The Goods and Services Tax (GST) regime in India, while simplifying indirect taxation, can still be a labyrinth for many businesses. Even a minor misstep can lead to penalties, notices, and a significant drain on your resources. At RegisterKaro, we understand these challenges. To help you navigate the complexities and ensure seamless compliance, here are the top 5 GST mistakes every business in India should actively avoid:
1. Missing or Delaying GST Return Filings
This is arguably the most common and costly mistake businesses make. Each GST-registered entity is required to file various returns (like GSTR-1, GSTR-3B, and GSTR-9) within specific deadlines.
Why it’s a mistake: Late filing attracts hefty penalties and interest charges. Moreover, consistent delays can negatively impact your Input Tax Credit (ITC) eligibility and even lead to the suspension of your GSTIN. This not only affects your financial standing but also your credibility in the market.
How to avoid it: Mark all GST due dates prominently on your calendar. Consider setting up automated reminders or utilizing accounting software that integrates with the GST portal. For added peace of mind and to ensure timely, error-free submissions, consider professional assistance with your GST Return Filing.
2. Incorrect Input Tax Credit (ITC) Claims
Input Tax Credit (ITC) is a significant benefit under GST, allowing businesses to reduce their final tax liability by claiming credit for taxes paid on inward supplies. However, incorrect ITC claims are a frequent source of trouble.
Why it’s a mistake: Claiming ITC without proper documentation, on ineligible expenses, or due to mismatches with your supplier’s filings (GSTR-2A/2B) can result in reversal of the claimed credit, interest, and penalties. It can also trigger audits and scrutiny from tax authorities.
How to avoid it: Always ensure you have valid tax invoices for all your purchases and that your suppliers have filed their returns accurately. Regularly reconcile your purchase records with GSTR-2A and GSTR-2B. This proactive approach helps identify discrepancies early and prevents future complications.
3. Misclassification of Goods and Services (HSN/SAC Codes)
Every good and service under GST is assigned a unique Harmonized System of Nomenclature (HSN) code or Services Accounting Code (SAC). Applying the wrong code is a common error with significant repercussions.
Why it’s a mistake: Misclassifying your goods or services can lead to incorrect GST rates being applied, resulting in either underpayment or overpayment of taxes. Both scenarios can lead to penalties and notices from the GST department. Underpayment means you owe the government more, while overpayment means your working capital is unnecessarily tied up.
How to avoid it: Familiarize yourself with the correct HSN/SAC codes applicable to your business. The GST portal provides resources for this. When in doubt, always seek expert advice to ensure accurate classification.
4. Ignoring the Reverse Charge Mechanism (RCM)
The Reverse Charge Mechanism (RCM) is a unique provision in GST where the recipient of goods or services, rather than the supplier, is liable to pay GST. Businesses often overlook or misunderstand their obligations under RCM.
Why it’s a mistake: Failing to identify transactions subject to RCM and subsequently not paying the GST can lead to non-compliance, penalties, and disallowance of ITC.
How to avoid it: Understand the specific categories of goods and services where RCM applies. This typically includes certain services from unregistered suppliers or specific goods as notified by the government. Keep updated with the latest GST notifications regarding RCM applicability to your business.
5. Inadequate Record-Keeping
Proper and meticulous record-keeping is the backbone of GST compliance. Many businesses, especially small and medium-sized enterprises (SMEs), neglect this crucial aspect.
Why it’s a mistake: Disorganized or incomplete records make it extremely difficult to file accurate returns, claim eligible ITC, and respond effectively to any GST notices or audits. It can lead to severe penalties and legal issues if discrepancies are found by tax authorities.
How to avoid it: Maintain detailed digital and physical records of all sales invoices, purchase invoices, debit notes, credit notes, and payment receipts. Implement reliable accounting software that automates record-keeping to minimize manual errors and ensure easy access to data.
Navigating GST compliance can seem daunting, but by being aware of these common pitfalls and taking proactive measures, your business can ensure smooth operations and avoid unnecessary penalties.
For comprehensive support with all your GST needs, from GST Registration to complex compliance issues, RegisterKaro is here to help. Our team of experts provides tailored solutions to keep your business compliant and thriving.