As a business owner, the way you follow the goods and services tax law affects your standing with the government. Thanks to a new concept called the GST compliance rating, your actions can have an even wider impact. When the GST compliance system comes online, your score can affect everything from your tax refunds to vendor partnerships.
What is the GST Compliance Rating?
The GST compliance rating is a numerical score that measures how well your company adheres to GST rules. This score is on a scale of zero to 10, with 10 being the best and zero being the worst. According to the GST act, the government can assign a score to any registered taxpayer. GSTN CEO Prakash Kumar stated that everyone will start on a level playing field. From there, your GST compliance score can change based on compliance with GST over time.
GST Compliance Rating and Tax Refunds
As a taxpayer, you’re entitled to claim a refund when you pay more tax than you owe. Your GST compliance rating can affect how your refunds are processed. If your score is less than five, for example, you may not be able to get a provisional refund — the partial payment you get up front while the full refund payment is being processed. That means that it can take longer to get your refund, which affects your cash flow.
GST Compliance Rating Affects Your Business Partnerships
The Central Goods and Services Tax Act states that the government can put GST compliance ratings into the public domain. When that happens, it means that your score will be visible to anyone who wants to see it. Why does that matter? Under GST, the entire supply chain is closely linked. Your invoice records must match, and every person must pay their GST before the input tax credit can be passed along. If one person in the chain defaults on their taxes, it can affect everyone else.
That means that vendors are going to be more selective when picking partners. When a vendor is considering buying from you, they might check your compliance score first. If it’s high, you have a better chance of building that partnership. A high score shows that you’re responsible and detail-oriented, which gives business partners confidence.
How to Get a High GST Compliance Rating
The GST act states that your rating will be based on your “record of compliance with the provisions of this Act.” Basically, that means that you need to follow the rules, including:
- Filing monthly and annual returns on time
- Paying taxes on time
- Cooperating with GST authorities
- Fixing any errors on your returns in time
Since the GST system is online and the ratings are expected to be generated automatically, it’s important to stay current with your taxes. A single late return has the potential to affect your score. However, the government also understands that problems and delays within the GST system are not your fault — which means that your score should not be affected if the GST portal goes down and prevents you from filing on time.
As a small business owner, your company’s GST compliance rating can be a big benefit. When you file and pay on time, you can maintain a high score that improves your tax status and leads to valuable professional partnerships.