With the financial year drawing to a close, businesses must look beyond simply finalising their accounts and take time to review key GST compliances. A timely review can help avoid penalties, protect cash flow, and ensures smooth operations from 1st April. Below are some important areas every business should check before the year closes.
- Letter of Undertaking (LUT) for Exporters Letter of Undertaking for Exporters
If you are engaged in the export of goods or services, you must apply for a fresh LUT for the upcoming financial year. An LUT allows exporters to issue invoices without charging GST. Filing it before 31st March ensures that export invoices can continue to be issued from 1st April without any disruption.
Submitting the LUT on time helps avoid blockage of working capital, as exporters are not required to pay GST first and then claim a refund. If the LUT is not filed in time, GST may have to be paid on export transactions, which can create unnecessary cash flow pressure for the businesses.
- E-Invoicing Applicability Check Before Year End
As per GST provisions, E-Invoicing becomes applicable if a business’s aggregate annual turnover has exceeded ₹5 crore in any financial year from FY 2017–18 onwards. Before the financial year closes, businesses should carefully review their turnover to determine whether they fall within this threshold.
If the limit is applicable, necessary preparations should begin immediately so that E-Invoicing can be implemented smoothly from 1st April. Proper compliance ensures that invoices remain legally valid and customers can claim Input Tax Credit (ITC) without difficulty. Non-compliance may lead to invoices being treated as invalid, along with potential penalties and denial of ITC to customers.
- ITC Reconciliation Before Year End
Before closing the financial year, businesses should reconcile Input Tax Credit (ITC) as per their books with the details reflected in GSTR-2B. This helps identify mismatches, missing invoices, or any excess ITC that may have been claimed.
Timely reconciliation enables businesses to correct errors and follow up with vendors for pending invoice uploads. If overlooked, excess ITC claims may attract interest and penalties, while unclaimed eligible ITC may lead to financial loss. Proper reconciliation also supports smoother annual audits and helps address any GST assessments in the future.
- Review of Advances and Unbilled Revenue
Check whether GST has been correctly paid on advances received for services (where applicable) and verify if any unbilled revenue needs to be invoiced before the financial year closes.
Overlooking these items may lead to underpayment of GST, resulting in interest liability and potential notices from the tax department.
- Reverse Charge Mechanism (RCM) Compliance Check
Review all transactions during the year that fall under the Reverse Charge Mechanism, such as services received from unregistered vendors, legal services, import of services, sponsorships, and other applicable categories.
Ensure that GST under RCM has been paid where required and that the corresponding ITC has been correctly claimed. Any lapse in compliance may lead to interest liability and potential penalties.
- Start a Fresh Invoice Number Series
Although it is not mandatory under GST law, it is advisable to begin a fresh invoice number series from 1st April. Doing so helps maintain clear and organized records while distinctly separating transactions of one financial year from those of the next.
A new invoice series also makes reconciliations and audits more efficient. Continuing with the same series across financial years can sometimes create confusion during financial reviews or departmental assessments.
- GST Refund Review
Businesses should review whether any GST refunds, such as export refunds, accumulated ITC, or excess cash balances, remain pending. Filing refund claims within the prescribed timelines helps improve cash flow and ensures that funds are not unnecessarily blocked.
If refunds are not reviewed and filed on time, businesses may lose eligible claims due to statutory deadlines, leading to avoidable financial loss.
- Input Service Distributor Registration Review
Companies with multiple GST registrations across different states should evaluate whether registration as an Input Service Distributor (ISD) is necessary. The ISD mechanism enables the proper distribution of Input Tax Credit among different branches, ensuring efficient and optimal utilization of credits.
If not structured appropriately, it can lead to disputes related to ITC distribution, potential interest liabilities, penalties, and additional administrative complications.
- Ensure Updated and Active Importer-Exporter Code Details
Businesses engaged in import or export must ensure that their Importer-Exporter Code (IEC) details are updated and remain active. Accurate IEC information helps prevent delays in customs clearance, ensures proper reflection of Bill of Entry (BOE) details on the GST portal, and supports smooth trade operations.
If IEC details are outdated or inactive, shipments may face delays or get held up at customs, which can disrupt business operations and affect continuity.
Final Thought – Closing the Year with Strong GST Compliance
GST year-end compliance is like a financial health check-up for your business. Reviewing these key areas before 31st March can help prevent cash flow issues, reduce compliance risks, and ensure a smooth start to the new financial year. A little attention now can save significant time, money, and stress later. Seeking timely guidance from experienced tax professionals can further help businesses review compliances thoroughly and address potential issues before they become costly problems.