DRC-03- When should a taxpayer make a payment under DRC-03?

Introduction

The DRC-03 form is used to submit voluntary tax payments as specified by the nation’s GST law. It is done when the government discovers a tax demand or insufficiency after the deadline for filing tax returns for the fiscal year has passed. You can also fill out the DRC 03 form if you’ve already submitted a GST return but need to make changes. It may be the result of several factors, including incorrect calculation, inaccurate reporting, or underreporting of income. In this article, we will discuss the applicability, procedure to pay additional tax, Form GSTR-1 and GSTR-3B, payment under DRC-03 and the deadline for filing tax returns.

What is Form DRC-3?

The “Demand and Recovery Forms” is the full form of DRC under GST. There are situations when one may find that they have not represented their revenue correctly or that they have missed anything while filing GST taxes. The DRC-03 is a form for voluntary tax payments that enables taxpayers to pay their taxes in response to a show-cause notice (SCN) from the GST department or by voluntarily increasing their liability. Businesses or individuals who are qualified to file GST returns may use the DRC-03 form to make a voluntary contribution in such circumstances.

When should a taxpayer make a payment under DRC-03?

The following are the justifications for making a payment under DRC-03:

1. Audit/Reconciliation Statement: During annual reconciliation, a taxpayer may identify short-paid tax, interest or other liabilities and may make payment through Form GST DRC-03 where the law and portal process permit. Form GSTR-9C under the current Rule 80 framework is a self-certified reconciliation statement for the applicable taxpayers; it is not a mandatory certificate by a GST auditor.

2. Investigation & Others: If a taxpayer is being investigated and it is found that the taxpayer has gone failed on tax payments, he may make a voluntarily payment in DRC-03.

3. Annual Return: The taxpayer must equalize all of their accounts for the year before compiling and filing annual returns. For the first time, any short payments of taxes, interest, or fines caused by the non-reporting or under reporting of taxable supply may be detected during this reconciliation. Taxpayers can pay any tax shortfalls in cash and submit them on Form DRC-03.

4. Demand or in response to a show-cause notice: In response to a show-cause notice, the taxpayer has the option of paying the necessary tax, plus interest, using DRC-03, but only within 30 days of the date the issue mentioned in the show-cause notice. To make a voluntary payment of unpaid obligations under Sections 73 and 74 of the CGST Act, submit Form DRC-03. A taxpayer can self-determine the tax before SCN issuance or within 30 days of SCN determination to avoid the difficulties of demand and recovery procedures.

Section 73 – deals with cases of underpayment or nonpayment of taxes without any fraud intent.

Section 74 – deals with situations where tax fraud or tax avoidance is being done to justify underpayment or evasion.

5. Mismatched liability between GSTR-1 and GSTR-3B: The GST portal includes this option for selecting the reason for using the DRC-03 form in February 2021. If the tax authorities provide a notification for a difference, such as a tax liability gap in GSTR-3B as compared to GSTR-1, the taxpayer must cover the difference in DRC-03 or respond with a clarification.

6. ITC Mismatch – GSTR-2A/2B to GSTR-3B: The earlier Rule 36(4) tolerance allowing specified provisional ITC up to 5% was replaced from 1 January 2022. Under the current Rule 36(4), ITC on invoices/debit notes covered by section 37 is generally available only when the supplier has furnished the details and the corresponding ITC has been communicated to the recipient in Form GSTR-2B, subject to the other conditions of the Act and Rules. Any excess or ineligible ITC should be evaluated under the current provisions before deciding whether a DRC-03 payment is required.

Suggested Read – Procedure to file Form DRC-03

Conclusion

Various DRC number forms are accessible for different cases under GST. In the forms, it is must that all payments must always be paid with either input tax credits or cash balances from the electronic credit or cash ledger. The ITC, however, is not applicable to interest and penalties. It must be completely covered with cash.