Filing of annual returns by taxpayer formation. – Negative liability in GSTR-4
Filing of annual returns by taxpayer formation. – Negative liability in GSTR-4 I’ve noticed instances where taxpayers are reporting negative liability that appears on their GSTR-4
background: Since the 2019-20 fiscal year, component taxpayers are required to pay the liability through the GST Form CMP-08 on a quarterly basis while the GSTR-4 return is required to be filed on an annual basis after the end of the fiscal year.
Reason for negative liability in GSTR4: A full-year liability declaration is required on GSTR-4 under applicable tax rates. Taxpayers must compulsorily fill out Schedule 6 of the GSTR-4. In the absence of liability, the said table can be filled with a value of “0”. If no liability is declared in Schedule 6, it is assumed that no liability is required to be paid, even though the taxpayer may have paid the liability via GST Form CMP-08. In such cases, the liability paid through GST CMP-08 becomes an excess tax paid and passes to a statement of negative liability for use in the obligations of the subsequent tax period.
What the taxpayer did wrong: The liability paid through the GST Form CMP-08 is automatically filled out in Schedule 5 of the GSTR-4 for the convenience of taxpayers. Taxpayers who do not fill out Schedule 6 of the GSTR-4, i.e. no liability has been declared, even though the taxpayer may have paid the liability via GST Form CMP-08; Since the Tax Payable in GSTR-4 is calculated after reducing the commitment declared in GST CMP-08 and then automatically filled in in Schedule 5. Thus, if nothing is declared in Schedule 6, the negative liability entry will appear in GSTR- 4.
How to proceed in case of negative liability: If Schedule 6 of the GSTR-4 is not filled out due to oversight, a ticket may be filed to cancel the amount available in the Negative Liability Statement. If there is no liability to be paid during the year, the liability paid on the GST Form CMP-08 must pass to the negative liability statement and the same excess amount can be used to pay the liability for future tax periods.
It is a welcome move for GSTN to provide input in a proactive manner. The composition scheme is chosen by the small taxpayers and for them the cash flow is a real challenge especially in the time of the pandemic. It was really nice that the law included a clause if the excess cash was paid by the taxpayer component and put an unused liability record, the same could be claimed as a refund. A similar provision is seen in the Malaysian Goods and Services Tax where taxpayers can recover the value of an ITC that places them in. Although we cannot compare the provisions of other countries, we can take a cue from there and make necessary adjustments in the near future. This will really help improve the ease of doing business.