Prior to GST (Goods and Services Tax), Indian businesses were burdened by a complicated taxation system. Keeping track of the number of taxes to be paid at different intervals was cumbersome and costly. With the introduction of GST, the process of paying and collecting taxes was simplified. The new regime is aimed at streamlining and unifying the taxation mechanism for the Indian business ecosystem.
GST subsumed many tax heads prevailing in the pre-GST era and presented a unified GST. Octroi, sales tax, entry tax, excise, entertainment tax etc. were replaced by a single tax – GST. GST can be levied as a combination of CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) or as IGST (Integrated Goods and Services Tax). Union territories levy UTGST.
Unlike the earlier tax laws which had different types of taxes to be paid at different times, GST gives a common timeline to the taxpayers. This makes it easier to consolidate tax payments for businesses. Under the new tax regime, timely return filings and tax payments have become extremely important. Delay or default in payment can attract penalties and punishments.
Let us take a closer look to understand why it is important to pay GST every month on the designated dates and what are the penalties for the delay.
As per GST laws, businesses with turnover exceeding Rs 40 lakhs have to register for GST compulsorily. The limit is set at Rs 20 lakhs for service providers. Registration is done online through the GSTN (Goods and Services Tax Network) platform. Businesses can also opt for voluntary registration for GST even if the turnover is less than the prescribed limit.
Typically, businesses registered under GST have to file two monthly and one annual return. However, quarterly return filing is required if the business is registered under the composition scheme. Form GSTR-1 which captures the details of sales done during the previous month is filed on the 11th of every month. Form GSTR-3B is used to furnish details of all purchases and sales during the previous month and is filed on the 20th of every month.
However, according to the recent changes in GST laws, GSTR-3B can be filed on 20th, 22nd or 24th of every month depending on your turn over. This releases the pressure on the return filing network on a single day and makes the process easier for taxpayers. The annual return needs to be filed through GSTR 9 format by 31st December of the next financial year.
With the simplified return filing process, business owners no longer need to fret over how to file GST returns online. Monthly and annual return filing has been automated through the GST portal or through GST mobile app. All tax transaction on the network is tracked using the unique 15-digit GSTIN (GST Identification Number). It is important to submit the tax return on the dates prescribed by the government.
Failing to adhere to GST timelines is considered an offence and calls for penalties. Late filing of monthly GST attracts a penalty of Rs 100 per day per Act, i.e., Rs 100 for CGST and Rs 100 for SGST. A total of Rs 200 is charged as a penalty for every day of delay in filing the monthly returns. For instance, if GSTR-3B which should be submitted on the 20th of every month is filed on 23rd of that month, a late fee of Rs 600 (Rs 200 per day) for three days will be charged as a late fee. A maximum of Rs 5000 can be charged as a penalty for late filing of returns. However, no late fee is charged on IGST.
Late fees for delay in filing annual returns through GSTR-9 (GSTR 9A for composition scheme beneficiaries) is prescribed at Rs 200 for each day of delay with a maximum limit set at 0.25% of the turnover. Late fee is paid as cash in distinct electronic cash ledgers. Only amounts more than Rs 10000 to be paid online. The GST return will not be accepted without the late fee.
Failure to file monthly returns will also impact the subsequent filing of returns. This can lead to cumulative penalties being charged for all defaults. For instance, return for the month of May will not be accepted until returns of the previous month are filed along with the applicable late fee.
In addition to the late fee, certain interest is also charged on the due tax amount. According to the current law, taxpayers who fail to pay tax on time are liable to pay interest at the rate of 18%. For taxpayers who have claimed an excess input tax credit (ITC) or reduced output tax liability are liable to pay interest at the rate of 24%.
The interest on due tax amount is calculated from the date the tax becomes due. For instance, if the due amount is Rs 5000 on 20th May 2020 and it is paid on 30th May 2020, the tax will be calculated as 5000*10/365*18*. The taxpayer will have to bear Rs 24.66 as interest on the outstanding tax amount.
If a registered taxpayer fails to file returns for a period of 6 months continuously, his registration can be cancelled by the authorities. In some situations, defaulting to pay taxes can also lead to dire consequences such as confiscation of goods and imprisonment.
Make The Right Decision
With the new GST system in place, it is difficult to get away with defaulting on taxes. GST brings all the businesses under one umbrella. Everyone involved in the business cycle has become a part of GST, and each one benefits from being tax compliant.
Filing monthly returns and paying taxes on time can be one of the wisest decisions for any business. Not only does it prevent heavy penalties, but it also helps build a good reputation for the business. Businesses with a clean record in the tax books are preferred by the banks and other lending institutions while extending credit. Good record with the tax authorities also helps small business while applying for various government schemes.