How To Pay Your Output Tax Liability In GSTR-4 Part 2?

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Published Date:  12-12-2023   Author:   sriyalini-mathivanan
how to pay your output tax liability in gstr part

The Goods and Services Tax has streamlined indirect taxation in India. Under this regime, registered firms will file their monthly or quarterly returns that summarize their tax liabilities. GSTR-4 is the form applicable only for composition taxpayers. It has two parts – Part 1 captures the basic details of the taxpayer, while Part 2 computes the actual tax liability. Paying output tax dues accurately and on time will be pivotal for composition taxpayers to remain compliant.

Payment Procedures For Output Tax Liability In GSTR-4 Part 2:

The steps to pay output tax in GSTR-4 Part 2 are:

  • Login To The GST Portal: The first step is to log in to the government’s Goods and Services Tax Portal using your GST credentials. It would typically be your GST Identification Number (GSTIN) and password. Ensure that you log in using the registered mobile number and email address associated with the GSTIN.
  • Navigate To The Returns Dashboard: After logging in, you will see distinct services and information linked to your GST profile on the dashboard. Go to the Returns tab that will be present on the left-hand side and click Annual Returns from the drop-down.
  • Choose The Relevant Financial Year: Under the Annual Returns tab, you will initially need to pick the relevant financial year for which you need to file and pay GSTR-4 taxes. It will typically be the previous completed financial year.
  • Generate GSTR-4 Part 2: Once you select the financial year, navigate to the GSTR-4 tile. It would display separate tiles for Part 1 and Part 2 within this. Click on the GSTR-4 Part 2 tile. The system will automatically populate it based on invoices uploaded by you and your suppliers earlier.
  • Review And Verify Tax Liabilities: Carefully check all the values that get populated in your GSTR-4 Part 2 to ensure accuracy. Common tables include 4A, 4B, 4C, and 4D about various heads of tax and input tax credits. Ensure no invoice is missing and all liabilities match with your internal books of accounts.
  • Edit Details Or Add Late Fees If Applicable: If you notice any discrepancies, make the requisite changes by including, deleting, or modifying invoice details. You may also need to manually add late fees or interest if you had delayed filing of returns previously or paid taxes belatedly. Save changes.
  • Generate Challan For Tax Payment: Once satisfied with the accuracy of output tax liabilities, generate a challan for payment. You can do this directly on the GST portal. Download or print this challan containing the GSTIN, tax amount payable, bank details, etc.
  • Make Payment Before The Due Date: Finally, complete the actual tax payment via net banking or by visiting your bank with the challan before the deadline. Save the payment receipt. Remember this important step, or else your return filing will be considered incomplete!

Strategies For Timely And Accurate Tax Payments:

Maintain Updated Accounting Records: 

Maintain proper accounts and records of revenue, expenses, input tax credits, invoices, etc. related to your business operations. The accounting discipline is pivotal to accurately determining tax liabilities and ensuring compliance.

Upload Invoices On A Timely Basis: 

Ensure all outward and inward invoices are digitally uploaded onto the GST portal within the cut-off date prescribed in the law. It will enable the system to auto-populate your liabilities correctly in your GSTR-4 Part 2.

Reconcile Books Of Account With Auto Populated Data: 

Cross-check figures automatically populated in your GSTR-4 Part 2 against your internal books of accounts. Ensure all invoices, especially for revenue, are duly reconciled and no data gaps exist. Perform reconciliations every month.

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Schedule And Plan Tax Payment Dates: 

Earmark payment due dates across the year to avoid delays or disruptions to business activity. Plan optimal dates, considering cash flows, to maximize working capital availability.

Configure e-Payments And Set Reminders: 

Set up auto debit instructions on your bank account linked to the GSTIN. Configure payment reminders in advance via email or SMS for the timely generation of a challan.

Maintain Contingency Provisions: 

Keep contingency funds or buffer provisions in your account to address unforeseen tax burdens or delays in filing. It will limit the disruptions to operations.

Analyze GSTR-2A For Input Tax Credits: 

Regularly check the auto-populated input tax credits in your GSTR-2A to enable maximum set-off against your GSTR-4 Part 2 output liabilities.

Compliance Standards For Output Tax Payment In GSTR-4 Part 2:

Pay Full Tax Liability On Time: 

Ensure payment of 100% of the output tax liability displayed in GSTR-4 Part 2 is done before the scheduled due date. Even a partial short payment would be construed as a compliance breach, attracting interest and penalties.

Reconcile Tax Paid With Liability: 

After making the tax payment, thoroughly reconcile the tax paid figure as per bank statements with the liability shown in GSTR-4 Part 2. Also, ensure the payment confirmation gets reflected on the GST portal under the Electronic Cash Ledger. Any discrepancies should be immediately reported to the proper officers.

Enable Payment From A Registered Bank Account Only: 

The bank account linked with the GSTIN should be used for making the tax payment. Using any other account or payment via cash shall not qualify as a valid discharge of tax liability. The registered bank account number also gets mapped in the Electronic Cash Ledger.

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Account For Any Discrepancies Post-payment: 

If any underpayment or overpayment of taxes is detected in subsequent periods owing to accounting errors, furnish the details in the next tax period return for proper settlement. Do not adjust unilaterally or delay disclosure.

Comply With Communication From The Tax Officer: 

Periodically check the inbox or communications section on the GST portal for any notices from tax officers. It is imperative to promptly respond with clarifications or additional information sought on output tax payments.

Maintain A Detailed Backup Of Calculations: 

Preserve backup documents containing the detailed tax liability calculations for output tax paid in GSTR-4 Part 2 as per standard principles of accounting. Authorized officers have the power to seek eight years of tax records.

Adhering to these key standards will help ensure disciplined compliance and avoid scrutiny, penalties, or disruption of business operations on account of default in GSTR-4 Part 2 tax payments.

Legal Considerations In Settling Output Tax Liabilities:

Interest Liability For Delayed Payments:

Any delay in payment of output tax liability beyond the scheduled due date attracts interest liability under Section 50 of the GST Act automatically, without the need for any specific order from tax officers. The current rate of interest is 18% per year. This is quite steep from a business standpoint. The delay period is calculated from the original due date to the actual date of tax payment.

Penalty For Tax Short Payment:

In cases where audit or tax officers notice any short payment in output tax for a particular tax period, over and above interest, a penalty of up to 10% of the short-paid amount can be imposed based on Section 122 of the GST Act. The frequency and intent behind short payments are analyzed before levying a heavy penalty. Penalty consideration also takes into account the disclosure of discrepancies by taxpayers voluntarily.

Cancellation Of GST Registration:

If tax officers observe continuous large short payments in output tax across subsequent tax periods, indicative of tax evasion, the composition taxpayer’s GST registration itself can be canceled under Section 29(2)(e) of the law. It can severely impair business operations. Registration cancellation also triggers tax demands for the past period.

Criminal Offences And Arrest:

In utmost scenarios of deliberate tax evasion or fraudulent non-payment of output tax liability, the offender shall be prosecuted under Section 132. It will be for committing a cognizable and non-bailable criminal offense. It might also lead to arrest and imprisonment for up to 5 years with a fine.

Thus, from the above legal overview, it is amply clear that composition taxpayers have to scrupulously assess, properly account for, and fully pay their correct output tax dues. Non-compliance can impose heavy interest, penalties, cancellation of license, and even trigger criminal prosecution.

Ensuring Accuracy In Output Tax Transactions:

Validating Sales Invoices:

Thoroughly check all sales invoices and credit/debit notes raised for accuracy of details like tax rates, place of supply, and tax amount before digitally uploading them on the GST portal. Ensure no mathematical errors or values conflict with the books. Also, validate customer-provided information.

Accounting Rigor:

Maintain high accounting standards and rigor when posting supply transactions in books. Ensure a complete audit trail is available for underlying documents and no revenue leakage. Accounting discipline greatly aids in accurate tax liability determination.

GSTR-2A Reconciliation:

Regularly reconcile the auto-populated input tax credits available for set-off in 2A form with corresponding tax payments by suppliers. Follow up with vendors in cases of missing invoices. It will prevent underreporting of liability.

GSTR-4A Analysis:

Carefully assess Form GSTR-4A which contains details of all outward B2B supplies as per customers’ reported purchases. Analyze for data gaps and seek clarification from customers for any reconciling items.

Staff Education:

Continuously educate and update finance, accounting, and compliance staff on GST provisions to avoid errors. Encourage cross-verification of key tax liability figures between team members.

Internal Audits:

Conduct rigorous quarterly internal audits jointly by accounts and tax teams to identify areas of potential tax leakage, data lapses, automation gaps, etc. Pre-emptive detection facilitates accurate tax payments.

Thus, deploying multiple reconciliations, validation, and internal audit mechanisms fosters greater accuracy in output tax liability determination and related GSTR-4 Part 2 settlements.

Maximizing Benefits In Timely Output Tax Payments:

Availing Input Tax Credits:

Paying output GST liability on time will permit a seamless claim of the corresponding input tax credit from purchases in the same financial year. It will limit the overall tax burden and maintain smooth cash flows for composition taxpayers with B2B inward supplies.

Lower Interest Cost:

Delayed payment of GST beyond scheduled due dates attracts a mandatory 18% annual interest rate. It will make the use of working capital sub-optimal for composition dealers. Timely payment will avoid otherwise preventable interest costs.

Refund Processing:

For dealers in exports of inverted duty goods, meeting timely compliance criteria fast-tracks the processing of refunds of unutilized input tax credits. It will greatly aid in business liquidity management.

Compliance Rating:

Prompt tax payments will add to the overall compliance rating of composition taxpayers. It will limit scrutiny by tax officers for inspection, document verification, etc. Thereby reducing compliance overhead.

Vendor Relationships:

Suppliers analyzing buyer’s compliance behavior would be encouraged to offer favorable commercial terms for reliable customers. It will aid in procurement negotiations.

Business Continuity:

Meeting tax compliance norms by the prescribed timelines ensures continuity of operations and retention of GST registration, which is vital for composition taxpayers. Disciplinary payment habits prevent business disruption.

Thus, the timely discharge of output tax liabilities creates a virtuous compliance cycle for composition dealers, aiding liquidity, refunds, ratings, stakeholder relationships, and continuity of operations.

Conclusion:

Composition taxpayers should prioritize the timely payment of the output tax shown in GSTR-4 Part 2. It will help ensure seamless compliance, optimized cash flows, and continuity of business operations. Validating invoices and verifying tax liability well in advance is key to avoiding inaccuracies and payment delays. Adhering to legal standards, coupled with reliable bookkeeping, will also prevent compliance penalties and disruption to business.

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Sriyalini Mathivanan

Sri Yalini YM is a qualified finance professional with expertise in GST compliance and financial matters, she bring comprehensive knowledge to provide expert insights.

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