Expert verified Goods and Services Tax (GST), accuracy isn’t just a nice-to-have, it’s essential. Therefore, it is essential to learn about the common GST errors and how to avoid them.
With compliance becoming more digitized and transparent, even a small error in GST filings can result in penalties, cash flow issues, or scrutiny from tax authorities.
1. Mismatches Between GSTR-1 and GSTR-3B
This is hands down one of the most frequent and impactful GST errors businesses encounter.
Why it happens:
- Different teams preparing the two returns
- Manual entry errors
- Invoices generated but not reported in time
- Last-minute adjustments not reflected across forms
The Risk:
- Refund delays
- System-generated notices
- Legal notices under GST scrutiny or audit
How to prevent it:
- Reconcile GSTR-1 and GSTR-3B before submission
- Use a unified data source (ERP or accounting software) to populate both returns
- Create a pre-filing checklist to catch discrepancies early
2. Incorrect or Missing HSN/SAC Codes
HSN (Harmonized System of Nomenclature) for goods and SAC (Service Accounting Code) for services are mandatory in invoices and returns.
Why it matters:
Incorrect codes can:
- Lead to wrong GST rates being applied
- Trigger errors in returns
- Delay refunds or input credits
Common Mistakes:
- Using outdated codes
- Applying a general code across all items
- Leaving HSN fields blank in returns
How to fix it:
- Maintain a product-wise master list of HSN/SAC codes for each client
- Use government-published GST rate finder tools
- Train bookkeeping staff on proper classification
Value Addition: Create a “custom HSN/SAC reference sheet” for your business or your client’s business type—it’s a small task with big value perception.
3. Ineligible or Excessive ITC Claims
Input Tax Credit (ITC) is a major area of scrutiny by tax authorities. Many businesses unknowingly claim ITC on blocked or ineligible inputs, leading to penalties during audits.
Where errors happen:
- ITC claimed on personal or non-business expenses
- ITC claimed on goods/services not used for taxable supplies
- Expenses like club memberships, personal vehicles, gifts, etc.
- ITC claimed when vendor hasn’t paid their GST
Avoiding the Pitfalls:
- Reconcile GSTR-2B monthly to match eligible ITC
- Set up filters in accounting software to flag questionable ITC
- Educate clients on what’s not allowed under Section 17(5)
Smart Strategy: Build and offer a “Quarterly ITC Review Report” service. It reduces risk and reinforces your client’s financial discipline.
4. Delays in Filing GST Returns
Late filing of GSTR-1, GSTR-3B, or Annual Return (GSTR-9) not only attracts late fees and interest but can also lead to blocking of ITC or revocation of GST registration.
Why it happens:
- Delays in receiving documents from clients
- System downtime during deadlines
- Poor internal coordination
How to fix it:
- Use practice management software to send automated reminders
- Track filing status across all clients using a centralized dashboard
5. Neglecting Reverse Charge Mechanism (RCM)
Reverse Charge applies in cases where the recipient is liable to pay GST instead of the supplier (e.g., legal services, import of services, unregistered purchases).
Frequent RCM mistakes:
- Not identifying RCM-liable services
- Failing to pay tax under RCM
- Forgetting to claim ITC on RCM-paid tax
How to prevent it:
- Maintain a vendor-type mapping to track unregistered or RCM-vendors
- Configure software to auto-tag such entries
- Ensure payment of RCM tax is reflected in GSTR-3B and ITC claimed accordingly
6. Poor Record-Keeping and Documentation
GST audits require solid documentation. Missing or poorly maintained records lead to ITC reversals, refund rejections, and compliance penalties.
Examples:
- Invoices without HSN codes
- Missing E-way bills
- Lack of vendor payment proofs
- Export invoices without LUT or shipping bills
Preventive Measures:
- Encourage cloud-based record management
- Offer a digital archiving service or checklist
- Do quarterly mock audits to review record strength
Solution: Digitize the GST files and maintain a ready-to-audit folder structure.
7. Wrong Classification of Zero-Rated Supplies
Exporters and SEZ suppliers often misreport their zero-rated supplies, either by using the wrong method (IGST vs LUT) or failing to meet procedural requirements.
Mistakes include:
- Not applying for LUT in time
- Reporting SEZ supply as taxable domestic supply
- Missing SEZ officer endorsements
Fix it with:
- SOPs for SEZ and export billing
- Pre-set compliance calendars (renew LUT before April each year)
- Review export invoices monthly against GSTR-1 entries
Client Value: Offer “Zero-Rated Compliance Support” to exporters and SEZ suppliers, including LUT filing and refund tracking.
8. Ignoring Annual Return Reconciliation (GSTR-9 & 9C)
Annual reconciliation is often treated as a formality—but it’s where most historical issues surface. Ignoring or delaying this can expose clients to GST audits and ITC reversals.
Risk Factors:
- Gaps in reported turnover vs. books
- Misreporting of ITC across years
- Unexplained adjustments in GSTR-3B
Your Approach:
- Begin the reconciliation process in Q4 of each year
- Match books, GSTR-1, GSTR-3B, and GSTR-2B systematically
- Document adjustments clearly and retain supporting documentation
In Conclusion:
Avoiding GST errors isn’t just about ticking compliance boxes—it’s about protecting money, reducing risk, and it provides the following various benefits.
- Avoids penalties and late fees.
- Prevents interest on delayed tax payments.
- Ensures accurate Input Tax Credit (ITC) claims.
- Enables faster GST refund processing.
- Maintains consistency between GST returns and books.
- Reduces chances of receiving GST notices.
- Improves GST compliance rating.
- Helps vendors claim ITC smoothly.
- Makes GST audits and assessments hassle-free.
- Strengthens internal financial controls and accuracy.
