Small Business: Is QRMP For You?
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The start of the year 2021 saw the launch of a new scheme introduced under Goods and Services Tax (GST) - The Quarterly Return Filing Along With Monthly Payment of Taxes Scheme, simply known as the QRMP Scheme. Under this scheme, small taxpayers can file their GSTR-1 and 3B returns every quarter, while continuing to pay taxes on a monthly basis. Only available to small businesses with turnover up to INR 5 crore, this scheme has eased business compliances by reducing GSTR-1 and 3B returns filed from twenty-four to just eight each year.
But what happens when a small business supplies goods or services to larger businesses filing monthly GST returns? To allow the continuous flow of input tax credit (ITC), the government has introduced an Invoice Furnishing Facility (IFF) for quarterly filers to upload their sales invoices each month in lieu of the GSTR-1 return. These invoices will reflect in the relevant inward supplies statement of the recipient taxpayer. If you’re a small business filing quarterly returns, then it is recommended that you use this facility to allow your customers to claim ITC seamlessly. If you’re a large business benefiting from timely ITC filings, then the onus is on you to push your vendors to frequently upload invoices in the IFF.
When it comes to payments, there are two modes of challan creation and payments offered to taxpayers. The first one is the fixed-sum method, where the challan is pre-filled by the GST portal. The amount is calculated at a fixed percentage, based on the previous month/quarter’s tax liability that was reported in the GSTR-3B. The second method is the self-assessment method, where taxpayers have the option to report the actual tax liability based on their outward supplies. This is done after taking into consideration the ITC available in their GSTR-2A/2B.
So if you happen to be a small business as per the Goods and Services Tax definition, and you haven’t yet opted in, you may wonder if this scheme is for you. Let’s take a look at the benefits of opting into the QRMP Scheme.
GST compliance is much simpler: With twenty-four returns now reduced to eight, an option to use a pre-filled challan, and no late fees for delayed payment (note that interest will still be applicable), compliance has undoubtedly become simpler.
It is not mandatory to furnish invoices every month: It is up to a QRMP taxpayer to choose whether they wish to use the IFF or not, and uploading invoices at the end of the quarter will not result in any penalties being imposed.
Taxpayers can opt-in or out easily: Opting into the QRMP scheme is easy and can be done on the GST portal. Once opted in, there is no compulsion to stay in for the rest of the financial year. A taxpayer can opt-out for the next quarter itself, as long as he does so within the prescribed period. Hence, there is a lot of flexibility to choose what suits the taxpayer’s needs for that quarter or the next one.
The scheme is not PAN-level; each GSTIN can choose: If a business has multiple registrations, say in different states, each of these registrations can choose whether to file their returns monthly or quarterly as the scheme is not chosen at a PAN-level. A GSTIN is not bound by filing decisions taken at a central level.
While the advantages of the QRMP scheme are convincing enough to opt-in, there are certain situations where choosing this scheme will not be beneficial to your business.
Filing frequency of customers
This is one of the most important factors to consider. If your business has a majority of customers who file monthly returns, it would mean that you also need to upload invoices each month, otherwise, you risk losing these customers. In such a case, if you had to upload supply invoices every month and within the due date, the compliance burden would be similar to filing a GSTR-1 return.
Nature of business
If your business is seasonal in nature, then using the pre-filled challan calculated basis the previous month’s GSTR-3B will not be useful to you, especially if you’ve had higher sales in the previous quarter and are anticipating lower sales in the current one. While the option of the self-assessment methods also exists, you will need to compute your outward tax liability and input tax credit for each month in a situation like this. Monthly tax computations will be similar to filing GSTR-3B returns in such a case.
Value of invoices/revenue being reported each month
If you plan to report invoices in the IFF, you should note that the IFF allows the furnishing of invoices only up to INR 50 lakh in value each month. Hence, if you have fluctuating sales where you could cross INR 50 lakh in certain months, then you will not be able to record all your invoices in the IFF for those months, and you will need to file a GSTR-1 return if your clients are depended on these invoices to claim ITC.
If the three situations mentioned above do not apply to you, then the QRMP scheme is the right choice for your business. If your business is hindered by one or more of the challenges mentioned above, then regular monthly filing of GSTR-1 and 3B would be more suited for you. Either way, as mentioned before, the QRMP scheme offers flexibility, and it is possible to opt-in or out of the scheme and chooses a compliance option that best benefits your business for that quarter.