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Rounding Off Tax under GST

Rounding-off of tax amounts may differ from one tax compliance to another. This may not have an enormous impact on the tax bill, but it can burn a hole in the pockets of many businesses and impact their GST compliance rating.

In this article, we will help you understand:

What is the Definition of Rounding-Off Under the GST Legislation?

Rounding off under GST is defined under Section 170 of the CGST Act. The act says – “the amount of tax, interest, penalty, fine or any other sum payable, and the amount of refund or any other sum due, under the provisions of this Act shall be rounded off to the nearest rupee and, for this purpose, where such amount contains a part of a rupee consisting of paise, then, if such part is fifty paise or more, it shall be increased to one rupee, and if such part is less than fifty paise, it shall be ignored.”

That means, rounding off is applicable on the following:

  • SGST
  • CGST
  • IGST
  • Cess
  • Interest
  • Penalty
  • Fine and
  • Any other sum due or payable

It is also applicable to any sum that is refundable to the taxpayer from the Government.

How Does Rounding-Off Under GST Work?

It has been observed that taxpayers are currently interpreting the definition of rounding off in two ways:

View 1: Rounding off is done at invoice level for every item of tax.

View 2: Rounding off is done collectively for all invoices issued during the month on the final tax due.

We believe that View 1 is the correct method of rounding-off of tax, and it upholds the true spirit of the law.

What are various types of Rounding Off?

Rounding off can be categorised into three types:

  1. Normal rounding off

Normal rounding off denotes rounding off any amount of fifty paise or more to one rupee. E.g., if the amount is Rs.1,34,654.50, then the amount is to be rounded up to Rs.1,34,655.00, or if the amount is Rs.1,34,654.40, then the amount is to be rounded down to Rs.1,34,654.00.

  1. Upward rounding off

Upward rounding off denotes rounding off any amount in decimals to one rupee. For e.g., if the amount is Rs.1,34,654.35 or Rs.1,34,654.75, then the amount is to be rounded up to Rs.1,34,655.00.

  1. Downward rounding off

Downward rounding off denotes ignoring any amount in decimals. For e.g., if an amount is Rs.1,34,654.35 or Rs.1,34,654.75, then the amount is to be rounded down to Rs.1,34,654.00.

Let us look at few examples with multiple tax items of GST within one invoice and apply the definition of Rounding off Tax under GST:

  1. An invoice has CGST of Rs. 2,457.50, and SGST of Rs. 2,457.50 – The tax amounts are rounded off to Rs. 2,458.00, and Rs. 2,458.00 respectively
  2. An invoice has CGST of Rs. 876.45, and SGST of Rs. 876.45 – The tax amounts are rounded off to Rs. 876.00, and Rs. 876.00 respectively
  3. An invoice has IGST of Rs. 9,812.89 and cess of Rs. 456.31 – The tax amount and cess is rounded off to Rs, 9,813.00 and Rs. 456.00 respectively

The rounding-off of tax amounts may seem minuscule or irrelevant but can result in sizeable differences in tax liability for businesses with a high volume of invoices.