How to avoid 7 common mistake in GST Filling

Goods and Services Tax (GST) has streamlined the tax system in many countries, but it has also introduced a level of complexity that can sometimes cause mistakes when filing. Whether you’re a business owner or a tax professional, it’s essential to be aware of common filing errors to avoid penalties and ensure compliance. In this article, we’ll explore common GST filing mistakes and how to avoid them, with explanations and examples.

1. Incorrect Classification of Goods and Services

• Mistake
  • One of the most common mistakes made during GST filing is incorrectly classifying goods or services under the wrong tax rate or category. Goods and services are subject to different GST slabs depending on their nature. Misclassifying items can lead to incorrect tax payments and claims, potentially triggering penalties.
• Example
  • Let’s say you sell both food products and beverages. If you misclassify a beverage (which might fall under a higher GST rate) as a food product (which could be exempt or taxed at a lower rate), you will overpay GST on the beverage
• How to Avoid
  • Ensure that you correctly categorize your products and services by consulting the GST classification list regularly. If you’re unsure about a particular item, seek advice from a tax consultant or refer to the official GST portal for clarifications.
    

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2. Not Reconciliation Between Sales and Purchases

• Mistake
  • Failing to reconcile your sales with your purchases is another common issue. When filing your GST returns, you must ensure that the input tax credits (ITC) from purchases are correctly matched with the output tax liabilities from sales. Discrepancies between these figures can cause errors in filing and affect your overall tax liabilities.
• Example
  • If your sales invoice includes GST paid on purchases but you fail to claim the input tax credit for these purchases, you could end up overpaying GST on your sales.
• How to Avoid
  • Always maintain accurate and updated records of both sales and purchases. Cross-check the GST paid on purchases and the GST collected on sales during reconciliation before filing returns. This will help you avoid discrepancies and errors in your GST filing.

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3. Incorrect HSN/SAC Code

• Mistake
  • The Harmonized System of Nomenclature (HSN) or Services Accounting Code (SAC) is used to classify goods and services in GST. Incorrectly using these codes can lead to mismatches between the tax authority’s records and your filing, causing errors in tax payment.
• Example
  • A retailer selling electronics might accidentally file under the HSN code for clothing, which has a different GST rate. This error would lead to an incorrect tax calculation, potentially causing the retailer to underpay or overpay tax.
• How to Avoid
  • Always verify the correct HSN or SAC code for the goods and services you are selling. It’s advisable to double-check the code on your invoices and ensure they match the categories set out by the GST council. A quick reference to the official GST code list can prevent this error.

4. Not Filing Returns on Time

• Mistake
  • Another prevalent mistake is failing to file GST returns on time, either due to forgetfulness or mismanagement. Late filings can attract hefty penalties and interest, increasing your tax liability and complicating compliance.
• Example
  • A business that forgets to file its GST returns by the due date may incur late fees, even if they have no outstanding tax liability. Over time, this could add up to significant financial penalties.
• How to Avoid
  • Set up reminders well in advance of the due date for filing GST returns. Automate the process using accounting software that integrates with GST filing systems. You can also designate someone to be responsible for filing to ensure deadlines are always met.
• Set up reminders well in advance of the due date for filing GST returns. Automate the process using accounting software that integrates with GST filing systems. You can also designate someone to be responsible for filing to ensure deadlines are always met.

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5. Incorrect ITC Claims

• Mistake
  • Input Tax Credit (ITC) is the tax paid on purchases that businesses can claim to offset against their output tax liability. A common mistake is claiming ITC on non-eligible purchases or failing to claim ITC on eligible ones. This can lead to errors in the tax paid or refund amounts.
• Example
  • A business purchases goods for both taxable and exempt purposes but claims ITC only for the taxable goods. However, they mistakenly include a portion of the exempt goods in the ITC claim.
• How to Avoid
  • Thoroughly review the GST rules on eligible and ineligible ITC claims before submitting your return. Keep clear records of all purchases and ensure that you only claim ITC on valid business expenses. When in doubt, consult a tax professional.

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6. Failure to Report Exempt Sales and Reverse Charge Transactions

• Mistake
  • Sometimes, businesses overlook reporting exempt sales or reverse charge transactions. Exempt sales are transactions for which GST is not applicable, while reverse charge mechanisms shift the tax payment responsibility from the supplier to the recipient.
• Example
  • A supplier of agricultural products might make an exempt sale. If they fail to report this, it can lead to discrepancies in their returns. Similarly, in reverse charge cases, the buyer might fail to pay GST, assuming the supplier is liable.
• How to Avoid
  • Carefully review the transactions to identify exempt sales and reverse charge scenarios. Be proactive in accurately reporting these transactions in your GST returns, as they have specific rules and filing requirements.

7. Not Maintaining Proper Documentation

• Mistake
  • Insufficient documentation is a recurring issue for many businesses. Failing to maintain accurate records of invoices, receipts, and purchase orders can lead to errors during GST filing.

• Example
  • If you lose track of a receipt for a taxable purchase, you might miss out on claiming the corresponding ITC, resulting in an overpayment of tax.

• How to Avoid
  • Implement a strong record-keeping system. Digital tools or accounting software can help keep track of transactions, receipts, and invoices. Regularly audit your records to ensure you have all necessary documentation before filing your returns.

Also Read :- GST Section 128A Explain with Example

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Conclusion

GST filing errors can be costly, both in terms of penalties and compliance issues. To avoid these common mistakes, it’s crucial to stay organized, be proactive, and continually educate yourself about changing GST regulations. By correctly classifying goods, reconciling sales and purchases, using the correct HSN/SAC codes, filing on time, claiming eligible ITC, reporting exempt transactions, and maintaining thorough documentation, you can reduce the risk of mistakes and ensure a smoother filing process.