The GST council in its 42nd meeting has proposed for quarterly filing of GSTR-3B and GSTR-1 for taxpayers with turnover up to Rs. Rs. 5 crores.

Many are looking at this as a welcome step towards ease of compliance in GST. No doubt that this step certainly is a welcome step for easing the compliance burden of the small taxpayers, however, there will be many cases where this can prove to be only a mirage for them.

For small taxpayers primarily making b2c sales, this will be a good step for reducing their compliance burden. Most of such taxpayers will get a major relief in compliance by filing the GSTR-3B quarterly. But they have to face the challenge of monthly tax payments also.

But for small taxpayers who are making b2b sales, then there is a problem which lies ahead.

In the same meeting, the GST council has proposed that the Input Tax Credit will be auto-populated through form GSTR-2B based on GSTR-1 filing by the counterparty. This means that, if a person is purchasing from a monthly GSTR-1 filer, the input tax credit of the purchases made shall be available to the buyer in the same month in which the purchase is made.

But, if the same buyer buys from a person who is filing GSTR-1 quarterly, he will get the input tax credit only after filing of quarterly GSTR-1 by the vendor. This means that the availment of the input tax credit from quarterly filer can extend up to as far as 4 months from the date of purchase.

This should be a major area of concern for MSMEs who are supplying to large companies having turnover above Rs. 5 crores. These large companies will now prefer to buy from the vendors who are filing GSTR-1 quarterly. Thus a small taxpayer will be under pressure from its large customers to opt for monthly filing of GSTR-1 with a constant fear of losing out of their large customer.

Though the MSMEs are currently also facing this problem since the rule 36(4) was made applicable last year. Due to COVID-19 situation, said rule was kept in abeyance till August 2020. But with this newly proposed provisions where the input tax credit is going to be auto-populated through form GSTR-2B, the challenge for MSMEs are even more.

Thus this option to file the GSTR-1 and GSTR-3B quarterly combined with new and revised input tax credit availment rules will result into a catch 22 situations for the small taxpayers who are supplying to large taxpayers in a b2b sales. They will be either forced to opt for monthly filing or lose their customer.