The introduction of GST unified the complex Central and State taxes into one integrated indirect tax system in the country. The aim of the government was to simplify compliance, promote economic integration with a uniform tax system. In the new GST system, various returns based on the type of taxpayer/type of registration have been made mandatory. But small and micro businesses which form the backbone of the economy of our country, found filing GSTR complex and compliance difficult.
To help such small, micro and medium businesses, the government introduced the Composition Scheme in which the tax rates are lesser and compliance simpler. Taxpayers can opt for this scheme provide certain eligibility criteria like aggregate annual turnover, etc., are met. GSTR-4 is a mandatory annual return which all taxpayers who have registered and opted for the composition scheme need to file. But the composition taxpayers faced many challenges while filing GSTR-4 return. Here are some of the challenges faced by taxpayers while filing GSTR-4 and the considerations thereof:
- Eligibility to Register: When the composition scheme was introduced, the eligibility criteria for registering were enumerated in Section 10 of the CGST Act. But the frequent amendments in the act made it difficult for the small taxpayers to understand the basic provisions of the act.
Consideration: GST authorities have provided many tutorials and FAQs online to address the issue. The taxpayers need to be updating the information by following the notifications and advisories promptly
- Time Constraint: The main challenge faced by composition taxpayers is the due date within which if the annual return is not filed, they are liable to late fees and penalties. GSTR-4 has to be filed within 30th April of the succeeding financial year. The taxpayers felt that the time was very less for reconciliation of accounts with the sellers, leading to omissions and commissions resulting in tax payers receiving notices from the tax authorities.
Consideration: Taxpayers suggested that the due date of filing GSTR-4 should be amended suitably and to resolve the technical glitches of the portal. When taxpayers keep a proper record of their transactions and reconcile regularly, the returns can be filed easily and on time.
- Negative Liability: The other important challenge faced by taxpayers was the issue of negative liability appearing in their GSTR-4. After the introduction of new procedures, since 2019-20, composition taxpayers need to pay their tax liability through form GST CMP-08 on quarterly basis and GSTR-4 has to be filed annually after the financial year ends. While filing the annual return the composite taxpayers were reporting negative liability in their GSTR-4.
The reason for this discrepancy is: The tax paid quarterly through form CMP-08 is auto populated in table 5 of GSTR-4. And while filing GSTR-4, the taxpayer may fail to declare the tax liability either by oversight or as there may not be any liability, and zero value is depicted in table 6. In such a case, the amount paid through CMP-08 becomes excess tax paid and moves to negative liability statement to be utilized in subsequent tax periods.
Consideration: Taxpayers were advised with the following consideration with regard to negative liability in GSTR-4:
- If the value in table 6 of GSTR-4 has not been recorded due to an oversight, then a ticket may be raised to nullify the amount available in the negative liability statement.
- If there is no liability to be paid during the year, the amount paid through CMP-08 moves to negative liability statement and the same shall be utilized to pay liabilities of future tax periods. Most of the taxpayers used the DRC-03 form to adjust the negative liability of the previous years.
- In April 2022, a fresh advisory was issued according to which the composition taxpayers had to deposit the amount equal to the negative balance in the cash ledger urgently in case there is a negative balance, and the same is utilized to pay subsequent tax liabilities. And in case the taxpayer has already paid the amount that is shown in the negative liability statement, the same may be claimed as refund by filing refund application in Form GST RFD-01, for refund of the excess tax paid.
The small business found it very difficult to deposit the tax again and apply for refund later.
In the absence of compliance with the resolution passed by GSTIN, the taxpayers are not allowed to file GSTR-4 for the FY2021-22. In case of default in filing GSTR-4, late fee is levied, further aggravating the problem of the taxpayers though no tax was due from them.
Consideration: The GST Amnesty scheme by CGST Notification dated 31st March 2023.: As per this scheme:
Late fee for filing GSTR-4 returns for the quarters from July 2017 to March 2019 or for the FYs from 2019-20 to 2021-22 was reduced to Nil for Nil returns and Rs.500/- for other returns if returns are filed on or before 30-06-2023.
Registered taxpayers whose registrations were cancelled on or before 31/12/2022 due to non-filing of returns, could file application for revocation of cancellation of registration, after filing all the returns pending up to the date of cancellation of registration along with payment of due tax, interest, penalty and late fee thereon on or before 30-06-2023.
By the Central Tax Notification 24/2023, the deadline for claiming the benefit of the GST Amnesty Scheme was extended to 31st August 2023.
Frequently Asked Questions
- What happens when there is a change in Turnover Limit?
Answer: A issue faced by composition taxpayers is when the turnover of their business crosses the eligible limit of Rs.1.5 crores (Rs.75/- lakhs for north eastern states) in a financial year. The confusion is whether he is allowed to pay tax under the composition scheme. GSTIN has clarified that the option to pay tax under composition scheme lapses from the day on which their aggregate turnover crosses the eligible limit.
They have to file an intimation for withdrawal from the scheme in form GST CMP-04 within seven days from the date of exceeding the threshold limit. However, such taxpayers are allowed to avail the input tax credit in respect of the stocks and on capital goods held by them on the date of withdrawal by furnishing a statement containing the details of such stock held in form CMP ITC-01 in the portal, within 30 days of the withdrawal.
- Is Input Tax Credit (ITC) is allowed in the compensation scheme?
Answer: A lot of confusion remains with regard to ITC for composition tax payers. The main points to be noted are as follows:
- If the taxpayer has availed ITC at any time of the year and avails the composition scheme in the same year, he has to reverse the input tax credit availed by him. In case of capital goods, the credit is reduced by 5% per quarter of the year or part thereof from the date of invoice.
- Composition taxpayers are not allowed to collect tax from their customers, and the supplier cannot avail the credit.
- When the taxpayer switches from composition scheme to normal scheme, the eligible ITC on the date of transition will be allowed. After switching to the normal scheme, he pays tax at normal rates and issued invoices and can claim ITC.
- believe that the taxpayer is ineligible for the scheme.
- If the taxpayer continues to pay tax under the composition scheme in spite of being deemed ineligible for the scheme, he is liable to pay tax at normal rate along with a penalty equal to the tax amount.
The compliance scheme was introduced to simplify compliance for small businesses. But the subsequent changes and amendments have caused a lot of confusion and the composition taxpayers face many challenges while filing GSTR-4. The government has issued many advisories and clarifications to clear the doubts. Keeping proper records of the business transactions, updating with the notifications and advisories issued by GSTIN regularly can help the taxpayers to be tax compliant and avoid loss due to late fee and penalties. When unsure and in doubt, seeking the help of professional advisors is the best option.