is allowed on quarterly basis, the payment of GST liability is required to be made on monthly basis in Form GST PMT-08.

Components of the GST Return and flow of one return cycle

The returns (GST RET-1/RET-2/RET-3) would consist of details auto-populated form two of its components GST ANX-1 and GST ANX-2. Based on Forms ANX-1 and ANX-2, the main returns would be filed, before 20th of the month, succeeding the month/quarter to which the tax liability pertains.

The information required to be filed in each of these components. The timeline and the flow of the return cycle has been briefly discussed in this section.

Annexure of outward supplies, imports and inward supplies liable to reverse charge mechanism or GST ANX-1 (proposed to substitute the existing Form GSTR-1)

ANX-1 would contain details of outward supplies, inward supplies attracting reverse charge mechanism, details of export supplies, details of SEZ supplies, details of import of goods & services.
Suppliers would be able to upload invoice details on a continuous real-time basis. The recipient would be able to view such details simultaneously on a real-time basis as well.
Details of the supplies i.e. invoice, credit notes, debit notes could be uploaded by the supplier on a real-time basis, any time during the month till the date of filing of return i.e. 10th of the following month/quarter depending upon the applicable periodicity.
For, all supplies attracting reverse charge shall be reported by the recipient and is not required to be reported by supplier. Supplier would be required to report only GSTIN wise details in the ANX-1, net of debit/credit notes and advances paid, if any, for every supplier.
For import of goods, details to be filled would require document level information. Manual reporting of this information shall be required till the time the data from ICEGATE to GSTN system starts flowing online.
All necessary information and documents uploaded up to 10th of following month shall be made available to the recipient for claiming Input Tax Credit (‘ITC’) in ANX-2 of the recipient.
Documents uploaded after 10th of following month shall be made available to the recipient in the next month.
A concept of missing documents/invoices, has been introduced in the form ANX-1 of the GST return. In cases, where recipient has already availed the ITC with respect to a particular invoice on provisional basis, and the supplier does not upload such invoice till time prescribed then, the said invoices would be termed as missing document/invoice. Recipients would have an option to upload the details of such missing documents In such cases, if the supplier does-not upload the invoice as per the due-dates, the ITC availed with respect to such invoices is to be borne by the recipient.

Annexure of inward supplies or GST ANX-2 (proposed to substitute the existing GSTR-2 return)

Details of documents uploaded by the corresponding suppliers would be auto populated in FORM GST ANX-2 and recipient will be able to take action on the auto populated documents. A matching tool would be available which would help the taxpayer to match their input-tax credit based on their GST return and purchase register.
A recipient may accept, reject or to keep pending any invoice uploaded, on continuous basis after 10th of the following month in which it the details are uploaded by the supplier.
A recipient would have the option to accept an invoice, if he/she agrees with the details reported in that invoice. In case, the recipient neither rejects nor keeps an invoice pending, it said invoice would deemed to be accepted.
Documents once accepted by the recipient would not be available for amendment at the corresponding supplier’s end. Supplier may edit rejected documents before filing subsequent return. However, credit would be available to recipient only via next Form GST ANX-2. Although, the tax liability for the supplier would be accounted for in the same tax period.
Supplier will be able to make amendments to invoices uploaded, via Form ANX-1A (discussed later). However, any invoice on which ITC has already been availed by a recipient would be considered a locked invoice, and would not be open for amendments. In case an amendment needs to be made to such invoices, the supplier would have to issue a debit or a credit note.
Any locked invoice, which is, locked automatically or in an incorrect manner could be unlocked by the recipient online, subject to a reversal of ITC claim made, and an online confirmation.
Details of any invoice/document¬ uploaded by the supplier, for which the recipient is doubtful, could be put under pending. With respect to an invoice which is marked pending by the recipient, no ITC could be availed by the recipient.
In case returns are not filed by the supplier for consequently two months, such indication would be provided in ANX-2 to recipient and ITC with regard to the same, shall not be available. Even though, the invoices uploaded by the supplier in this regard would be visible in ANX-2, recipient would not be able to claim ITC on such invoices. Recipient is required to keep such invoices pending or reject them till the returns are actually filed.

Form GST ANX-1A for amendment to details filed in ANX-1 form by the Supplier

Amendments if any for details of earlier tax period would be available to be made in Form GST ANX-1A before the due date of September return following the end of the financial year or the actual date of furnishing relevant annual return, whichever is earlier.
Recipient filing monthly returns might accept details uploaded by supplier till 10th of following month. Recipient filing quarterly returns might accept details uploaded by supplier till 10th of the month succeeding the end of the quarter for which the return is being filed.
Suppliers might edit the rejected documents before filing any subsequent return. However, credit would be made available to recipient through the next FORM GST ANX-2 for the recipient. The tax liability for such edited documents would be accounted for in the same tax period.
Only suppliers would be able to edit any document details. Further, such editing by supplier would be permitted only if recipient has not-accepted such documents details.
If recipient already accepts such details, unless a reset/unlock action is initiated by the recipient, supplier would not be able to edit such details.
Invoices/documents on which refund has already been claimed, would not be open for amendment.

Readiness required for implementation of the New return System and challenges ahead

The transition and adaption while migrating to the proposed new-return filing system could pose challenges for the taxpayers. A brief list of possible challenges are as follows:

The compliance burden will slightly increase with a requirement to file two annexures every month.

In cases where the vendor has not filed GST returns for a period of more than 2 months, a disclosure requirement to report missing invoices has been encompassed in the form GST ANX-1. Thus, a separate tracking of such missing invoices is required to be undertaken.
The details in form ANX-2 would be auto-populated, but would require up to date reconciliations and tracking of input invoices, to ensure correctness of details reported in the GST returns. It will be crucial, specifically in cases of high volume transaction businesses, where no action to the invoices might lead to automatic locking of invoices in ANX-2.
Several disclosure requirements are proposed to be changed (as per the prototype of the proposed new return formats released) such as Harmonized System of Nomenclature (‘HSN’) code for supply of goods to be reported at 6-digit level (from existing 4-digit level), for import of services, import of goods, etc., details have to be provided with Place of supply, GSTIN and HSN / Service Accounting Code wise. Further, wherever the supplier whose supply are covered for levy under reverse charge mechanism is unregistered, disclosure of his/her Permanent Account Number (issued under Income Tax Regulations in India) is mandatorily required to be provided in returns. Thus, necessary changes are required to be made in the master data of the accounting software to include these additional information which would enable to fetch such specific additional reporting requirements of the proposed new return utility.
In view of Section 43A of the Central Goods and Services Tax, 2017, ITC on missing invoices would be restricted. Therefore, a stringent and continual follow-up would be required with the vendors which do not file their returns regularly. It would be critical to avoid any bearing impact on the ITC available for the taxpayer.
The invoice details uploaded by the supplier, once accepted by the recipient would be difficult to be changed. Hence, the details so uploaded in Form GST ANX-1, have to be accurate to avoid hassles.
Under the proposed new return filing system, amendments to the data provided in ANX-1 can only be done by the suppliers. It would lead to increase in co-ordination time in a return cycle, in cases of inaccurate information uploaded by a supplier.
In case of import of goods, document level detail would be required to be uploaded, till the time the GSTN is linked with ICEGATE. Thus, the import register in the books would be required to be re-calibrated to include all the necessary details required in the proposed return filing utility.
The migration to the proposed new return filing system is proposed from October 2020 i.e. in the middle of a financial year. Soa lot of efforts would also be required to be taken while compiling the information for undertaking annual compliance i.e. while filing the annual return in Form GSTR-9 and Form GSTR-9C.

Even though the new return filing system has been coined to be a “simplified” compliance system, it entails detailed reporting of outward supplies, dynamic tracking of inward supplies and robust IT infrastructure to ensure appropriate compliance. Further, at the moment, sufficient clarity is not made available for the migration to the proposed return filing system, especially for transactions reported in earlier return system which may have impact in the proposed new returns system.

Nevertheless, the accounting software/ERP, compliance operation procedures, compliance staff need preparedness in advance, to avoid major impact on businesses.