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What is GST Compliance Rating and How Is It Calculated?

GST compliance rating is a key measure for business adherence to tax rules. It's calculated based on timely returns and payments, reflecting tax compliance levels.

Goods and Services Tax (GST) has been a transformative tax reform in India, unifying various indirect taxes into a single, streamlined system. For businesses in the country, compliance with GST regulations is of paramount importance. In this blog, we will introduce you to the concept of GST in the Indian business context and then dive into the specifics of GST compliance rating – what it is, why it matters, and how it’s calculated. We will break down the calculation method into easy-to-understand steps and use a case scenario to illustrate its practical implications.

GST in the Indian Business Context

Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. It has replaced a complex web of central and state taxes, creating a unified tax structure that is intended to simplify taxation for businesses. GST is categorised into various tax slabs, including 5%, 12%, 18%, and 28%, with certain essential items attracting 0% tax (GST exemption).

The GST Compliance Rating: What is it and Why Does it Matter?

The GST compliance rating is a measure of how well a business complies with GST regulations and fulfils its GST-related obligations. This rating is crucial for several reasons:

  1. Credibility: A high compliance rating enhances a business’s credibility in the eyes of tax authorities, suppliers, and customers, showcasing its commitment to following tax laws
  2. Reduced Scrutiny: Businesses with a good compliance rating are less likely to face extensive audits and scrutiny from tax authorities, reducing the compliance burden
  3. Access to Benefits: Many government schemes and contracts require businesses to have a certain level of GST compliance rating to participate or qualify for benefits
  4. Customer Trust: Customers often prefer to deal with businesses that have a good compliance rating, as it reflects transparency and reliability in financial transactions.

Calculating the GST Compliance Rating: Step-by-Step

Now, let’s break down the calculation method of the GST compliance rating into easy-to-understand steps:

Step 1: Determine the GST Return Filing Status

The first step in calculating the GST compliance rating is to assess the business’s GST return filing status. This involves verifying whether the business has filed all required GST returns on time.

Step 2: Evaluate the Timeliness of Return Filing

In this step, the timeliness of GST return filing is evaluated. A business is rated on how promptly it files its GST returns within the due dates specified by the GST authorities.

Step 3: Verify Accuracy of GST Returns

The accuracy of GST returns is a critical component. Errors in returns, including discrepancies in tax calculations and incorrect data entry, can negatively impact the compliance rating.

Step 4: Assess Payment of GST Liabilities

Compliance also involves timely payment of GST liabilities. This step assesses whether the business has paid the correct amount of GST as per its returns.

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Step 5: Determine any Penalties and Late Fees

Penalties and late fees for non-compliance are considered in this step. A business that incurs penalties for late filing or payment may see a reduction in its compliance rating.

Step 6: Calculate the GST Compliance Rating

The GST compliance rating is usually expressed as a percentage, with 100% indicating full compliance. It is calculated based on the performance of the business in the previous steps. The formula is as follows:

Compliance Rating (%) = [1 – (Total Penalties and Late Fees / Total GST Liability)] * 100

Example: Calculating GST Compliance Rating

Let’s illustrate the GST compliance rating calculation with a hypothetical case scenario:

XXX Pvt. Ltd., a medium-sized manufacturing company, has the following GST-related data for the financial year:

  • Total GST Liability: ₹10,00,000
  • Penalties and Late Fees: ₹5,000

Step 1: XYZ Pvt. Ltd. has filed all required GST returns

Step 2: All GST returns were filed on time

Step 3: The GST returns had no errors or discrepancies

Step 4: The company paid ₹10,00,000 in GST liabilities

Step 5: Penalties and late fees amounted to ₹5,000

Step 6: Calculating the GST 

Compliance Rating

Compliance Rating (%) = [1 – (₹5,000 / ₹10,00,000)] * 100

Compliance Rating (%) = [1 – 0.005] * 100

Compliance Rating (%) = 99.5%

In this case, XXX Pvt. Ltd. has a GST compliance rating of 99.5%, which indicates a very high level of compliance.


The GST compliance rating is a crucial metric for businesses operating in India. It reflects the level of adherence to GST regulations and has far-reaching implications, including credibility, reduced scrutiny, and access to benefits. Understanding how this rating is calculated is essential for businesses to assess and improve their compliance status. By maintaining a high compliance rating, businesses not only meet their legal obligations but also enhance their reputation and competitiveness in the Indian market.

At Vakilsearch, we understand its significance. Our expertise spans GST registration, filing, and compliance, ensuring your business not only meets legal obligations but also strengthens its reputation and competitiveness in India. Partner with Vakilsearch to optimise your GST compliance, boost your business’s credibility, and unlock the full spectrum of GST benefits. Contact us today to embark on a journey of compliance and success.

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