GST Compliance Rating

Table of Contents

GST compliance rating is a ranking given to each registered taxpayer by the Goods and Service Tax Department based on their track record of compliance. This score will be calculated based on parameters such as timely filing of monthly and annual returns, furnishing details of input credits used, taxes paid, etc. Periodically, taxpayers will receive updated ratings, which can be viewed by anybody in the public domain that all businesses can access. This will allow small businesses to choose the most GST-compliant vendor for their business endeavours.

Every person registered under GST receives a score based on their compliance with GST, which is evaluated by the GST tax department. Based on the company’s history of GST compliance, a GST compliance grade would be assigned. In light of this, the GST compliance rating would be comparable to the CIBIL score used to determine a person’s creditworthiness.

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Uses Of GST compliance Rating

The business, its employees, customers, creditors, other stakeholders, and the government would all greatly benefit from transparency with regard to tax compliance.

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GST Compliance

Furthermore, trade creditors and financial institutions will be able to swiftly assess a company’s creditworthiness by providing the compliance history of a person registered under GST in an easy-to-understand score.

The rating system will also provide promoters, investors, and other corporate stakeholders with input on how to improve compliance by outlining next steps.

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How GST Compliance Rating Works

You and your business will profit in certain ways based on your rating. Refunds to taxpayers are reportedly to be given based on a percentage of these ratings. Take this as an example. Let’s say a taxpayer has an 8 rating. He is entitled to a Rs. 10,000 return. When he asks for a refund, he would receive an immediate provisional reimbursement of Rs. 8,000 based on his compliance rating, which is 8, which is 8. After review, the remaining Rs. 2,000 will be paid. The reimbursement amount for someone with a rating of 6 is also only 60%. Only those with a minimum GST rating of 5 on a scale of 10 are eligible for a provisional refund.

Note: The guidelines for this are yet to be notified.

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How Businesses get Affected by GST Compliance Rating

The process used to determine the taxpayer’s compliance with GST laws and regulations is what determines the GST rating score. Therefore, the following GST compliance-related factors would affect the GST rating.

  • ย  submission of GST returns on time.
  • ย  timely payment of all fines, penalties, and other obligations.
  • ย  compliance with GST authorities’ requests.
  • ย  other paperwork that must be submitted in accordance with GST laws and regulations.
  • ย  Promoter experience with upholding compliance for associated firms.
  • ย  The GST authorities may occasionally mandate a GST audit or inspection in addition to prompt GST compliance to assess different elements of GST compliance. Thus, ensuring that the company provides proper tax invoices, determines the taxes due accurately, reconciles the return, and takes into account numerous other elements.

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Why do people need to stay GST compliance and receive a high rating?

According to the GST rules, buyers must list all the transactions in which they paid GST to their vendors if they want to receive input credit for the items they acquired.

In the ideal situation, buyer A would purchase goods from seller B and upload each sale transaction to the GSTR-1. The GSTR-1 filed by the vendor will now be used to automatically populate all the transactions in the buyer’s GSTR-2. The purchaser can then claim an input tax credit using GSTR-2.

Let’s now analyse what would occur if vendor B failed to pay his fees. In this situation, the GST department would not view his tax return as genuine (under Section 27(3)).

As a result, the buyer would not be able to authenticate his GSTR-2 and would not be eligible to submit an input tax credit claim.

The inability of the seller to pay his dues would prevent any of the 100 purchasers of the commodities this vendor is selling from claiming their input tax credits.

Even if this is simply an example, the idea is still valid: one company’s noncompliance can have a significant impact on and disrupt the entire supply chain.

With the GST-compliance rating in place, purchasers will be able to identify which vendors have the best track record of making their payments on time, and they’ll be able to select a more compliant vendor straight now to avoid having to deal with the consequences of vendor carelessness down the road. The buyer has a better probability of obtaining an input tax credit if the vendor has a higher compliance score.

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How GST Rating Impact a Business

The company’s ability to run successfully, raise finance, hire staff, and win over customers would all be significantly impacted by the compliance grade. Only banks and financial institutions are now authorised to evaluate people and entities’ CIBIL scores for credit-lending reasons. Therefore, publicising the CIBIL scores is limited by the public domain.

However, assessments of GST compliance would be made public. More people, including customers, employees, creditors, vendors, and investors, would have access to the rating before or while conducting business because it would be easily accessible in the public domain. Consequently, a poor GST rating could have an adverse effect on a company’s recruiting, sales, ability to obtain finance, and other factors.

Therefore, it is crucial for all businesses to be aware of the variables affecting their GST rating, regularly monitor their business’s level of GST compliance, and make sure that prompt action is done to adhere to all GST rules and regulations.

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How to Improve GST Rating

The taxpayer’s history of GST compliance affects their GST rating. Therefore, if your GST rating is low, you can raise it by starting to file your GST returns on time and pay your GST bills on time.

To raise your GST rating, utilise a GST Accounting programme like LEDGERS with return filing capabilities, compliance warnings, and auto-reconciliation features.

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Benefits of GST Rating

Some advantages that complying providers may be able to take use of are as follows:

  • ย  Get refunds immediately
  • ย  Buyers can get input tax credit immediately
  • ย  Attract more business
  • ย  Reduce chances of an audit by the tax authorities
  • ย  Enjoy better reputation

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How to know your GST Rating

Periodically, the compliance rating score will be updated. Both the taxpayer and the public will have access to it.

Therefore, with GST compliance rating you gain trust while doing business. When your business has a better compliance score, you not only have a better chance of earning the governmentโ€™s trust, but you also are more likely to earn the trust of clients you could be doing business with in the future. This may seem like a small step in the beginning, but consider the impact that thousands of businesses can have on the GST network if they all collectively work towards GST compliance. If individual business owners work to follow tax laws, then they will help the entire GST ecosystem to stay compliant.

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