Practical Approach of GSTR 2: What?, Why?, Input Tax Credit Reversal

Practical Approach of GSTR 2: For filing GSTR 2, the given below question & answer will be useful. Similarly, for understanding GSTR-3B & GSTR-1. We have already published in our earlier Articles.

What is GSTR-2?

Every registered taxable person is required to give details of Inward Supply, i.e., purchases for a tax period in GSTR-2.

Why is GSTR-2 important?

GSTR-2 contains details of all the purchases transactions of a registered dealer for a month.

It will also include purchases on which reverse charge applies.

The GSTR-2 filed by a registered dealer is used by the government to check with the sellers’ GSTR-1 for buyer seller reconciliation.

What is buyer-seller reconciliation?

Buyer-seller reconciliation or invoice matching or is a process of matching taxable sales by the seller with the taxable purchases of the buyer.

It is vital because ITC on purchases will only be available if the details of purchases filed in GSTR-2 return of buyer matches with the details of sales filed in GSTR-1 of the seller.

What happens if GSTR 2 is not filed?

If GSTR-2 return is not filed then the next return GSTR 3 cannot be filed. Hence, late filing of GST return will have a cascading effect leading to heavy fines and penalty

What happens if GSTR-2 is filed late?

If you delay in filing, you will be liable to pay interest and a late fee.

Interest is 18% per annum. It has to be calculated by the tax payer on the amount of outstanding tax to be paid. Time period will be from the next day of filing to the date of payment.

Late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST. Total will be Rs. 200/day. Maximum is Rs. 5,000.There is no late fee on IGST.

How to revise GSTR 2?

GSTR 2 once filed cannot be revised. Any mistake made in the return can be revised in the next month’s return. It means that if a mistake is made in September GSTR 2, rectification for the same can be made in October’s GSTR 2.

Details to be provided in GSTR-2

There are 13 headings in GSTR-2 format prescribed by the government.

We have explained each heading along with the details required to be reported under GSTR-2.

3. Inward Supplies from Registered Taxable Person

Most of the purchases from a registered person will be auto-populated in GSTR-2A filed by the seller. You have to import that invoices from GSTR-2A to GSTR-2.

It will have all details of type, rate and amount of GST, whether ITC is eligible, amount of ITC.

However, it will not contain purchases under reverse charge Certain transactions may not be auto-populated because

  • Seller did not file GSTR-1
  • Seller filed GSTR-1 but he missed the transaction

In either case, the buyer can manually add these transactions. The seller will get a notification to accept this addition/modification in his GSTR-1A return.

If the supply is received in more than one lot, the invoice must be reported in the return of the month in which the last lot is received and recorded in books of accounts.

How to Import Invoices from GSTR-2A to GSTR-2

When a seller files his GSTR-1, the information is captured in GSTR-2A. GSTR-2A is a purchase-related tax return that is automatically generated for each business by the GST portal.

It takes information from the seller’s GSTR-1. You are required to verify (and amend) this return before filing in on GST Portal. Scroll down to the bottom of the GSTR- 2 – Inward Supplies received by the Taxpayer page and click the GENERATE GSTR-2 SUMMARY button. This action will update the summary on the tiles and you will be able to view the number of auto-drafted invoices/ credit note / debit notes etc. on the tile.

It will have all details of type, rate and amount of GST, whether ITC is eligible, amount of ITC. You can edit, accept, delete or keep the invoices in pending state, which are added by the supplier

Inward supplies on which tax is to be paid on reverse charge

Certain goods and services attract reverse charge, i.e., the buyer is liable to pay GST. A registered dealer purchasing more than Rs. 5,000 per day from an unregistered dealer is liable to pay reverse charge.

All purchases on which reverse charge applies, will be reported in this part.

4A.Under this head, all purchases on which reverse charge specifically apply by law must be mentioned. For example, purchasing cashew nuts from an agriculturist.

4B. This head will list the purchases from unregistered dealer which exceed Rs. 5,000 per day from an unregistered dealer

4C. Under this head, reverse charge GST paid on import of service will be reported.

5. Inputs/Capital goods received from Overseas or from SEZ units on a Bill of Entry

Any kind of import of inputs (items used to manufacture finished goods) or capital goods received against a Bill of Entry must be reported under this head. Goods received from SEZ are also reported here.

  • 5A. Imports: Any kind of import of inputs (items used to manufacture finished goods) or capital goods received against a Bill of Entry will be reported here. Details of bills of entry, along with 6-digit port codes and 7-digit bill numbers must be mentioned.
  • 5B. Received from SEZ: Inputs or capital goods received from sellers in a SEZ will be reported here.

A taxpayer cannot revise any GST return once it is filed. Revision is possible only in the next month’s return under this heading. The taxpayer can amend any detail of purchases of goods/services in earlier months. This information can be filled manually. Subsequently, the seller will also get a notification regarding this modification. The seller needs to accept this change in his GSTR-1A return.

  • 4C. This head will contain all revisions of import goods/ services.
  • 4B. This head will contain all Inward Supplies received from unregistered dealers.
  • 6C. This head will contain all debit and credit notes issued to registered dealer.
  • 6C. This head will contain all debit and credit notes issued to unregistered dealer.

The taxpayer must report all debit and credit notes issued with respect to purchases. Any debit/credit note issued under reverse charge mechanism will get auto-populated here from counter-party GSTR-1 and other applicable returns (e.g. GSTR-5 filed by NR).

7. Supplies received from composition taxable person and other exempt/Nil rated/Non-GST supplies received

This head will include purchases from composition dealer and other exempt/nil/non-GST supplies.

Non-GST supplies include items like petrol, diesel which are not covered under GST. Also, both inter-state and intra-state supplies need to be reported here.

10. Consolidated Statement of Advances paid/ Advance adjusted on account of receipt of supply

Any advance payment made during the month will appear here. If you paid advance tax on goods or services received during an earlier tax period, but only received the invoices this month, declare the details here.

Advance receipts issued under reverse charge are also covered here.

Normally the seller issues an advance receipt when he receives any advance payment. In case of purchases attracting reverse charge, the buyer must issue the advance receipt if he pays in advance.

Part I –

  • This part will cover the advance amount paid for reverse charge supplies in the current month.
  • It will also include the advances paid in earlier months against which invoices have been received in current month.
  • The purchases will be broken up into inter-state and intra-state.

Part II will contain changes to above part I in relation to an earlier month.

TDS Credit Received – This section will only be applicable in case you engage in specified contracts with specified persons (usually government bodies). The receiver (government) will deduct a certain percentage of transaction value as Tax Deduction at Source. All information will get auto-populated here from GSTR-7 filed by the deductor.

TCS Credit Received – This heading is applicable for only online sellers registered with e-commerce operator. Ecommerce operator is required to collect tax at source at the time of making payment to such sellers. This information will again be auto-populated from GSTR-8 of e-commerce operator.

Input Tax Credit Reversal / Reclaim

ITC can be availed only on goods and services for business purposes. If they are used for non-business (personal) purposes, or for making exempt supplies ITC cannot be claimed.

In this heading, the taxpayer must to fill in details of ITC that cannot be claimed during the month due to various ITC rules.

11A. This head will cover all input tax reversal for the current month. It will also include ITC reversal on account of exempt and personal supplies.

  • a. Amount in terms of rule 37(2) – ITC will be reversed for invoices which were not paid within 180 days of issue.
  • b. Amount in terms of rule 39(1)(j)(ii)- This is for ISDs. If a credit note was issued by the seller to the HO then the ITC subsequently reduced will be reversed.
  • c. Amount in terms of rule 42(1)(m) – This is for businesses which use inputs for both business and non-business (personal) purpose. ITC used in the portion of input goods/services used for personal purpose must be reversed proportionately.
  • d. Amount in terms of rule 43(1)(h) – This is similar to above except that it concerns capital goods.
  • e. Amount in terms of rule 42 (2)(a) – This is calculated after the annual return is furnished. If total ITC on inputs of exempted/non-business purpose is more than the ITC actually reversed during the year then the difference amount will be added to output liability. Interest will be applicable.
  • f. Amount in terms of rule 42(2)(b) – This is is the opposite of the above. If total ITC on inputs of exempted/non-business purpose is less than the ITC actually reversed during the year then the difference amount can be reclaimed as ITC.

HSN summary of inward supplies

This section requires a registered dealer to provide HSN wise summary of goods purchased. It will be entered by the taxpayer.

For More Details kindly find link- help/help modules

Notes- The article has been prepared considering all circulars /notices with respect to GST, and given views are owned & will not be responsible for any financial loss.

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