Is Nil GST return filing mandatory even when there is no income from business? Tax experts explain

Seema Kumari, a Madhubani painting artist, registered for Goods and Services Tax (GST) three years back as she planned to sell her work through digital platforms like Flipkart and Amazon. However, her plans to sell her artwork online didn't take off as expected.

Even after three years of doing no online sales, Seema has been diligently filing a Nil GST return every quarter. On a few occasions in the last three years, she has even paid penalties for filing the Nil GST return after the due date.

This is a real story, though we have changed the artist's name at her request. But she is not alone. Many aspiring entrepreneurs apply for GST numbers, only to find their plans stalled. Yet, they continue to regularly file Nil returns to maintain the GST number.

We connected with some tax experts to find out whether it is mandatory to file a Nil GSL return even when there is no business. And, what should a person do if s/he wants to close the GST account?

Is Nil GST return filing mandatory?

Tax experts say Nil returns in forms GSTR 1 and GSTR 3B are mandatory for all GST-registered taxpayers when no business or transactions have commenced.

A registered GST taxpayer must file NIL returns for every tax period, even if no business has commenced or transactions occurred, as per Section 39(8) of the CGST Act, 2017, according to Aditya Nadkarni, associate director, and Komal Santwani, manager at Nexdigm.

Additionally, if business operations are not initiated within six months of registration, tax authorities may initiate cancellation proceedings.

"In that case, s/he will need to explain to the tax authorities’ reason for not commencing the business. It is also to be noted, the tax authorities cannot cancel the GST registration without giving an opportunity to explain to the taxpayer," they said.

Alternatively, the experts said a GST-registered person can also opt for quarterly returns in the initial phase, instead of monthly returns, to reduce the compliance burden to a certain extent. However, in such a case also, it will be mandatory to NIL returns quarterly.

Brijesh Gandhi, partner at NPV & Associates LLP, also said that return filing in Form GSTR 1 and GSTR 3B are mandatory irrespective of the fact whether there are any business transactions or not. "In case of no transaction, Nil filing is also mandatory," he said.

Is there a penalty for not filing the Nil GST return?

Experts said if a taxpayer fails to file NIL GST returns, a late fee of ₹20 per day (₹10 each under CGST and SGST) is levied, capped at ₹10,000 (₹5,000 each under CGST and SGST). The late fees accrue daily until the return is filed.

"Additionally, the tax authorities may levy a general penalty of ₹50,000 (₹25,000 each under CGST and SGST) for non-compliance. However, such a penalty may be litigated at a higher forum," Nadkarni and Santwani said jointly in response to our queries.

The experts pointed out a recent judgment of the Madras High Court in the Jainsons Castors & Industrial Products case, where it was held that a general penalty does not apply if a specific penalty, like a late fee, is already paid.

How to give up GST registration?

Gandhi said this can be done by filing the registration cancellation application.

According to experts, a taxpayer wishing to cancel his/her GST registration must apply for the same using Form GST REG-16 within 30 days of the event necessitating cancellation, such as business closure.

However, as per CBIC Circular No. 69/43/2018-GST, this deadline may be interpreted liberally if the exact date of the event is unclear. Before applying for cancellation, the taxpayer also needs to file all pending returns.