Understanding Provisional Assessment under GST: A Complete Guide

The ease of conducting business in India has greatly increased since implementing GST. By eliminating the cascading effect of various taxes, it has reduced the tax burden on businesses, which has led to cheaper costs for goods and services for consumers. Also, by expanding the tax base and decreasing the tax evasion, the GST has helped the government raising its revenue collection. In India, the supply of goods and services is subject to the Goods and Services Tax (GST), which is a comprehensive indirect tax. It was introduced in 2017 with the aim of replacing multiple indirect taxes with a single tax structure. The implementation of GST has simplified the tax system by ensuring uniformity in tax rates and procedures across all the States and Union Territories in India, resulting in greater efficiency.  Overall, GST has fundamentally transformed the Indian tax structure, which is advantageous to businesses and consumers as well as the government. It has simplified the tax system by making it more efficient and effective while promoting the nation’s economic progress. In this blog, we will discuss Provisional Assessment under GST.

Meaning of Assessment under the Central Goods and Services Tax Act, 2017 (CGST Act)

Section 2(11) of the Central Goods and Services Tax Act, 2017^[1], defines assessment. Assessment under the GST law refers to the procedure used to determine the tax liability of a taxpayer. It entails how much the taxpayer owes using the information provided in their return for the applicable tax period. The assessment procedure makes sure that the taxpayer pays the correct amount of tax in compliance with the GST law’s guidelines. Assessment includes self-assessment, re-assessment, best judgment assessment, provisional assessment, and summary assessment.

Self-assessment and assessment by tax authorities are the two forms of assessment provided by the CGST Act. Self-assessment is carried out by the taxpayer themselves through the filing and payment of required taxes. Tax authorities can also conduct an evaluation to confirm the accuracy of the self-assessed tax liability. 

The process of assessment under the GST law includes the following steps:

1. An examination of the taxpayer’s return is submitted.
2. Reviewing the supporting records and documents that the taxpayer provided.
3. A thorough analysis of any errors or inconsistencies in return.
4. Based on the information provided in return and accompanying documents, the tax liability is to be calculated.
5. Sending the taxpayer a notice of demand if any tax is discovered to be due.

In order to ensure compliance with tax rules and help in the prevention of tax evasion, assessment is a fundamental part of the GST system. The assessment procedure makes sure that the taxpayer pays the appropriate amount of tax in order to promote transparency and fairness in the tax system. It is a crucial process that aids in guaranteeing adherence to tax regulations and encouraging honesty and impartiality in the GST system.

Meaning of Provisional

In a number of fields like banking, law, finance, education etc., the word “provisional” is frequently used. It usually refers to something that is temporary or tentative and is still subject to confirmation or verification. The word “provisional” means that a situation or result is not yet specific or final.

What is Provisional Assessment under GST?

A taxpayer is allowed to pay tax on an estimated basis under the terms of a provisional assessment under GST, subject to final assessment at a later time. It is a provisional determination made by the taxpayer that is open to revision by tax authorities in the light of the final determination. Provisional Assessment under the GST is primarily intended to give taxpayers the option of making interim tax payments when they are unable to determine the exact tax liability for some reason. The valuation and the applicable tax rates are generally the main determinants of tax liability.

For businesses, provisional assessment is helpful too, since it gives them flexibility in managing their cash flow and protects them from any penalties that can result from late tax payments. It is beneficial for tax authorities as well because it enables prompt and effective evaluation of taxpayers’ tax liability.  

However it is crucial to understand that provisional assessment is different from self-assessment. Taxpayers who self-assess their tax liabilities and pay the corresponding amount to the government. The provisional assessment, on the other side, is a temporary assessment which is made for the tax payers, subject to revision by the tax authorities. To ensure that the provisional assessment is correct and in accordance with the GST laws and regulations, it is essential to follow the correct procedures and guidelines.

Difference between Self Assessment and Provisional Assessment

The two words that are frequently used in the context of the GST regime in India are self-assessment and provisional assessment. While they are both in connection to tax liability assessment, there are some notable differences between them. 

1. Meaning:
2. Self Assessment is a method in which the taxpayer estimates and pays his tax liability.
3. Provisional Assessment is a process in which the tax authority assesses the tax liability provisionally, pending the ultimate decision of the tax liability. 
4. Application:
5. Self Assessment is a default method of assessment under GST, and every taxpayer is obliged to self-assess their tax liability and pay the tax accordingly.
6. Provisional Assessment is an optional form of assessment that the taxpayer can use in specific circumstances.
7. Finality:
8. The tax liability is final in self-assessment and cannot be disputed by the taxpayer or the tax authorities unless an appropriate legal process is followed.
9. The tax liability is provisional and subject to final decision by the tax authorities in provisional assessment.

To maintain compliance with GST legislation, it is essential for the taxpayers to understand the difference between self-assessment and provisional assessment.

Reasons for Opting For Provisional Assessment

Provisional assessment can be applied when the actual value of goods or services cannot be determined for a variety of reasons, such as difficulty about the transaction value which is used to calculate the tax liability or when the taxpayer is unable to furnish all the documents required such as invoices or bills of supply to determine the value of goods or services. Provisional assessment has also opted when there is difficulty in deciding whether to include or exclude any receipts in the value of supply.

A taxpayer who cannot determine the rates of taxes applicable on the goods or services because of the difficulty in classifying the goods or services under the applicable schedule or when is not sure about the eligibility to any exemptions, or in compliance with the conditions relating to that exemption can also opt for provisional assessment.

Who Can Apply For The Provisional Assessment?

Everyone who is registered as a GST taxpayer can choose provisional assessment. The proper officer under GST legislation must receive a request for provisional assessment from the taxpayer in writing, together with the necessary documents required for the request. The officer then considers the request after reviewing all the documents and allows the taxpayer to pay tax provisionally.

It is important to note that the decision to grant the provisional assessment is at the discretion of the proper officer, who will carefully review the application. He can further ask for additional documents to support the application. The proper officer can also reject the request for provisional assessment if he deems it inappropriate or unnecessary.  

Steps Involved In Applying For Provisional Assessment

Here are the steps involved in applying for Provisional Assessment under GST:

• Filling of the Application:

According to Section 60(1) of the CGST Act, the taxpayer must submit an application for a provisional assessment in Form GST ASMT-01 on the common portal or facilitation centre notified by the commissioner. 

• Submission Of Documents:

The taxpayer must provide all the necessary documents needed for the provisional assessment. They can be bills of supply, invoices, purchase orders or any other relevant documents. If the proper officer deems it appropriate, additional documents or information may be required. The notice in Form GST ASMT-02 will be issued to taxpayers for the same. The taxpayer can also appear in front of the officer by filing a notice under Form GST ASMT-03.

• Provisional Assessment Order:

The proper officer will issue a Provisional assessment order in Form GST ASMT-04. The order will specify all the details relating to the estimated amount and the time frame for which the provisional assessment is applicable, along with the bond and security that is to be furnished. This order is to be passed within ninety days of the request. 

• Payment Of Estimated Tax: 

The taxpayer is required to pay the estimated tax amount that the proper officer has calculated. Based on the information given by the taxpayer and documents that are available, the estimated amount is determined.

• Issuance Of Bond With Security:

The taxpayer has to execute a bond in Form GST ASMT-05 with security that guarantees the difference amount between the finalized tax and provisional assessed tax.

The taxpayer must ensure that all required documents are provided within the limited time frame, as provisional assessment is only for a certain time limit. Penalties and interests can be incurred for failure to comply.

Execution of Bond and Security – Section 60 (2) of the Central Goods and Services Tax Act, 2017

A taxpayer is required to furnish a bond and security to the proper officer as a guarantee for the payment of the tax liability. This is done to ensure that the taxpayer pays the correct amount of tax once the final assessment is made. The taxpayer has to execute a bond in the Form GST ASMT-05 with a specified bank guaranteeing to pay the difference between the provisionally assessed tax and final tax liability, which is decided by the proper officer. The security cannot be more than twenty-five per cent of the amount covered under the bond. A surety or a security as a bank guarantee or a fixed deposit must be submitted with the bond.

The taxpayer’s bond and security are valid up until the assessment is finalized. The bond and security must be released when the final assessment is made. The bond and security will be enchased by the proper officer if the taxpayer fails to pay the final tax liability. 

Release of Security 

After receiving the application for therelease of the security, the proper officer would issue the form GST ASMT-09 within seven working days, for releasing the security, upon payment of the amount due, if any.

Other important Forms

• GST ASMT-06

This form is used for giving the notice of the final assessment by the proper officer.

• GST ASMT-07

This form is issued for the final assessment order by the proper officer.

• GST ASMT-08

This form is for the application of the release of the security amount by the taxpayer. 

• GST ASMT-09

This form is used for the issuance of the order for the release of the security.

Case Law In Relation To Provisional Assessment

InCollector of Central Excise. Patna v/s ITC Limited [1994 (2) TMI 62-Supreme Court], it was decided that before the provisional assessment was finalized, the assessee should have the chance to appear in person, particularly in situations where the assessee has to pay additional service tax as a result of the finalization.

Time Limit for Completing Provisional Assessment 

The provisional assessment should be completed within six months of the day the order for the provisional assessment was made. However, if the taxpayer has a compelling justification for the extension, the proper officer can extend the time limit by an additional term of six months. If the officer is a Joint Commissioner or Additional Commissioner, the time can be extended up to six months, whereas if the officer is a Commissioner, then the time limit can be extended up to four years, not more than that. 

The taxpayer must provide all the necessary documents and information during this time in order for the assessing officer to do the final assessment. The final assessment is made once the actual value of goods or services is ascertained. The taxpayer is then obliged to pay the remaining tax amount or receive a refund, as the case may be. 

Advantages and Disadvantages of Provisional Assessment

• Advantages:
  • Reduced Liability: Taxpayers have the option to pay taxes based on an estimated value of goods or services due to provisional assessment. As a result, taxpayers who cannot ascertain the actual worth of goods or services might avoid paying a significant amount of tax.
  • Time Saving: Provisional assessment is a fast process that can save time for taxpayers who are unable to provide all the necessary documentation or in a situation where it is difficult to ascertain the actual worth of goods or services. For taxpayers who have limited time, it is an excellent choice. 
  • Flexibility: Taxpayers have more freedom when it comes to tax payment options because of provisional assessment. Taxpayers have the option to pay their taxes in installments, which is not an option with self-assessment.
  • Avoidance of Interest and Penalty: Taxpayers may benefit from the provisional assessment in order to save money on interest and penalties. It is preferable to pay taxes using an estimated value as opposed to not paying any taxes at all.
  • Better Cash Flow Management: Taxpayers who use provisional assessment may find it easier to control their financial flow. Taxpayers have the option to pay their taxes in installments, which will enhance their cash flow.

• Disadvantages:
  Audit Risk: Provisional assessment is examined and can lead to an audit. Taxpayers may be required to pay additional taxes, interest, and penalty fees if it turns out that the actual value of the goods or services is higher than the estimated value.
  • Inaccuracy: As the provisional assessment is based on the approximated figures, it could not be correct. Taxpayers may wind up shelling out more or less than their real tax liability, which might lead to extra expenses. 
  • Uncertainty: There is some uncertainty in the provisional assessment since the actual amount of the goods or services in question may differ from the estimated value. If the actual amount differs more than the estimated value, then the taxpayer may need help managing their money. 
  • The Possibility of Disputes: Provisional assessment might give rise to disagreements about the actual worth of goods or services. To resolve such conflicts, taxpayers may have to go through a drawn-out procedure that may cost more money and cause delays.

Conclusion 

Provisional assessment under the Goods and Service Tax is an essential concept that enables the taxpayers to estimate their tax liabilities in some circumstances where the actual value of goods or services cannot be established or where there is disagreement over the value. Due to lack of clarity on the actual value, it allows the taxpayer to avoid paying an excessive tax liability or penalty. It is crucial to remember that provisional assessment also has a number of drawbacks too, which include the potential for interest to be added to the tax liability and a delay in the final assessment. Taxpayers must thus carefully weigh the advantages and disadvantages of provisional assessment before choosing it.

The provisional assessment offers taxpayers a flexible means of adhering to GST rules and regulations. It is an effective strategy for companies to avoid paying extra taxes and fines. Provisional assessment will likely be crucial in ensuring that the tax compliance procedure is simple and effective for businesses across India as the GST system continues to develop. 

Also Read:
GST Online Registration Process: A Complete Guide
Step By Step Guide To Change GST Registration Details
GST Registration For E-Commerce Operators Under GST Regime