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Generally, the due diligence performed by banks or other lenders before giving a loan is based on traditional parameters such as the company’s past performance, financial statements, cash flows, managing authorities and related aspects. The introduction of GST in July 2017 has led to emergence of other data source that indicates a company’s compliance health as well as reflect its financial standing.

GTS returns

GSTR-1 is a return filed by taxpayers on a monthly or quarterly basis where they disclose details of outward supplies for the mentioned period along with their tax liability for the same. In GSTR-1, invoice-wise details must be uploaded so as to enable the Government to keep a check on every transaction. This statement of outward supplies filed by the supplier becomes the basis for the recipient of such supply to be able to take eligible input tax credit (ITC).

GSTR-3B is a summary return filed by the taxpayer on the 20th of next month in case of monthly returns and 22nd or 24th of month following the quarter in case of quarterly returns. In GSTR-3B, the taxpayer is required to disclose outward supplies made during the month in a summary form along with the GST payable, ITC claimed and purchases on which Reverse Charge Mechanism (RCM) is applicable etc. It also shows the tax liability, if any, for the relevant month along with the details of taxes actually paid.

Types of GST Data

  • Public GST Data – This includes basic registration details, current status & history of returns filed. It includes business details like the legal name, constitution of business (proprietor, firm, company etc.), the principal place of business along with additional locations from where the business operates. Filing history including details about the GST returns filed so far, date and mode of filing.
  • Private GST Data – This consists of details filed within the GST returns. Accessing such data requires the taxpayer’s consent. It includes details like invoice information, customer base, suppliers, tax liability and taxes paid etc. which are usually reported in GST Returns. These can be either on monthly or quarterly basis depending on the option chosen by the taxpayer.

GST Compliance Score & Details Published Therein

GST Compliance Score or GST Rating refers to a particular score as determined by the Goods and Service Tax (GST) Department for all registered taxpayers. This score is based on the taxpayer’s record of compliance based on GST parameters and is updated periodically.

It is placed in public domain so as to enable dealers, lenders and other stakeholders get an idea about the user’s compliance profile before entering into a business transaction with them.

How Invoice Verification and other GST Data can be used in Lending Purposes

Rather than relying solely on furnished books of accounts and financial statements, lenders can verify a company’s financial standing based on their GST data and returns filed. With the taxpayer’s consent, they can access private GST data like turnover of the entity, names of customers, names of supplier, sales made to respective customers, purchases made from respective buyers etc.

Moreover, for registered persons with aggregate turnover in a Financial Year exceeding Rs. 50 crore, e-invoicing is applicable under GST which helps small businesses secure instant loans without the need for excess documents as their financial position can be rated on the basis of these invoices.

A trend can be analysed for factors like defaults by customers to check the recoverability of business investments and purchase transactions with suppliers to determine which party would significantly influence the transaction terms. The possible risks of fake invoices or window dressing the financial statements for procuring a loan are reduced as GST data is uploaded by the taxpayer in GSTR-1 and simultaneously ITC for the same is accepted by the recipient. This helps to track and determine the transactions’ authenticity.

Benefits of Invoice Verification in Lending Process

  • Use of GST data and invoice verification for lending is extremely useful, especially in case of small businesses. This avoids furnishing of plethora of documents and other compliances and makes the process of procuring loans easier and faster.
  • The GST data i.e., their source data is accurate and authentic, it reflects an accurate financial standing and creditworthiness along with other factors like the number of transactions, e-way bills, turnover etc.
  • As businesses are often in need of funds for routine operations as well as capital expenditure, this digital lending journey reduces high cost of acquisition and servicing of loans.
  • The complex concept of credit evaluation can be simplified with the help of GST Compliance Score.
  • Invoice verification in lending process helps the credit management process of the banks by reducing the number of non-performing assets as the customers with a low GST rating can be observed closely, which also improves and increases operational efficiency.
  • The lenders can immediately find out any anomalies like temporary suspension or cancellation of GST registration which could be indicative of suspicious business practices, non-compliances, or other alarming factors.

Disadvantages of using GST Data in Lending Process

Relying solely on GST data and compliance may be burdensome for some small businesses who lack the resources to be fully compliant, especially in the days of inception of business. Any errors or miscalculations could also impact the GST Compliance Score adversely and such delays could, in turn, cause the whole business to collapse.

Thus, the larger business entities with more resources at their disposal are at an advantage if GST data is used to determine creditworthiness in lending process.

Points to Note while Verifying GST Data for Lending Purposes

From public data, it is possible to know the status of the GSTIN. But the purpose of any suspension or cancellation – whether it was self-initiated or because of some regulatory action – cannot be deciphered. The nature of whether this is temporary or permanent cannot be assumed as well.

In case of lending based on turnover, a business that has obtained multiple GST registrations would have to treat any transaction between own GSTINs to be Supply as per GST Rules. Hence, these would be reflected as Sales i.e., in case of inter-branch transfers. Thus, the turnover mentioned in GSTR 3B will include such transactions though they are not actual sales. In such cases, the lender will have to compare and identify such transactions using books of accounts.

Timely return filing may not always imply that the tax liability is fully discharged. The individual sales details and tax liability are declared in GSTR 1 but GSTR 3B reflects the actual payment made and total value of sale. Though both these returns are linked, taxpayers do not have an option to edit the amounts, even in genuine cases of mismatch. A company may resort to filing a Nil GSTR 3B to appear GST compliant without paying taxes. The reason behind such mismatch can be found only after private data is fetched, which requires the taxpayer’s consent.

Hence, risk is involved if evaluation is made purely on basis of public GST data without going through the GST returns filed for Invoice Verification.

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