Did you know the GST (Goods and Services Tax) authorities levy additional interest, late fees and penalties for inaccurate GST payment? For instance, GST short payment without fraudulent intent attracts a 10% penalty of the tax amount due, subject to a minimum of ₹10,000.
However, the penalty amount may vary depending on the case. To avoid such additional costs, it is crucial to understand the common mistakes in calculating GST backwards and how to rectify them.
7 Common Mistakes to Avoid in Calculating GST Backwards
If you can avoid the following 7 mistakes in calculating GST backwards, you can seamlessly comply with Indian GST laws:
1. Manual Input Error
In the GST calculation process, errors might arise due to inaccurate manual data entry. Incorrect data entry results in erroneous calculation of GST, which might result in underpayment or overpayment. This attracts additional interest, penalties and late fees.
It further results in misprojection of taxes and fraudulent activities, which attract adverse legal implications. Ensure you enter the manual data correctly. You can check and review the data entered to ensure accuracy.
2. Incorrect ITC Claims
Businesses can claim Input Tax Credit (ITC) on purchases (inward supplies) to reduce their output tax liability. For example, if your outward tax liability is ₹500 and your ITC is ₹200, your net payable GST becomes ₹300.
However, ITC cannot be claimed for expenses used for non-business purposes. To avoid penalties, ensure you claim ITC only on eligible business-related expenses. Reverse any ineligible ITC if required.
3. Not Filing Nil Returns
Taxpayers often consider not filing GST returns when there is no transaction during a specific tax period. However, non-filing or delayed filing attracts penalties imposed by the GST authorities.
Further, a taxpayer cannot file subsequent returns if a previous return filing is outstanding. To avoid such discrepancies, ensure you file Nil returns for efficient tax calculation in the following tax periods.
4. GST Payment Under an Incorrect Head
GST needs to be paid and filed under different heads. Further, input tax credit needs to be claimed under variable heads. However, taxpayers often make a common mistake of paying GST or claiming input tax credit under the wrong head.
As GSTN does not allow interutilisation of GST, you need to pay your taxes carefully under the correct head. Avoiding this mistake helps in a favourable working capital and cash flow, followed by an efficient reverse calculation of GST.
5. Inaccurate RCM Categorisation and Filing
Under the reverse charge mechanism, goods purchasers need to pay GST directly to the government. You need to know the specific goods and services for which the reverse charge applies.
Knowing the specific goods and services can help you file your returns accurately while you pay the correct GST amount. Ensure you are aware of the concerned goods and services eligible under the reverse charge mechanism.
6. Not Reconciling GSTR-1 with GSTR-3B
GSTR-1 includes details of outward supplies, while GSTR-3B is a summary return that taxpayers need to file monthly. Ensure you verify the details in GSTR-3B with GSTR-1 for accuracy in GST return filing and payment. A discrepancy in the mentioned forms can result in inaccurate GST payment and calculation.
7. Accurate Tax Slab Calculation
The applicable GST rates vary based on the category of goods or services. For instance, GST rates can be 0%, 5%, 12%, 18% or 28% in India based on the product or service type. Taxpayers often make mistakes by paying an inaccurate GST rate.
You need to be careful about the GST rates applicable to the goods or services you supply. An easy way to ensure the correct GST rate is to check the HSN codes and applicable rates. Ensure you pay the right GST rate to avoid discrepancies and compliance issues.
Conclusion
Avoiding the common mistakes in calculating GST backwards can help you comply with the Indian GST laws. This promotes a favourable relationship with customers and stakeholders in the industry. Ensure you avoid the common mistakes to work out GST backwards in a compliance-friendly way.
