Introduction
The introduction of the Goods and Services Tax (GST) in India in 2017 was a historic change in our taxation system and has become key to our ongoing taxation process. Companies that are registered for GST must file their GST returns regularly to report how much they sold, how much they purchased, how much GST they charged their customers, and how much GST they have paid to the government on their own purchases. The purpose of filing GST returns is to maintain transparency while assisting the government in monitoring GST compliance of all registered companies.
Unfortunately, for many of India's small businesses, start-up companies, and stall owners, filing their GST returns is not always a simple process because of a lack of awareness and understanding of how the GST process works, the inability to meet ongoing financial obligations, or administrative errors in filing their returns and remitting payments. If you do not file your GST returns on time, there will be serious ramifications (penalties, charging of interest, cancellation of your GST registration, and/or legal action by government authorities). It is for these reasons that all GST-registered businesses/individuals need to understand the ramifications of filing their GST returns late or not at all.
Within this article, we will discuss the consequences of not filing your GST return, the penalties associated with non-filing of your GST return and how businesses can avoid compliance issues when it comes to the filing of their GST returns.
Understanding GST Return Filing
GST returns are official documents that registered taxpayers need to submit to the government as part of the tax reporting process. These documents will include details about the seller's sales and supplier's purchases, which include any input tax credits available against each sale and the amount of tax due on both types of transactions for a designated period.
Different types of GST returns apply to different taxpayers. As a rule, regular taxpayers will typically file GSTR-1 (associated with outward supplies made) and GSTR-3B (the summary return to accompany a tax payment); businesses that have elected to use the composition scheme will typically file CMP-08 returns and GSTR-4 files on an annual basis.
When you fail to file your GST returns on time, you are preventing the government from receiving accurate information related to your tax obligations, thus allowing you to claim an input tax credit because you have made your tax obligations payable; therefore, if you do not submit your returns, you are effectively disrupting this entire process, and potentially exposing yourself to compliance related measures.
Late Fees for Not Filing GST Returns
The most significant immediate consequence of failing to file a GST return is that a late fee will be assessed. Under the GST law, a fixed late fee will be charged for every day the return remains unfiled after the associated due date.
For almost every GST return, the late fee will typically be ?50 per day for each of the CGST and SGST components. In cases where the return has nil tax liability, typically, the late fee will usually be ?20 per day.
However, the late fee can be capped depending on the type of return filed. Over time, these late fees can accumulate and become a financial burden for businesses, especially if multiple returns remain pending for months.
Late fees must be paid before the return can be successfully filed on the GST portal.
Interest on Outstanding Tax Liability
Beyond incurring late fees for not paying taxes, businesses can also expect to pay interest on unpaid taxes. If a taxpayer fails to pay their taxes when they file their GST return, interest is assessed on the amount still owed.
Under the GST regulations, the general interest rate on unpaid tax liabilities is typically 18% per year. This interest is accrued from one day after your due date until you pay in full.
For businesses that owe large amounts of tax, interest charges on those debts will accumulate quickly. Therefore, delaying the filing of your GST return results in both compliance issues and added financial strain.
Blocking of Input Tax Credit (ITC)
Another significant implication of failing to file GST returns is the loss of the ability to collect input tax credit (ITC). Businesses can lower their tax liabilities by receiving a credit equal to the GST paid on their purchases by utilising ITC.
However, if a supplier fails to file GST returns, the purchaser may have trouble using ITC on any purchases made from that supplier. This creates issues with business relationships between suppliers and customers, leading to a loss of trust.
In addition to causing issues with supplier-customer relationships, taxpayers are unable to fully utilise the benefits associated with ITC if they do not consistently file their tax returns.
Suspension of GST Registration
Tax authorities can enable them to suspend your GST registration in case you fail to file your returns for a long duration of time.
When your GST registration is suspended, you will not be in a position to issue any valid GST invoices, collect GST on behalf of your customers, or even receive input tax credit. In order to resume your business as usual once the suspension period expires, you would have to iron out any compliance problems.
If your business relies heavily on the issuance of GST invoices, your ability to do so and your credibility in the marketplace will be severely compromised due to the suspension.
Cancellation of GST Registration
If a taxpayer repeatedly fails to file GST returns for an extended period of time, the tax authorities may cancel their GST registration.
A regular taxpayer may have their GST registration cancelled if they do not file six consecutive months of returns; however, if a composition taxpayer fails to file two consecutive tax periods, their GST registration may also be cancelled.
Once the GST registration is cancelled, the business cannot legally collect or retain GST from customers or operate under the GST registration. If the business wishes to operate under the GST after cancellation, it needs to apply for a revocation of cancellation or obtain a new registration.
Legal Notices and Department Action
Failing to file GST returns can lead to demand or notice(s) from the tax authorities requiring that you explain your lack of compliance and file your missing returns. If you do not respond or continue to ignore these notices, the tax department can begin collection activity against you, including seizing your bank accounts and/or property and/or taking other legal action against your business to recover the amount of tax you owe.
Entering into collections against your business will negatively impact your business’s reputation and create severe legal challenges.
Difficulty in Business Operations
Your failure to file GST returns can also impact the day-to-day operations of your business because most businesses will only deal with a supplier/vendor who has complied with his/her GST filing requirements because they want to be able to claim the correct amount of input tax credits. If you do not keep current with your GST returns, many customers/clients may be reluctant to do business with you.
In addition, many businesses will have difficulties obtaining a loan, securing government tender contracts, or getting any approvals from a financial institution because each time a financial institution performs a due diligence review of your company to approve you for a loan, government tender contract, or any other type of financial approval, one of the things they will look at is whether or not you have filed your GST returns.
Therefore, your business must file its GST returns promptly so that it can comply with the legal requirements of the law and maintain the credibility of its business.
How to Avoid GST Non-Compliance?
To prevent penalties and to avoid having the business you run run into issues with the law, goods and services tax returns must be filed on time. This means keeping accurate records of the business's accounting, as well as tracking and paying GST invoices promptly. Additionally, regularly checking your own tax status and being diligent with monthly GST return reconciliation can all help reduce the chances of filing late GST returns.
The use of accounting software or a GST consultancy can assist businesses in filing their GST returns on time, and reminders for when the GST returns are due and reconciling the GST records every month will help to ensure that the business does not fail to file the GST returns on time.
For businesses that have been late in filing their returns to date, taxpayers must file their returns as soon as possible and pay the necessary late fees and interest to bring themselves back into compliance with the GST legislation.
Conclusion
GST filing is a requirement for all registered taxpayers in India. If a business does not file its GST correctly, thenity can incur a variety of penalties like: late fees; interest; blocking input tax credits; suspension or cancellation of its GST number; or legal action taken against the taxpayer by India’s GST authorities.
If a business does not comply with the GST filing requirements, then they can alsojeopardisee how their customers view them; this can also affect how smoothly the business runs due to compliance violations. Therefore, GST filing must be viewed by a business as a major part of their overall financial management,t and that all GST returns submitted are accurate and on time.
Any business that maintains proper accounting records and follows the requirements of the GST legislation is less likely to incur penalties, and they will be able to conduct business in India without interruption.
Author:
Leave a Comment
Previous Comments