Understanding Tax Liability Calculation in GSTR-3B

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Published Date:  25-08-2023   Author:   vidya-sagar
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All registered taxpayers under the Goods and Services (GST) act in India need to file the monthly return GSTR 3B. This form is a summary of monthly transactions and helps the taxpayers to accurately calculate their tax liabilities. Accurate calculation of tax liability helps the business avoid penalties and interest, claim, and utilize their input tax credit and be tax compliant. This in turn helps businesses gain reputation, name, and progress well in the industry.

Taxpayers need to accurately calculate tax liability while filing GSTR-3B. For this calculation, various factors like taxable supplies, input tax credit, and applicable tax rates, must be considered. Calculating tax and filing the returns in GST may seem challenging, but it can be done with ease by understanding the process and the factors properly. The important factors to be considered are:

Taxable Supplies

All supplies, both intra-state and inter-state made by the taxpayer that come under the GST purview are included in this category. The business has to correctly identify and record the value of taxable supplies made during the reporting period.

Applicable Tax Rates

The invoice details of both intra-state and inter-state supplies should be uploaded in GSTR-1 return for B2B and B2C large supplies (taxable value more than 2.5 lakhs) which includes applicable tax rates. These details will be auto-populated in GSTR-3B. The scanned copies of invoices are not required to be uploaded in GSTR-1, but only certain prescribed information needs to be uploaded, like place of supply, invoice number, invoice date, taxable amount, rate of tax, amount of tax and invoice value. For B2C small invoices (taxable value less than 2.5lakhs), the state wise summary for each rate of tax should be reported in GSTR-1. So taxpayers should ensure that the correct tax rates are taken when the invoices details are uploaded in GSTR-1.

Read More: GSTR 1 Due Date and Filling Frequency: Everything You Need to Know

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Input Tax Credit

As per new clause (aa) under section 16(2), taxpayers can claim ITC only if their vendors upload the particular invoice or debit note in their GSTR-1 return which has to then reflect in the buyer’s GSTR-2B. In cases where a taxpayer’s supplier did not upload invoices on time, they cannot claim the ITC. So, the taxpayers have to ensure that they only purchase from compliant vendors. They also have to do frequent reconciliations and communicate with vendors for missing invoices and withhold payments for defaulting vendors. Dynamic tech-based reconciliation processes can help taxpayers avoid losing out on precious ITC.

Tax liability

The tax liability is the amount of tax that is calculated after taking all the inputs into consideration. This tax has to be paid before filing GSTR 3B.

Importance of Accurate Calculation of Tax Liability

  • Avoid Penalties: If the tax liability is not calculated accurately, it can lead to shortage in payment of tax, leading to penalties and interest. Correct and timely calculation and payment of tax helps the businesses avoid legal complications and bad reputation with the tax authorities.
  • Utilizing Input Tax Credit: Taxpayers can claim and utilize their tax credit optimally and reduce their tax liability with correct calculation of tax in GSTR 3B.
  • Compliance with GST Laws: Businesses can be tax compliant and avoid penalties and have a clean compliance record. They also get a good compliance rating which will help them build their business and increase profitability.
  • Timely Submission: Accurate calculation of tax liability helps businesses file their GSTR-3B returns on time and avoid late fees. The late fees are Rs.50/-per day of delay for regular taxpayers and Rs.20/-per day of delay for taxpayers with nil tax liability for the month. Further if the returns are not filed on time, an interest at 18% per annum is payable on the outstanding tax to be paid. Nowadays the GST calculator is available for accurate computation of GST.

Related Read: Understanding Utilization of Input Tax Credit (ITC) in GSTR-3B

FAQs

  • What is the threshold limit for filing GSTR 3B?

Answer:  All businesses with an annual turnover of Rs.5 crores or more. If the turnover is less then 5 crores, businesses can either opt for QRMP scheme

  • Is Invoice matching compulsory in GSTR-3B filing?

Answer: Individual Invoice matching is not necessary in GSTR-3B. It is a summarized self-declaratory form.

Conclusion

Calculation of tax liability can be done accurately and avoid penalties and interest by understanding some basic factors. Identifying the taxable supplies, correct rate of tax, adjusting the eligible input tax credit helps businesses to calculate the tax liability correctly. By ensuring compliance with GST laws, helps businesses to avoid penalties, build a good reputation, increase compliance rating and conduct business in a transparent and efficient manner. It also helps create a uniform and robust tax system in the country.

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Vidya Sagar

Vidya Sagar has post graduate and Law graduate qualifications. She has worked in the finance industry for many years. She is passionate about writing and keen on writing articles related to tax, accounting, audit and other finance related topics. She likes to simplify complex financial matters to help her readers understand easily. She reads a lot in her spare time and keeps herself updated with the latest financial news. She likes helping people in all their financial and compliance requirements

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