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Published on:

October 6, 2024

Shaaransh Sharma

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Explore GST

Basics of GST

What Is a GST Compliance Rating Score and Why Does It Matter?

Taxation: When India implemented the Goods and Services Tax (GST) on July 1st, 2017, the country took an evolutionary step in tax. GST unifies a multitude of indirect taxes on central and state levels, leading to simplification of compliance for the companies. Coinciding with the pan-India launch of a new tax regime, was the onus on businesses to keep their records shipshape making provisions like timely compliance with GST regulations. That is where the GST Compliance Rating Score helps.

The GST Compliance Rating Score is an important parameter introduced under the GST mechanism to know how far a taxpayer has complied with the rules and regulations of GST. Through this blog, we attempt to decode what the GST Compliance Rating means, how it affects businesses in India, and its relevance for taxpayers.

What Is a GST Compliance Rating Score?

GST Compliance Rating Score — A point of view The GST Compliance rating score essentially refers to the scores accorded to businesses with their compliance with respect of regulations governing GST. A compliance score between 0 to 10 is provided for every registered taxpayer under GST. It is the score, which indicates whether the taxpayer is filing returns on time, paying taxes and discharging other GST obligations or not.

The score is fluid, which means it moves after a taxpayer continues to assert compliance. The higher ratings indicate good levels of compliance while it shows that the user had not conform with GST rules when the rating falls down. These scores are now available for the public to access, making it easier for organisations and stakeholders to have data-driven behaviours when interacting with suppliers, customers or other trading partners.

Why Does GST Compliance Rating Matter?

GST Compliance Rating has brought a revolution to businesses in India. Here’s why:

1. Enhanced Credibility

Under the GST regime, businesses with high compliance ratings are considered to be reliable and trustworthy. It engenders trust among customers, suppliers and other stakeholders.

2. Eligibility of Input Tax Credit (ITC)

With a high score, businesses continue to get their input tax credits (ITC) seamlessly and without any delay or hassle. ITC is the primary medium of reduction in your tax burden, and deviation from compliance may lead to a denial or delay of availing of this credit.

3. Reputation Management

There is a direct relationship between the compliance score and the reputation of a business. For those with low scores, it could make life far more difficult when trying to set up or maintain a business relationship because your partners may fear the consequences of mingling with non-compliant entities.

4. Government Audits

Tax compliance rating in GST audit is also a factor that the selection process takes into account. A lower score raises the chances of increasing audit frequency because these taxpayers have been observed to be incompliant, so the government can demand more audits.

5. Financial Benefits

Other government benefits are tied to a taxpayer's compliance rating as well, such as subsidies, tax refunds, or other incentives. This score can give you access to these financial advantages.

6. Avoiding Penalties

Compliance of business on regular timing saves from Loss of hefty late fees, penalties, and interest payments that may pile up if non-compliant. All of which can put the financial well-being of an organisation in grave danger.

3 Steps to Maintain GST Compliance Rating Score

Keeping your business on the right side of GST compliance is not just about understanding why compliance matters—you need to know exactly how to stay compliant in practical terms. Here are three straightforward steps you can take:

1. File Your GSTR-1 and GSTR-2 On Time

Ensure to include all the details of your outward and inward supply transactions when filing your monthly GSTR-1 and GSTR-2. Remember, GSTR-1 is due by the 10th of the following month, and GSTR-2 is due by the 15th. Staying punctual here is key to avoiding penalties and keeping things running smoothly.

2. Pay Your Tax Dues Before Filing Returns

Before moving on to file your next GST return, double-check that all your previous tax dues are settled. If you file a return while still having unpaid taxes, it can make your next filing invalid—this is actually laid out in Section 27(3) of GST law. Not only could this lower your compliance rating, but it might also affect your entire supply chain, potentially preventing your buyers from claiming their input tax credits.

3. Submit Your Annual Return

In addition to your monthly filings, don’t forget about the GSTR-9—the consolidated annual return. This return summarizes your yearly transactions and must be submitted to remain compliant. It's a crucial part of staying up-to-date with GST regulations.

Keeping up with these three steps helps your business maintain a good compliance rating and builds trust with suppliers and customers. Consistent compliance is a great way to avoid unnecessary headaches and keep your business operations smooth.

How Is the GST Compliance Rating Score Calculated?

The rules for rating GST compliance are divided in a way that they do not only rate one aspect of the taxpayer's behaviour. Some of the key parameters that lead to GST compliance rating scores are:

Timely filing of GST returns (GSTR-1, GSTR-3B, etc.).
Timely payment of GST dues.
Full disclosure of invoices.
Adherence to GST laws during audits or inspections.
Resolving notices or discrepancies issued by tax authorities.

A taxpayer has each of these factors scored and a score from between 0 (non-compliant) to a perfect 10 which makes the GST compliance rating range. It is a real-time ranking that is periodically updated by GST authorities to factor in the compliance score of the business.

How to Check GST Compliance Rating?

At present, there is no direct method available for taxpayers in the GST regime to check their compliance rating on the official portal due to this facility being not fully operational. Nevertheless, when live, taxpayers should be able to see their marks in the GST account dashboards.

These ratings may arguably be made public by authorities, thereby ensuring transparency and accountability. The GST Council may give further clarifications or guidelines on this sooner rather than later, so organizations must watch out for notices from them or their GST professionals in regard to it.

How to Get a High GST Compliance Rating?

For Businesses To Keep Or Achieve A High GST Compliance Rating: Here are some best practices:

1. Timely Filing of Returns

File your GST returns like (GSTR-1, 3B) always on the due date. The penalties for late filings are not minimal and compliance scores can fall precipitously.

You might also be interested in our other blog on Errors & Mistakes during GSTR-1 Filings

2. Accurate Invoicing

Record all invoices accurately. If the details do not match, penalties and lower input tax credits could be levied.

3. Regular Payments

Timely payment of GST dues is important to avoid interest charges. Your score can be kept high by getting timely payment records.

4. Address Notices Promptly

Respond at the earliest to a notice from GST authorities. If you ignore notices, that can and will hurt your compliance grade.

5. Seek Professional Help

Get in touch with a professional GST consultant or CA to be sure all compliances are adhered to, from filing to payments.

GST Compliance Rating Agencies

Over time, it is very well conceivable that specialized GST Compliance Rating Agencies will crop up to assist businesses in bettering their ratings. These agencies can assist businesses in compliance, provide audit support, and give tips on how to keep a high score. By being proactive, businesses can avoid the perils of non-compliance and think about hiring these services.

Impact of GST Compliance Rating on Businesses

1. Access to Compliance Ratings

Business decisions will therefore be influenced by the compliance rating that (would) be shown to businesses. The suppliers who are rated low will have a delay or denial in the claim of input tax credit, the attributed to which they would become less desirable for the customers.

2. Audits and Investigations

Companies with low compliance scores are more likely to be in the tax authorities' crosshairs. This could ultimately lead to an audit, resulting in fines or legality actions.

3. Supplier Trust

A business with a high compliance score will have an advantage over others. As a general rule, suppliers and customers look to do business with companies that can be counted on for paying their taxes and filing returns.

GST Compliance Rating Certificate

At the moment, there is no GST compliance rating certificate available yet but they you could have a score to show how good or bad you have performed and it will be quantifiable. A certificate, if introduced by the government would actually indicate an official proof that a taxpayer has complied and is trustworthy.

GST Compliance Rating Section and Rules

Section 149 of the CGST Act prescribes the GST Compliance Rating. The regulations lay down transparent and objective criteria for students on whether or not to register via the merit rate system while considering his/her track record in returns filing, payment of tax etc. under GST laws. These rules are intended to discipline the taxpayers and have a smoother GST system.

Conclusion

The GST Compliance Rating Score; A Game Changer for the Businesses Under the Indian GST regime, though it is not implemented completely yet, once fully operational will ensure tax compliance and transparency in business dealings. Keeping a good score not only protects businesses from penalties and audits, but also earns them a good reputation, improves their access to ITCs with less hassle, and makes trust-building for partnerships smoother. In a program that penalizes non-compliance and rewards good behaviour, staying compliant is crucial. Hence, companies will have to be cautious and alert; they must strictly comply with all GST rules on time.

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FAQs

What is the GST Compliance Rating Score?

The GST Compliance Rating Score is a metric used to assess a taxpayer's adherence to Goods and Services Tax (GST) rules and regulations, ranging from 0 to 10, with higher scores indicating better compliance.

How to check the GST compliance rating?

Once fully implemented, GST compliance ratings will be accessible on the official GST portal. Taxpayers and stakeholders will be able to view their ratings online to understand their compliance status.

How can I improve my GST compliance rating?

To improve your GST compliance rating, consistently file GST returns on time, ensure all tax payments are made promptly, and respond swiftly to any GST-related notices or queries from authorities.

What is the impact of a low GST compliance rating?

A low GST compliance rating can lead to increased scrutiny from tax authorities, more frequent audits, potential penalties, and a significant reduction in the business’s credibility, affecting partnerships and contracts.

Are GST compliance ratings public?
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‍GST compliance ratings are expected to be made publicly accessible to ensure transparency, helping businesses make informed decisions when engaging with suppliers and partners based on their compliance history.