Common mistakes in GST compliances and How to Avoid Them

The Goods and Services Tax (GST) was implemented in India on July 1, 2017, with the aim of simplifying the indirect tax structure and eliminating the cascading effect of taxes. While the GST regime has brought significant changes to the tax landscape, it has also created new challenges for businesses in terms of compliance.

Failing to comply with GST regulations can result in penalties, interest, and even legal consequences. Therefore, it is crucial for businesses to be aware of the common mistakes in GST compliance and take measures to avoid them. In this article, we will discuss some of the common mistakes made by businesses while complying with GST and provide tips on how to avoid them.

Incorrect Input Tax Credit (ITC) Claims

Incorrect Input Tax Credit (ITC) claims are a significant concern for businesses under the GST regime. Businesses may make mistakes in claiming ITC due to a lack of understanding of the ITC provisions or incorrect interpretation of the law. Incorrect invoices or documents can also lead to incorrect ITC claims. In some cases, businesses may claim ITC for goods and services that are not eligible for ITC under the GST law.

Incorrect ITC claims can result in penalties and interest payments, causing financial and legal liabilities for the business. The GST law allows the government to recover the incorrect ITC claims along with interest and penalties from the business. Additionally, businesses that have claimed incorrect ITC may face legal consequences, which can result in fines and other penalties.

Non-Filing of GST Returns

Non-filing of GST returns is a significant compliance issue that businesses face. The GST returns need to be filed based on the business's registration type and turnover, and non-filing can lead to significant penalties and interest payments. The penalties for non-filing of returns can be as high as Rs. 10,000 for each return not filed. Additionally, non-filing of returns can impact the business's compliance rating and can also result in delays in processing ITC claims and refunds.

Moreover, the GST regime follows a self-assessment system, which means that the onus of filing accurate returns lies with the taxpayer. Non-filing of returns can also attract scrutiny from the tax authorities, which can lead to further complications and legal consequences. It is, therefore, crucial for businesses to ensure timely and accurate filing of GST returns.

Mismatch in GSTR-1 and GSTR-3B

Mismatch in the details provided in GSTR-1 and GSTR-3B is a significant issue faced by businesses in GST compliance. GSTR-1 is a return that contains details of all outward supplies made by a business during a particular period, while GSTR-3B is a monthly summary return that contains the details of the tax liability and ITC claimed. The details provided in both returns should match to ensure compliance with the GST law.

A mismatch in the details provided in GSTR-1 and GSTR-3B can result in tax authorities issuing notices to the business, which can lead to penalties and interest payments. Additionally, it can also impact the ITC claims and refund processing, leading to delays and financial losses for the business.

Non-Compliance with E-Invoicing

Non-compliance with e-invoicing is a common mistake made by businesses in GST compliance. E-invoicing is the process of generating invoices electronically and reporting them to the GST portal. It is mandatory for businesses with an aggregate turnover of more than Rs. 50 crores in a financial year. E-invoicing helps in reducing errors and streamlining the invoicing process.

Non-compliance with e-invoicing can lead to penalties and interest payments, causing financial and legal liabilities for the business. Additionally, it can also impact the ITC claims and refund processing, leading to delays and financial losses for the business.

Incorrect Classification of Goods and Services

Another common mistake made by businesses in GST compliance is incorrect classification of goods and services . GST is levied at different rates depending on the nature of the goods or services supplied. Incorrect classification can result in underpayment or overpayment of tax.

Incorrect classification of goods and services can attract penalties and interest payments, causing financial and legal liabilities for the business. Additionally, it can also impact the ITC claims and refund processing, leading to delays and financial losses for the business.

Reducing Common Mistakes in GST Compliance through Regular Internal Audits

Regular internal audits can play a significant role in reducing the common mistakes made by businesses in GST compliance. Conducting periodic internal audits can help identify any compliance gaps and address them in a timely manner. Here are some ways internal audits can help solve common GST mistakes.

Incorrect Input Tax Credit (ITC) Claims:

Internal audit can help ensure that ITC claims are accurate and comply with GST law. By reviewing the documents and invoices related to the transactions, internal auditors can identify any discrepancies and incorrect claims. They can also help businesses understand the eligibility criteria for claiming ITC, the proper documentation required, and the time limits for claiming ITC.

Internal auditors can also review the business's ITC distribution and apportionment procedures to ensure that the correct amount of ITC is claimed, and the input tax is appropriately distributed. This can help businesses avoid penalties and interest payments for incorrect ITC claims.

Non-Filing of GST Returns:

Internal audit can help ensure that businesses file timely and accurate GST returns. By reviewing the business's GST return filing history, internal auditors can identify any missed deadlines or incorrect returns. They can also help businesses understand the different types of GST returns, their frequency, and the necessary details that need to be included in each return.

Internal auditors can also review the business's record-keeping processes to ensure that all transactions are adequately recorded and tracked. This can help businesses file accurate GST returns, avoid penalties, and maintain their compliance rating.

Mismatch in GSTR-1 and GSTR-3B:

Internal audit can help ensure that the details provided in GSTR-1 and GSTR-3B match. By assessing the data and information in both returns, internal auditors can identify any discrepancies and errors. They can also help businesses understand the importance of accurate reporting and the impact of mismatched returns on the business's compliance rating and financial standing.

Internal auditors can also review the business's accounting and invoicing procedures to ensure that all transactions are correctly recorded and reported. This can help businesses avoid penalties and interest payments for incorrect or mismatched returns.

Non-Compliance with E-Invoicing:

Internal audit can help ensure that businesses comply with the e-invoicing requirements under GST. By reviewing the business's e-invoicing processes and systems, internal auditors can identify any non-compliance issues and provide recommendations for improvement.

Internal auditors can also review the business's IT systems and infrastructure to ensure that they are capable of supporting e-invoicing requirements. This can help businesses avoid penalties and interest payments for non-compliance and ensure that they are prepared for any future changes to the e-invoicing system.

Incorrect Classification of Goods and Services:

Internal audit can help ensure that businesses correctly classify their goods and services under the GST law. By evaluating the business's classification processes and procedures, internal auditors can identify any errors or inconsistencies in the classification of goods and services.

Internal auditors can also help businesses understand the various GST rates applicable to different goods and services and the documentation requirements for each category. This can help businesses avoid penalties and interest payments for incorrect classification and ensure that they are compliant with GST law.

In conclusion, complying with GST regulations can be challenging, but avoiding common mistakes can help businesses avoid financial and legal liabilities. These mistakes can result in penalties, interest payments, and delays in processing ITC claims and refunds.

Choosing an internal auditor can help businesses avoid these mistakes by providing regular and comprehensive reviews of their GST compliance practices. Internal audits can help businesses identify and correct errors and ensure compliance with GST regulations, reducing the risk of penalties and interest payments.

At TaxMarket, we offer internal audit services that help businesses ensure their GST compliance. Our team of experts has extensive experience in GST compliance and can provide businesses with a comprehensive review of their compliance practices. We use advanced technology and methodologies to identify errors and discrepancies, enabling businesses to avoid mistakes and maintain compliance with GST regulations.

To know more about how TaxMarket's internal audit services can help your business ensure GST compliance and avoid common mistakes, visit our website at https://www.taxmarket.in/internal-audit or contact us for a consultation.