What is GST compliance rating and how does it work?

What is the GST compliance rating?

The GST compliance rating is a score given by the government to all registered businesses based on their record of compliance with the GST rules and regulations, and this score will be made visible to all other businesses. The compliance rating is calculated based on parameters such as:

• Punctuality in uploading invoices

• Timely filing of monthly and annual returns

• Timely tax payment and reconciliations

• Furnishing accurate details of input credits used

• Complying with GST rules and regulations, and cooperation with the tax officials.

A business organization can maintain their rating by following the compliance measures. Any non-compliance with the GST rules and regulations will result in a decrease of the compliance rating. 

How does it work?

A registered business can claim refunds only if they have an average score of 5 on a scale of 10. And, the provisional refund provided to a firm is directly proportional to the compliance rating of the firm. For example, if the compliance rating of a firm is 6 out of 10, they will be eligible for an immediate provisional refund of 60% of the total refund that is payable to them. It’s advisable to comply with the GST Acts to ensure that your firm is liable to claim 100% of the payable refunds.

How does it impact businesses? 

According to the GST law, if buyers wish to claim input credit for the goods they’ve purchased, they will have to mention all the transactions in which they paid GST to their vendors.

For example, buyer A procures products from vendor B and uploads all the sales transactions in GSTR-1. Now, all the transactions in the buyer’s GSTR-2 will be auto-populated using the GSTR-1 filed by the vendor. The buyer can then use GSTR-2 to claim input tax credit.

In case vendor B was not paying his dues, his tax return would not be considered a valid one by the GST department (according to Section 27(3)). This would mean that the buyer would not be able to validate his GSTR-2, and therefore, he wouldn’t be able to claim input tax credit. The buyer’s compliance rating would decrease, mainly because of the vendor’s non-compliance. 

If the same vendor is supplying goods to a hundred buyers, then none of the buyers would be able to claim their input tax credit because of the vendor’s failure to pay his dues. Hence, the non-compliance of one business could affect and disrupt multiple supply chains and compliance ratings. 

Where can you view the compliance rating?

The business organizations will be informed about their compliance rating. Also, these scores are updated at periodic intervals, and they will be published in a public domain that all businesses can access. This will allow small businesses to choose the most GST-compliant vendor for their business endeavors.

Benefits of compliance rating:

• A firm with higher compliance rating is likely to attract more business deals, as the clients can maintain their compliance rating by doing business with them.

• A good compliance rating implies that the organization is punctual in filing their returns, thereby making it easy for buyers to claim timely input tax credit on their purchases.

• Businesses with a rating of 5 or above on a scale of 10 will be provided immediate tax refunds.   

• Compliant businesses are likely to undergo fewer external audits compared to their non-compliant counterparts.

3 Steps to maintain GST compliance

GST compliance rating can be maintained by following these steps:

File your GSTR-1 and GSTR-2 on time

Businesses should include all their sales and purchase transactions on GSTR-1 and GSTR-2. Delay in the filing of GSTR-1 and GSTR-2 should be avoided, and the filing should be completed by the 10th and 15th respectively of the following month.

Pay your tax dues

Before filing tax returns for the next tax period, businesses should first ensure that they’ve paid all their tax dues for the earlier tax period. According to section 27(3) of the GST legislation, filing a GST return with existing tax dues would make the next return invalid.

 Submit your annual return

Apart from filing the GSTR-1 and GSTR-2 on a monthly basis, businesses should also submit a consolidated annual return called the GSTR-9 on time, to maintain their compliance score.

Note: If you are using a GST compliant accounting and tax filing software (like Zoho Books), then the returns will be auto-generated based on the transactions you record in the software. You can then push, reconcile and file this return directly into the GSTN to maintain your compliance rating.