Tax compliance is a crucial aspect of any business operating within a Goods and Services Tax (GST) regime. The implementation of GST has revolutionized indirect taxation in India, streamlining the tax structure and promoting transparency across various sectors. With the introduction of GST Compliance Rating (GCR), businesses are now subjected to an assessment that determines their level of adherence to GST regulations.
In this blog post, we will delve into the concept of GST Compliance Rating and its significance in today’s business landscape.
What is GST Compliance Rating?
A registered taxable person’s GST Compliance Rating demonstrates how compliant they are in filing their GST. No matter the type, scale, or volume of the firm, all taxable businesses are subject to this rating.
It resembles a performance ranking system in many ways. One option is to develop a rating system on a scale of 1 to 10, with 1 denoting the least compliance and 10 the highest.
What is a GST Compliance Score?
A company’s return filing habits are used to determine its GST Return Compliance (GRC) Score. Over the past 12 months, the GST compliance score has been divided into two parts: the GRC score for GSTR-1 and the GRC score for GSTR-3B. GSTR1 and GSTR-3B ratings are calculated depending on how quickly GST returns were filed. The following are some of the variables taken into account when determining the GST compliance score:
- Returns filed on time: The GRC Score is determined by how quickly returns are filed. The likelihood that a corporation will submit its returns on time increases with GRC Score.
- Return accuracy: The GRC Score is also determined depending on the return accuracy. A business is more likely to file accurate returns if it has a higher GRC Score.
- GST rule and regulation compliance: The GRC Score is also determined based on GST rule and regulation compliance. A business is more likely to adhere to GST rules and regulations if it has a higher GRC Score.
Why is maintaining a high GST Compliance Score important?
Despite the fact that following several regulations can be complex, doing so will improve your GST compliance score. The fact that the GST compliance score is made public on the GST portal might have an impact on how suppliers and other companies deal with a company. Some advantages of having a high compliance rating are listed below.
- A higher score and compliance will greatly lower the likelihood that your company will be subject to a GST official’s scrutinizing audit.
- A better grade demonstrates that you are operating your company in compliance with all laws and standards (if you keep it over time).
- However, a low rating triggers regular audits, and the more GST authorities there are at your organization, the more detrimental the effect.
- Your company will make a good image on the GST ecosystem if you keep your GST compliance score high, which will speed up the crediting of refund claims.
- A higher rating also reflects the stability and excellence of your company’s operations. This will help your company project a favorable image to customers and suppliers.
- People typically trust companies that adhere to the laws and regulations in place, which will lead to increased business success.
- A higher score provides more prospects for your company since every taxpayer has access to an entity’s compliance rating. This could provide you a competitive advantage over other companies operating in the same sector.
Impact of GST Compliance Rating
A high compliance grade suggests to customers that the vendor is more likely to be trustworthy and dependable. For companies seeking long-term partners, this might be crucial since it can lower the risk of fraud or other issues. Additionally, as lenders are more likely to give money to companies that are viewed as low-risk, a high GST compliance rating may make it simpler for buyers to obtain financing.
A good GST compliance rating can also assist sellers in obtaining government contracts,
Buyers:
- Lower risk of fraud: The likelihood that the seller has put procedures in place to stop fraud is increased by a high compliance grade. This can lessen the chance that customers will be duped or lose money.
- Increased confidence: A higher GST compliance rating might offer purchasers more confidence in the seller’s ability to deliver on its commitments. Buyers may find it simpler to decide and complete transactions as a result.
- Better access to financing: Sellers may find it simpler to obtain financing from banks and other lenders if they have a good compliance rating. This may aid vendors in developing and expanding their enterprises.
Sellers:
- Revenues growth: A high GST compliance rating will aid merchants in bringing in more clients and boosting revenues. This is due to the fact that buyers are more likely to do business with merchants they regard to be trustworthy and reputable.
- Enhanced reputation: A good GST compliance rating can assist sellers in enhancing their standing with clients, business associates, and the government. As a result, doing business and excelling in the market may be simpler for sellers.
- Reduced costs: Sellers can cut costs by having a high GST compliance rating. This is because law-abiding vendors are less likely to face fines or other sanctions.
What details will be published in the GST Compliance Rating?
A simple score will represent the GST compliance rating. The GST Act states that no information from a single return or any of its components may be released in a way that might be used to identify a specific person without that person’s prior written agreement. In addition, the Act forbids other parties from accessing any data or specific GST returns. Therefore, the compliance grade would not include information such as:
- Name of suppliers
- Name of customers
- Amount of turnover
- Products or services supplied
- Address of supply
How will you know your GST Compliance Rating?
Periodically, the GST compliance score will be updated. Both the taxpayer and the public will have access to it.
Every registered business is assigned a GSTIN or Goods and Service Tax Identification Number. This number is instrumental in monitoring one’s compliance rating. Once the ratings are published on the GST Network (GSTN), this number can be used to check one’s own rating.
3 Steps to maintain GST compliance
The procedures listed below can be used to maintain your GST compliance rating:
Step 1: On time submission of your GSTR-1 and GSTR-2
All sales and purchases made by businesses should be reported on GSTR-1 and GSTR-2. Avoiding delays in the filing of GSTR-1 and GSTR-2, which should be finished by the 10th and 15th of the following month, respectively.
Step 2: Pay any owed taxes
Businesses should make sure they have paid any outstanding taxes for the previous tax period before filing tax returns for the subsequent tax period. A GST return that is submitted with outstanding tax obligations renders the subsequent return ineligible, as per section 27(3) of the GST statute.
Step 3: Send in your yearly tax return
Businesses should timely file the GSTR-9, a combined annual return, in addition to the monthly GSTR-1 and GSTR-2 filings, to preserve their GST compliance score.
What can businesses do to improve their GST Compliance Score?
- Create a solid governance framework by putting in place defined policies, procedures, and a system for tracking and enforcing compliance.
- Establish a compliance culture in your company, where everyone is committed to upholding the law and is aware of its importance.
- Invest in training: Ensure that all workers are adequately instructed on the policies and practices of the company as well as the applicable laws and regulations.
- Embrace technology: Numerous software programs are available that can assist companies in automating compliance-related chores and strengthening their overall GRC posture.
- A regular audit: Run routine audits to find and fix any compliance deficiencies.
- Quickly respond to findings: If any compliance problems are found, they should be resolved very away and effectively.
- Be proactive: Businesses should be proactive in seeking out and addressing compliance issues, rather than waiting for them to be identified by auditors or regulators.
What are the disadvantages of the GST Compliance Rating scheme?
To stay competitive, businesses will need to be compliant. Small enterprises, in particular, who lack the resources to initially be fully compliant, may find this to be a burden. Because GST is a brand-new tax system, businesses will inevitably make mistakes. Errors, delays, and non-compliance will negatively impact the vendor’s rating, which could harm the overall company. On the other side, compliant vendors will have an upper hand because it will be simple to view them apart from rivals. The major players, who have greater resources at their disposal, will also benefit from this.
In Conclusion
The GST Compliance Rating is an indispensable tool in the modern business environment, particularly under the GST regime. It not only reflects a business’s adherence to GST regulations but also serves as a barometer for reliability and trustworthiness in the eyes of clients, suppliers, and financial institutions.
While the system poses challenges, especially for small enterprises, it ultimately encourages a culture of transparency and compliance. Businesses should, therefore, invest in robust governance structures, embrace technology, and foster a compliance culture to optimize their GST Compliance Score. This proactive approach not only mitigates regulatory risks but also enhances reputation and fosters sustainable business growth.
