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What is GST ?

 

GST (Goods and Services Tax) is a comprehensive indirect tax system introduced to streamline and simplify the taxation process for goods and services. It replaces multiple indirect taxes that were previously levied by both central and state governments, such as sales tax, VAT, and service tax. GST is designed to be applied at each stage of the production and distribution chain, ensuring a smooth and transparent tax structure. One of its key features is the ability for businesses to claim input tax credits for taxes paid on purchases, which prevents the cascading effect of taxes. In countries like India, the GST system is structured as a dual tax with both Central GST (CGST) and State GST (SGST) components. This system aims to create a uniform tax rate across the country, reduce tax complexity, and enhance ease of doing business, ultimately fostering a more efficient and compliant business environment.

The amount of tax paid depends on the income level, with higher earnings being taxed at higher rates, making income tax a progressive tax system. Taxpayers are required to file an annual tax return, declaring their income and deductions to calculate the tax due. Many countries allow exemptions, deductions, and rebates that help reduce the taxable income, such as deductions for savings, investments, or expenses like healthcare or education.

Individuals, businesses, and corporations must pay income tax on their earnings, with the amount varying depending on their income category. Governments use this revenue to fund essential services and maintain the country’s financial stability. Income tax plays a crucial role in wealth distribution, promoting fairness, and ensuring the smooth functioning of public systems.

Types of GST ?

CGST (Central Goods and Services
Tax)

This is the tax levied by the central government on intra-state (within the same state) transactions of goods and services. It is applicable when both the supplier and the buyer are in the same state.

SGST (State Goods and Services
Tax)

This is the tax levied by the state government on intra-state transactions. Like CGST, SGST applies when the goods or services are traded within the same state, and the revenue collected is retained by the respective state.

IGST(Integrated Goods and Services
Tax)

This tax applies to inter-state transactions, i.e., when goods or services are sold from one state to another. The central government levies IGST, and the revenue is shared between the central and state governments based on an agreed formula.

UGST(Union Territory Goods and Services Tax)

This tax is applicable in Union Territories (UTs) of India that do not have a state government. It operates similarly to SGST but is applicable to UTs.

Types of GST Returns ?

1. GSTR-1: Return for Outward Supplies

  • Who needs to file:
    • All registered taxpayers (except those under the Composition Scheme).
  • Purpose:
    • To report the details of outward supplies (sales) made during the given tax period.
    • It includes details like invoices, debit/credit notes, and export-related transactions.
    • It also reports zero-rated exports and advance receipts.
  • Due Date:
    • The due date is typically the 11th of the month following the reporting period.
    • For quarterly filing, the due date is the 11th of the month after the end of the quarter.
  • Note:
    • This return needs to be filed even if there are no outward supplies for a particular period.

2. GSTR-2: Return for Inward Supplies (Suspended)

  • Who needs to file:
    • Taxpayers claiming input tax credit (ITC) for their purchases.
  • Purpose:
    • Report details of inward supplies (purchases) made during the reporting period.
    • Includes purchase invoices, debit/credit notes, and taxes paid on purchases.
  • Status:
    • GSTR-2 was suspended by the government. Reconciliation of inward supplies is now done through GSTR-2A (auto-generated based on GSTR-1 filings of suppliers).
  • Note:
    • Taxpayers can view their GSTR-2A on the GST portal for reconciliation and claiming ITC.

3. GSTR-3: Monthly Return (Suspended for now)

  • Who needs to file:
    • Regular taxpayers who need to report a summary of their outward and inward supplies.
  • Purpose:
    • To report the summary of outward and inward supplies, input tax credits, and tax liability.
  • Status:
    • The GSTR-3 form was auto-generated based on GSTR-1 and GSTR-2 but has been replaced by GSTR-3B.

4. GSTR-3B: Summary Return

  • Who needs to file:
    • All taxpayers, including those under the Composition Scheme.
  • Purpose:
    • To declare the summary of outward supplies, inward supplies, eligible input tax credit (ITC), and tax liabilities.
    • Taxpayers must self-assess their taxes and pay the applicable GST.
  • Due Date:
    • 20th of the month following the reporting period.
    • For quarterly returns, the due date is the 22nd of the month after the quarter.
  • Note:
    • This is the primary return for most taxpayers.
    • If a business doesn’t file this return on time, it will attract penalties.

5. GSTR-4: Return for Composition Scheme

  • Who needs to file:
    • Taxpayers who have opted for the Composition Scheme (small businesses with a turnover below ₹1.5 crores).
  • Purpose:
    • To report details of outward supplies made under the composition scheme.
    • Taxpayers under this scheme pay a fixed tax rate on turnover instead of the regular GST rates.
  • Due Date:
    • 18th of the month following the quarter.
    • For annual filing, it is due on 31st March of the financial year.
  • Note:
    • The composition scheme is meant for small businesses and has a simplified filing process.

6. GSTR-5: Return for Non-Resident Taxable Persons

  • Who needs to file:
    • Non-resident foreign taxable persons (businesses that do not have a permanent establishment in India but conduct taxable business activities in India).
  • Purpose:
    • To report inward and outward supplies and tax liabilities for non-resident taxable persons.
    • To report the taxes collected or paid in India for their business activities.
  • Due Date:
    • 20th of the month following the period.
  • Note:
    • Non-resident taxable persons typically need to prepay their taxes in advance.

7. GSTR-6: Return for Input Service Distributors (ISD)

  • Who needs to file:
    • Input Service Distributors (ISD), which are entities that receive services like centralized purchasing and distribute the credit of those services to other units or branches.
  • Purpose:
    • To report the details of input tax credit received and distributed among various branches or business units.
  • Due Date:
    • 13th of the month following the period.
  • Note:
    • ISDs help in the centralized distribution of input credits within a business group.

8. GSTR-7: Return for Tax Deducted at Source (TDS)

  • Who needs to file:
    • Taxpayers required to deduct TDS under GST, such as government departments and specified persons.
  • Purpose:
    • To report the details of tax deducted at source (TDS) on payments made for goods and services.
  • Due Date:
    • 10th of the month following the reporting period.
  • Note:
    • TDS is deducted on payments to suppliers above a specified threshold and then paid to the government.

9. GSTR-8: Return for Tax Collected at Source (TCS)

  • Who needs to file:
    • E-commerce operators who collect TCS on sales made through their platforms.
  • Purpose:
    • To report the tax collected at source (TCS) by e-commerce operators on sales made through their platform.
  • Due Date:
    • 10th of the month following the reporting period.
  • Note:
    • E-commerce operators are required to collect TCS from suppliers selling goods/services on their platforms.

10. GSTR-9: Annual Return

  • Who needs to file:
    • All regular taxpayers (businesses that are not under the Composition Scheme).
  • Purpose:
    • To provide a consolidated summary of all the monthly or quarterly returns filed throughout the year (GSTR-1, GSTR-3B, etc.).
    • This return is used for reconciliation of the annual taxes paid with the returns filed.
  • Due Date:
    • 31st December of the year following the financial year (i.e., GSTR-9 for FY 2024-25 is due by 31st December 2025).
  • Note:
    • The annual return includes adjustments for any discrepancies between monthly/quarterly returns and final reconciliation.

11. GSTR-10: Final Return

  • Who needs to file:
    • Taxpayers whose GST registration has been canceled or surrendered.
  • Purpose:
    • To report the closing stock and tax liabilities at the time of cancellation or surrender of GST registration.
  • Due Date:
    • Within 3 months from the date of cancellation or surrender.
  • Note:
    • Taxpayers must report stock on hand and pay any taxes due as per the cancellation rules.

12. GSTR-11: Return for UIN Holders

  • Who needs to file:
    • Persons holding a Unique Identification Number (UIN), such as foreign diplomats or international organizations like the UN.
  • Purpose:
    • To claim a refund of the GST paid on inward supplies in India.
  • Due Date:
    • 28th of the month following the end of the quarter.
  • Note:
    • UIN holders are exempt from paying GST on certain supplies, and they file GSTR-11 to claim a refund.

GSTR-2A and GSTR-2B are both auto-generated GST returns that provide taxpayers with information regarding inward supplies and input tax credit (ITC). These returns help taxpayers reconcile their purchases and verify the input tax credit they are eligible to claim.

1. GSTR-2A: Auto-Generated Inward Supplies Statement

GSTR-2A is an auto-generated return that provides details about the inward supplies (purchases) made by the taxpayer. It is created automatically based on the GSTR-1 return filed by the suppliers (i.e., sales made by the taxpayer’s suppliers).

Purpose of GSTR-2A:

  • To give taxpayers a real-time view of the inward supplies (purchases) reported by their suppliers.
  • To help taxpayers reconcile their purchases and verify the input tax credit (ITC) they are eligible to claim.
  • It includes details such as purchase invoices, credit notes, debit notes, and GST paid on purchases.

Features of GSTR-2A:

  • It is generated automatically for each taxpayer.
  • It contains details of the GST paid on purchases made by the taxpayer from GST-registered suppliers.
  • The return will include supplies made to the taxpayer that are reported in the GSTR-1 return filed by the supplier.
  • It includes both taxable supplies and exempt supplies, along with details of export transactions and advance receipts.

Components of GSTR-2A:

  • Details of Inward Supplies:
    • Information about purchases (including supplies, reverse charge, and tax).
  • ITC Eligible:
    • Information about the input tax credit that can be claimed for each invoice based on what is reported by suppliers.
  • Tax Paid on Purchases:
    • GST paid on purchases made from different suppliers, which can be claimed as input credit.

Limitations of GSTR-2A:

  • It only reflects the data submitted by suppliers in their GSTR-1 filings. If a supplier has not filed their return, the corresponding input tax credit (ITC) will not appear in GSTR-2A.
  • It cannot be filed as a return. It is a view-only statement that allows taxpayers to verify their eligibility for ITC.

How to Use GSTR-2A:

  • Taxpayers should use GSTR-2A for reconciliation purposes and cross-check it with the purchases reported by them in GSTR-3B.
  • If discrepancies exist between GSTR-2A and the actual purchases, the taxpayer must follow up with the suppliers for filing correct GSTR-1 returns.

2. GSTR-2B: Auto-Generated Input Tax Credit Statement

GSTR-2B is another auto-generated return that was introduced to facilitate input tax credit (ITC) reconciliation. It serves as a static statement that provides a summary of the ITC available to a taxpayer based on the outward supplies (sales) filed by their suppliers in their GSTR-1 and GSTR-5 returns.

Purpose of GSTR-2B:

  • To provide a summary of eligible ITC for a particular tax period.
  • To assist taxpayers in reconciling their ITC and to ensure that only the eligible ITC is claimed.
  • GSTR-2B is more structured and focuses only on the ITC available for the taxpayer to claim, whereas GSTR-2A gives a broader view of purchases.

Features of GSTR-2B:

  • It is a static statement generated once a month, reflecting the eligible ITC and blocked credits.
  • GSTR-2B summarizes ITC eligibility for the taxpayer, factoring in the suppliers’ GST filings.
  • Unlike GSTR-2A, which gets updated based on every new filing from suppliers, GSTR-2B remains static once generated for a period.
  • It helps taxpayers identify discrepancies between the ITC claimed in their GSTR-3B and what they are eligible for according to the tax authorities.

Components of GSTR-2B:

  • Eligible ITC: The ITC that can be claimed based on the GSTR-1 and GSTR-5 filings of suppliers.
  • Blocked ITC: It also reflects any blocked credits or ineligible ITC (like for personal expenses, etc.).
  • Reconciliation of ITC: A key benefit is that it helps with ITC reconciliation by ensuring that only eligible ITC is claimed by the taxpayer in GSTR-3B.

How GSTR-2B Helps in Reconciliation:

  • GSTR-2B can be used by the taxpayer to compare the ITC available in their GSTR-3B and make sure they are claiming the correct amount of ITC.
  • If the ITC claimed in GSTR-3B exceeds the eligible ITC shown in GSTR-2B, it may attract penalties or demand for excess credit claimed.

Important Points:

  • GSTR-2B is only for ITC eligibility and does not include details of actual purchases (which are included in GSTR-2A).
  • It helps prevent discrepancies in claiming ITC and helps taxpayers to stay compliant with GST rules.
  • It is generated once a month, and the taxpayer is expected to reconcile it with their GSTR-3B to ensure accurate credit claim.

FAQ

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You must register for GST if:

  • Your annual turnover exceeds the threshold limit specified by the government (₹40 lakhs for goods and ₹20 lakhs for services in most cases).
  • You are engaged in inter-state supply (supply of goods or services between states).
  • You are a non-resident taxable person, e-commerce operator, or agent.
  • If you are a casual taxable person or fall under any other category requiring registration.

The Composition Scheme is a simplified GST scheme for small businesses with an annual turnover of up to ₹1.5 crore (₹75 lakh for special category states). Under this scheme, businesses pay tax at a fixed rate on turnover rather than the normal GST rates, and they do not need to file detailed GST returns.

GSTIN (Goods and Services Tax Identification Number) is a unique identification number assigned to a taxpayer registered under GST. It is a 15-digit code that helps in the identification of businesses across India.

A GST return is a document that businesses file with the tax authorities to report their sales, purchases, input tax credit, and tax liability. Different forms (GSTR-1, GSTR-3B, etc.) are used for different purposes.