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Understanding the term GST Compliance Rating

Ashish M. Shaji

| Updated: Jul 23, 2021 | Category: GST

Understanding the term GST Compliance Rating

GST was introduced in 2017 as a huge tax reform. With it came various new concepts that were unheard of. GST introduced concepts such as mixed and composite supply, time of supply and also GST Compliance Rating. In this article, we shall have a basic understanding on GST Compliance Rating.

GST Compliance Rating: Meaning

It is a performance based rating system for all registered taxable persons. It throws light on how compliant they are with the GST provisions. It is regardless of the nature, size or turnover of the business. This rating is determined by the Goods and Services Tax Department.

For instance- A rating system is devised on a scale from 1 to 10. 10 is the highest rating that means highest compliant and 1 being least compliant. The actual rating is yet to be notified.

Significance of such Rating

The introduction of this compliance rating is intended to strengthen tax administration and also to compel people to stay compliant with GST. It also encourages to upload invoices on time and other necessary documents.

Under goods and services tax, an individual can claim input tax credit in GSTR-2 only when the seller has filed GSTR-1. The details on both forms should match or reconcile with each other.

These days businesses file delayed return and payment of taxes. This practice tends to cause delay in input tax credit across chain and affect the working capital of businesses severely. Therefore the rating system helps in preventing the delay of credit for bona fide buyers because of non-compliance on the part of certain people.

Apart from timely compliance of GST, GST audit or inspection can be ordered by GST authorities to know different aspects of compliance under GST. It will ensure that businesses issue proper tax invoice.

The rating system can cause timely compliance as businesses would want to stay on top. At the same time, a company that deals with products consumed by rural customer or there material available only in rural India, there may be a challenge to first check scores and then transact. In such instance, the score would be a mere number. 

Rating under the GST

The rating would be based on criterion that is yet to be prescribed, but as per experts, the following factors can play a significant role in deciding compliance ratings:

Rating under the GST
  • Payment of taxes on time;
  • Filing of returns on time;
  • Timely reconciliations;
  • Compliance with different time limits under GST;
  • Co-operation with GST authorities.

Benefits for compliant vendors

The following benefits can be enjoyed by compliant vendors:

  • They would be able to get refunds immediately and without any waste of time;
  • Buyers would be able to get input tax credit quickly;
  • They may be able to attract more business;
  • Will enjoy better reputation;
  • It will reduce chances where audit is conducted by the tax authorities.

The impact on buyers and sellers can be significant as buyers will seek sellers with a higher rating, thus ensuring that they can avail of input tax credit quickly. Sellers with a high rating shall attract more customers, and a future client would inquire about the compliance rating before entering into a deal.

Details not to be published in GST compliance rating

It is worth mentioning here that the rating shall reflect a simple score. As per the GST Act, no information of a return of any individual or its part can be published that identifies a particular person without the written consent of such person.

Further, the GST Act also prohibits third party from accessing any information or any individual GST return. Therefore the rating will not include the details as mentioned below:

  • Suppliers name;
  • Customers name;
  • Amount of turnover;
  • Address of supply;
  • Products or services supplied.

What are the Disadvantages of the GST Compliance Rating?

As you now know that businesses should be compliant in order to stay competitive. It can easily become a burden for businesses and especially for small businesses who lack the resources to be compliant. Also, considering the fact that GST involves certain complex features, businesses will become vulnerable to error.

Errors, long delays and non-compliance would affect vendors’ rating, and businesses would suffer. On the contrary, compliant vendors would have a slight advantage and would be distinguished from their competitors. Those with more resources at their disposal would be benefitted more.

Further, if your ratings are terribly low, GST compliance authorities would come into the picture. This means you would have GST authorities all around your business which can be added pressure and be bad for the business.

How to stay GST compliant?

These tips can be followed for the same:

  • File your returns on time and such other information;
  • Make timely tax payments and ensure no short tax payments;
  • Maintain proper records required under GST law[1];
  • There should not be any mismatch in details.

Conclusion

It can be concluded that there are a lot of compliances for a business under GST law. Fulfilling these compliances will benefit the department, but it will also assist those taxable persons who perform their statutory compliance duty timely as it is directly linked with the GST compliance rating. This rating is updated periodically and will be intimated to the taxpayer.

Read our article:All you need to know about GST Suvidha Provider

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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