Table of Contents

• Understanding Assessment Under GST
• Importance of Assessment Under GST
• Types of Assessments Under GST
  • Self-Assessment
  • Provisional Assessment
  • Scrutiny Assessment
  • Summary Assessment
  • Best Judgment Assessment
• Assessment for Non-filers
• Common Mistakes to Avoid Under GST
• Conclusion

Understanding the different types of assessments under GST is crucial for compliance and efficient tax management. This guide delves into the various assessment types, their implications, and provides practical insights tailored for MSMEs.

Understanding Assessment Under GST

A key aspect of GST compliance is understanding the various types of assessments. GST assessments are the mechanisms through which tax authorities verify the accuracy of GST returns and liabilities. These assessments are essential for ensuring that businesses comply with tax regulations. Each type of assessment serves a unique purpose and impacts businesses differently.

Importance of Assessment Under GST

• Accuracy in Tax Payment: Assessments verify that businesses have correctly calculated and paid their GST liabilities, minimizing errors and discrepancies.
• Compliance Enforcement: Through various types of assessments, such as self-assessment, audit assessment, and best judgement assessment, authorities can identify and address non-compliance, ensuring that all businesses adhere to the law.
• Transparency and Accountability: Regular assessments foster a culture of transparency and accountability among taxpayers, promoting fair competition and trust in the GST system.
• Revenue Protection: By catching underreporting or evasion, assessments help protect government revenue, which is essential for funding public services and infrastructure.
• Corrective Measures: Assessments allow for the rectification of mistakes, ensuring that any errors or omissions in tax filings are corrected, reducing the risk of penalties for businesses.

Types of Assessments Under GST

Following are the main types of assessment followed under GST:

1. Self- Assessment
2. Provisional Assessment
3. Scrutiny Assessment
4. Summary Assessment
5. Best Judgement Assessment

Self-Assessment

Self-assessment comes under Section 59 of the GST Act, where a taxpayer calculates and reports their own tax liabilities. Under GST, businesses are required to assess their tax dues based on their transactions and file returns accordingly. This method puts the responsibility on the taxpayer to ensure accuracy and completeness in their tax filings.

Process:

1. Calculation of Tax Liability: Taxpayers are required to determine their taxable supplies, input tax credit, and consequently, the net GST liability for a given tax period.
2. Filing of Return: Taxpayers must file a GST return electronically, declaring the calculated tax liability, along with other relevant details.
3. Payment of Tax: The declared tax liability must be remitted to the government through authorized channels within the prescribed due date.
4. Verification and Audit: The tax authorities have the right to verify the correctness of self-assessed returns through audits, inspections, or other verification methods.

Here the taxpayers are obligated to ensure accurate record maintenance, timely returns, correct tax calculation and payment compliance to ensure smooth operation under self-assessment.

Provisional Assessment

Provisional assessment occurs when the GST authorities find the information provided by the taxpayer insufficient or incomplete. This type of assessment comes under Section 60 and allows businesses to continue with their transactions while the tax authorities make a preliminary assessment based on available data. Provisional assessments are often used in industries with complex transactions or where large volumes of input claims are involved.

Key scenarios for provisional assessment:

• Uncertainty in value: Difficulty in calculating transaction value due to complex factors.
• Uncertainty in rate: Confusion about the correct tax rate due to classification issues or applicable notifications.

Process:

1. Application: The taxpayer submits a written request to the GST officer explaining the reasons for seeking provisional assessment.
2. Order: Within 90 days, the GST officer issues an order allowing provisional tax payment at a specified rate or value.
3. Bond and Security: The taxpayer must execute a bond with security to guarantee payment of any difference between the provisional and final tax amounts.
4. Provisional Payment: Tax is paid based on the provisional assessment order.
5. Final Assessment: Within six months, the GST officer conducts a final assessment, determining the exact tax liability.
6. Adjustment: Any excess tax paid is refunded with interest, while any shortfall must be paid with interest.

Scrutiny Assessment

Scrutiny assessment involves a detailed examination of the taxpayer’s returns and records. The returns of a business are scrutinized by the relevant authorities under Section 61 of the GST Act. This assessment aims to verify the correctness of the information provided and to identify any discrepancies.

Process:

The scrutiny process generally involves the following steps:

1. Selection of Returns: The GST department uses specific parameters to identify returns for scrutiny. These parameters might include discrepancies in data, high input tax credit claims, or other risk factors.
2. Issuance of Notice: If a return is selected, the taxpayer receives a scrutiny notice detailing the specific areas under scrutiny.
3. Response from Taxpayer: The taxpayer must respond to the notice within the specified timeframe, providing necessary documents and explanations.
4. Verification: The tax officer verifies the information provided by the taxpayer and conducts any further inquiries if required.
5. Assessment Order: Based on the scrutiny, the tax officer may issue an assessment order determining any tax liability, interest, or penalties.

If the provided explanation is found to be satisfactory by the officer, he/she will issue an order of acceptance validating the claim. If not satisfied, then he/she may take the following steps:

• Conduct Tax Audit(under Section 65)
• Inspect and search places of taxpayers’ business
• Start a Special Audit(under Section 66)
• Start Demand and Recovery Provisions
• Send notices for outstanding demand/shortfall(under Section73 or 74, depending on presence of a wilful intention of committing fraud)

Summary Assessment

Summary assessment comes under Section 64 and is conducted when the GST authorities believe that the taxpayer’s self-assessment is inadequate or incorrect. This type of assessment is quicker than a detailed scrutiny and is aimed at resolving obvious discrepancies.

Process:

1. Identification: The tax authorities identify potential cases for summary assessment based on certain criteria.
2. Prior Approval: The assessing officer seeks approval from the Additional or Joint Commissioner.
3. Notice: A notice is issued to the taxpayer informing them about the summary assessment.
4. Assessment Order: Based on available evidence, the tax officer issues a summary assessment order determining the tax liability.

Best Judgement Assessment

Best judgement assessment is applied when the taxpayer fails to provide sufficient information for a proper assessment. The tax authorities use their discretion to estimate the taxpayer’s tax liability based on available data and industry benchmarks. For instance, if a business fails to keep proper invoices, the tax authorities might use industry norms to estimate the tax liability. Best Judgement Assessment usually happens due to either of the two reasons:

• Non-filing of returns: When a registered taxpayer consistently fails to file their GST returns despite notices.
• Non-cooperation: If a taxpayer refuses to provide necessary information or documents during a regular assessment.

Process:

1. Notice: The tax officer issues a notice to the taxpayer, informing them about the intention to make a best judgement assessment.
2. Opportunity to Respond: The taxpayer is given an opportunity to provide explanations or supporting documents.
3. Assessment: Based on the available information, the tax officer determines the tax liability, including interest and penalties.
4. Assessment Order: The tax officer issues a formal assessment order detailing the calculated tax liability.

Assessment of Non-Filers

When a registered taxpayer consistently fails to file their GST returns, despite receiving notices, the tax authorities are empowered to undertake a “best judgement assessment” under Section 62 of the CGST Act. This involves the tax officer estimating the tax liability based on available information, including:

• Business records: Any accessible records maintained by the taxpayer.
• Bank transactions: Information about the business’s financial activities.
• Information from other sources: Data collected from suppliers, customers, or other relevant parties.

Assessment of Unregistered Persons Under GST

The assessment of unregistered persons is carried out under Section 63 of the Central Goods and Services Tax (CGST) Act. The process involves the following steps:

1. Identification: The tax authorities identify businesses operating without valid GST registration. This can happen through various means, including inspections, surveys, or information from other sources.
2. Notice: The tax officer issues a notice to the unregistered person, informing them about the initiation of the assessment proceedings and providing an opportunity to be heard.
3. Best Judgement Assessment: Based on the available information, including business records, bank transactions, and other relevant data, the tax officer determines the tax liability of the unregistered person.
4. Assessment Order: The tax officer issues an assessment order specifying the tax amount payable, along with interest and penalties.

Common Mistakes to Avoid Under GST

Navigating the Goods and Services Tax (GST) regime can be challenging for businesses, especially with its complex rules and regulations. Avoiding common mistakes is crucial to ensuring compliance and avoiding penalties:

1. Incorrect GSTIN Usage: Always use the correct GST Identification Number (GSTIN) on invoices and returns. Misreporting or using the wrong GSTIN can lead to mismatches and compliance issues.
2. Improper Invoice Management: Ensure that invoices are correctly formatted with all mandatory details, including the correct tax rates. Missing or incorrect information can result in penalties.
3. Late Filing of Returns: Delaying the filing of GST returns can attract late fees and interest charges. It’s important to adhere to the prescribed deadlines.
4. Errors in Input Tax Credit (ITC) Claims: Claiming ineligible or incorrect Input Tax Credits is a common mistake. Always verify that the credits you claim are valid and properly documented.
5. Ignoring Reconciliation: Regularly reconcile your purchase and sales data with the GST portal records. Ignoring this can lead to discrepancies and compliance issues during assessments.
6. Misclassification of Goods/Services: Accurately classify goods and services under the correct HSN/SAC codes. Incorrect classification can lead to the wrong tax rates being applied.

Conclusion

Understanding the types of assessments under GST is crucial for MSMEs to ensure compliance and avoid penalties. From self-assessment to best judgement assessment, each type serves a unique purpose and impacts businesses differently. Staying informed about recent amendments and managing assessments effectively can help businesses maintain compliance and optimize their tax strategies.

*This is for information only. All are requested to visit the official GST portal or consult with a GST practitioner, CA or relevant professional for more details on the GST registration process and more.  

FAQs:

Author: Anirban Sinha

A product manager with a writer’s heart, Anirban leverages his 6 years of experience to empower MSMEs in the business and technology sectors. His time at Tata nexarc honed his skills in crafting informative content tailored to MSME needs. Whether wielding words for business or developing innovative products for both Tata Nexarc and MSMEs, his passion for clear communication and a deep understanding of their challenges shine through.