Goods and Services Tax (GST) compliance requires continuous monitoring, especially at the end and beginning of a financial year. This period is crucial for businesses to ensure proper reconciliation, compliance with legal provisions, and effective planning for the upcoming year. A structured approach helps in avoiding penalties, ensuring accurate reporting, and maximizing the benefit of input tax credit (ITC).

The transition from one financial year to another under GST involves multiple activities such as filing pending compliances, reconciling data, reviewing ITC eligibility, and implementing new regulatory changes. Businesses must carefully review their records and align them with GST returns to ensure accuracy and compliance.

Compliance requirements at year end

At the end of the financial year, businesses must complete several compliance-related tasks. Exporters and suppliers to Special Economic Zones are required to file the Letter of Undertaking (LUT) for the upcoming financial year to continue exports without payment of tax. Taxpayers eligible for the composition scheme must evaluate whether to opt for it in the new financial year. 

Goods Transport Agencies must file the required declarations if they intend to pay tax under the forward charge mechanism. Businesses with high turnover must ensure compliance with QR code requirements for B2C transactions. Refund applications must be filed within the prescribed timelines, and all credit and debit notes should be properly recorded and reconciled with returns.

Reconciliation of data

Reconciliation is one of the most critical aspects of GST compliance. Businesses must reconcile GSTR-1 with GSTR-3B to ensure consistency in reported turnover and tax liability. E-way bills should be matched with outward supplies reported in returns. E-invoice data must also be reconciled with GSTR-1 and e-way bills. Additionally, turnover as per books of accounts should match the turnover declared in GST returns. These reconciliations help identify discrepancies, prevent errors, and ensure accurate tax reporting.

Input tax credit review

A detailed review of ITC is necessary at year end. ITC must be matched between GSTR-2B, GSTR-3B, and books of accounts. For claiming ITC, certain conditions must be satisfied, including possession of a valid invoice, receipt of goods or services, tax payment by the supplier, and proper filing of returns. A significant change is that ITC availability is now linked to supplier compliance, and credits may be restricted under specific provisions.

Reversal of input tax credit

There are several situations where ITC reversal is required. If a supplier fails to file GSTR-3B within the prescribed time, the recipient must reverse the ITC by the specified deadline, although it can be reclaimed later when compliance is completed. ITC must also be reversed if payment to the supplier is not made within 180 days. In addition, businesses dealing in exempt supplies must reverse proportionate ITC as per prescribed rules. These provisions require continuous monitoring of vendor compliance and payment status.

Input tax credit on imports

Businesses must ensure that ITC on imported goods is properly reflected in GST returns. If the credit does not appear in GSTR-2B, it should be verified through the Bill of Entry details available on the GST portal. Proper tracking of import-related ITC is essential to avoid loss of credit.

Input service distributor mechanism

At the beginning of the new financial year, businesses must comply with updated provisions related to Input Service Distributor (ISD). ISD has been made mandatory, requiring businesses to distribute ITC of input services received at a central office to different branches. It is important to distinguish between ISD and cross charge. ISD is used for distributing ITC related to common services, whereas cross charge is applicable for internal services provided between distinct persons and is treated as a taxable supply.

E-invoicing requirements

E-invoicing has become a key compliance requirement for businesses exceeding the prescribed turnover threshold. It applies to business-to-business transactions and exports and covers tax invoices, credit notes, and debit notes. Failure to generate e-invoices where applicable can result in invalid invoices and denial of ITC to the recipient. Businesses must ensure proper system implementation, staff training, and vendor communication for smooth compliance.

Invoice series and documentation

At the start of the financial year, businesses should adopt a new invoice series that complies with legal requirements. Invoice numbers must be unique, sequential, and within the prescribed character limit. Proper documentation and reporting of invoice details in returns are essential to maintain compliance and avoid duplication or errors.

Credit note provisions

Credit notes are issued when there is excess tax charged, goods are returned, or deficiencies in supply are identified. There is a specific time limit for reporting credit notes, which is linked to the financial year and filing of returns. Proper management of credit notes ensures accurate tax liability and compliance with legal provisions.

HSN reporting requirements

HSN reporting depends on the aggregate turnover of the taxpayer. Businesses with turnover above a specified limit must report more detailed HSN codes. For smaller taxpayers, reporting requirements are relaxed, especially for B2C transactions. It is important to verify applicability and ensure correct reporting in returns.

GST returns and disclosures

Businesses are required to file various GST returns, including GSTR-1, GSTR-3B, annual returns, and audit reports where applicable. Accurate disclosure of outward supplies and reconciliation between different returns is necessary to avoid mismatches and notices from tax authorities.

Legal amendments and implications

Recent amendments have significantly impacted ITC provisions. The introduction of new provisions has made ITC dependent on supplier compliance, restricting credit in certain cases such as default in tax payment or incorrect reporting. The concept of provisional ITC has been removed, and ITC claimed in returns is treated as final, subject to conditions. Time limits for claiming ITC have also been revised, making timely action essential.

Other important considerations

Businesses should review agreements with vendors and customers at the beginning of the financial year to ensure proper GST clauses are included. Export transactions must be carefully monitored, including shipping bill details and receipt of payments within prescribed timelines. Merchant export transactions must comply with concessional rate conditions. Proper classification of goods and services and correct determination of place of supply are also critical to ensure accurate tax payment.

Conclusion

A well-planned GST action strategy for the year end and beginning of the new financial year helps businesses maintain compliance, reduce risks, and optimize tax benefits. Key focus areas include reconciliation, ITC verification, adherence to timelines, and understanding of new legal provisions. By adopting a systematic approach, businesses can ensure smooth GST compliance and avoid unnecessary disputes or financial losses.

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