Understanding GST Compliance Rating System

Last Update Date : April 26, 2019
Estimated Read Time: 5 min

The first reaction most people usually have in the face of change is to resist. Change, whether big or small initially threatens the old methods/traditions, which is said to be the prime reason behind the initial resistance. Therefore, offering rewards or incentives can help ease people into the change. When GST was introduced it was initially met with resistance, like the VAT scheme which was introduced a few years ago. Hence, the GST compliance rating system was designed, so that businesses could seamlessly transit into the new system.

What is GST Compliance Rating?

The theory of the compliance rating system is to rate businesses on how compliant they are with the GST rules, regulations and the time limits specified in such Act and Rules. As per Section 149 of the CGST act, a registered person shall be assigned a goods and service tax compliance rating score by the government based on his record of compliance with the provisions of the act. The compliance system is like a performance scale, which will be visible on the public domain, where you, as a business owner, would get a rating in the range of 1 to 10 depending on how compliant you are.

So, for example, if you file your returns on time or pay your taxes on time there is a greater probability that you will be rewarded with the higher rating as compared to those who are not compliant and punctual in following the rules, regulations and time limits.

How the Compliance Rating Works?

  1. Making payments on time – Depending on your annual turnover, you will need to make your payments either on a monthly or quarterly basis. Ensuring you pay your taxes on time will make it sure that your compliance rating remains high, which could help you increase your business base as others will prefer to do business with someone who has a higher rating as against the one who has a lower rating.
  2. Reconciliations on time – Just as payments need to be made in a timely manner, same is the case with reconciliations which you shall complete within the due dates.
  3. Filing returns on time – Continuing to file your GST returns in time will safeguard your ratings so that they remain high and reap more benefits in return.
  4. Cooperation with the authorities – While there are hiccups with the implementation, cooperating with the authorities will help smooth out the system while ensuring your ratings remain high.
  5. Following the various time limits – Whether it is for filing, payments, reconciliations, ensuring strict adherence to the specified time limits will help you maintain your high compliance rating.

Maintaining Your GST Compliance Rating

With so many rules and regulations, it might be cumbersome to file returns, address reconciliations, make payments, etc. However, failure to do so will have an immediate effect, as every registered business owner will be issued a refund based on such rating.

The amount and speedy processing of your refund will depend on your rating. With our team of GST experts at H&R Block you can easily ensure your rating remains high so that you can take advantage of the benefits.

So, for example, if you have a GST compliance rating of 8, then you can get 80% as an instant provisional refund of your total refund and balance of 20% will be refunded after scrutiny while someone with a rating of 5 will only get 50% as an instant provisional refund. Additionally, by failing to be compliant and maintaining your rating, you will lose out on many other benefits.

To maintain your GST rating, ensure you file your monthly/quarterly returns on time, submit your annual returns on time, pay taxes on time and cooperate with the authorities when they require it.

Moreover, ensure the details filled in FormGSTR1 are correct, as any modification/rectifications will delay your returns processing, thereby affecting your GST rating, which could affect your bottom line directly.

Important Benefits of GST Compliance Rating

In addition to speedy refunds, there are other benefits to being GST compliant and maintaining your high ratings:

  1. Issuance of input tax credit – With a high score you will also receive your input credits faster. Additionally, more buyers will prefer to do business with you so that they too can benefit from faster input credit refunds.
  2. Trust and reputation amongst the business community –  Since every registered business’s rating will be visible in the public domain, by following the implemented rules and regulations of the GST scheme, it portrays to the business community that you are not only compliant but trustworthy also and that conducting business with you will benefit them also. With a lower rating, it displays you are lagging in filing your returns, payments etc, therefore not dependable.
  3. Increase customer base – As your compliance rating increases, so will your customer base, in accordance with your rating and reputation.
  4. Chances of scrutiny/audits reduced significantly – If you are regular in following all the set rules and regulations, the chances of your business coming under the spotlight or scrutiny of the GST authorities are significantly reduced, as the need to audit your accounts will be nil.

Blacklisting of Businesses

The rating system, which is visible to every registered business in the public domain, can affect your business as negatively as it does positively. Just as a high rating attracts buyers to conduct business with you, having a low average rating will blacklist you and deter others from doing business with you. A blacklisted business entity is someone who has failed continuously to file their returns, or short reported the sales continuously.

Disadvantages of GST Compliance Rating

The biggest drawback of the rating systems is that it forces businesses to be compliant if they want to maintain their score and not damage their reputation among the business community.

While initially, the compliance rating system may seem harsh, confusing and unforgiving, it will bring change to the current tax culture, which is greatly needed to lessen tax disputes/litigations and dissuade tax evasion and create a clear and transparent economy.  With the help of our earlyGST tax experts at H&R Block, ensure your business stays GST compliant by filing all the appropriate forms and paying dues in a timely manner. Although these rules are not yet notified by the government, we hope that this Compliance Rating system will help business to be more compliant.

Focus on your business, not GST. Leave that to H&R Block experts.
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Niteesh Singh
Niteesh Singh
Niteesh is a Tax Researcher and Content Lead at H&R Block (India). He holds an MBA with a specialisation in BFSI domain. In his career spanning over six years, he has helped thousands of people understand taxes in a simple and effective manner. Outside work, Niteesh is an astronomy geek who is also involved in wildlife conservation activities.