The new year is around the corner, and we normally come across resolutions adopted by the people for the beginning. Now the same has intruded into the business, especially from the GST perspective. It is the time for the business to take resolution and then take it forward else the entrepreneur cannot reach his goals. I strongly advocate is that Goods and Service Tax is a business process reform and not a tax reform. It has forced the business to adapt to the new age of technology for return filing or rewrite the commercial contracts to meet the legal provisions or change the process of awarding contracts to vendors.
One of GST rollout’s major features and advantages is the availability of seamless input tax credit across the supply chain. To provide ease of doing business, GST is rolled out based on self-assessment and self-declaration. Still, some sections of the taxpayers are misusing the privilege given by the Government, and as a result of it, we have seen the change in the registration process and availing input tax credit.
In the erstwhile tax regime, many frauds were happening due to fly-by-night operators; the Government was losing a lot of revenue. To address these issues, in GST matching is introduced. Matching is not new to Indian Taxpayers. It was there in the erstwhile tax regime, Value Added Tax in some of the states like Karnataka, Andhra Pradesh, etc., Matching is introduced in the Central Goods and Service Tax Act 2017 while Section 42 and it is notified wide Notification No 9/2017 – Central Tax Dated 28th June 2017 with effective from 1st July 2017. Though GSTR – 2 and GSTR – 3 were deferred, GSTR – 3B has been introduced as an interim return. If we read the provisions of Section 42, then all the taxpayers have to do matching before claiming the input tax credit, and the process of matching is laid down in Section 69 of the CGST Rules 2017. To give a breather to the trade and industry, the provisional invoice matching concept is being introduced. The provisional credit of 20% is allowed from Oct 2019, and later it has been reduced to 10% from 1st January 2020, and now the same is being reduced to 5% from 1st January 2021.
The other change announced is the introduction of e-invoice. The initial plan was supposed to be rolled out from 1st April 2020 for taxpayers having turnover above Rs 100 crores, but the same has been postponed to 1st Oct 2020. The threshold limit of Rs 100 has been increased to Rs 500 crores on account of the pandemic like situation. The trade and industry were not prepared for the same, but the Government did not postpone further but has given a provision to generate IRN within 30 days from the date of issue of the tax invoice for the month of Oct 2020. The same is extended to taxpayers having turnover above Rs 100 crores from 1st January 2021. As per the Finance Secretary, the same is expected to apply to all the B2B transactions from 1st April 2021.
Changes have been made for the registration process; also, Aadhar authentication has been introduced, and now physical verification is also being made mandatory. In case of registration where Aadhar authentication is not being provided, the applicant is required to go to the designated centers and submit biometrics and photographs.
Expect for the process of registration, for availing input tax credit and issue of e-invoice requires a change in the business process as well as in the Accounting/ERP software. Unlike the other tax laws, GST is more tech-related, and the adoption of technology saves the taxpayers from the huge cost of non-compliance costs.
Issue of e-invoices
From 1st of January 2020, the business has to issue e-invoice if their turnover is above Rs 100 crores in any of the preceding three years. Though it is required to be issued for B2B transactions and to specific supplies, it is worth to make the following changes in the business process
- A separate series for the documents required to be issued for e-invoice
- Identify all the vendors who are required to e-invoice and take an undertaking from them
- Ensure that e-invoice is received before the release of the payment; else, we may end up losing Input Tax Credit
- Store the e-invoice data in the Accounting/ERP for future reference
- Train the teams for the importance and the consequences of non-compliance cost.
The taxpayers must do a cost-benefit analysis on implementing the e-invoice based on the number of invoices, connectivity, and business needs.
5% Provisional Credit
The taxpayers are eligible to take only 5% of the amount reflecting in GSTR-2A, and if the taxpayer wishes to avail this facility, the following has to implemented to avoid wrongly availing of ITC
- Track the amount claimed on a provisional basis month on month by tagging specific invoices
- Verify if the same invoices are reported in the subsequent month and claim only balance 95%
- Follow up with vendors for filing of returns for every tax period
- Reverse the input tax credit claimed if the supplier does not file the invoices
- Make necessary changes to ERP/Accounting software wherever required
If taxpayers do not wish to avail this facility and claim 100% as per GSTR -2A/2B, it is recommended to pass accounting entries only when credit is taken until then, park it in an interim account. Parking in an interim account gives the taxpayer proper control and visibility on the outstanding input tax credit to be claimed.
Quarterly Return Monthly Payment of Taxes (QRMP)
To provide ease of doing business, the QRMP scheme is launched, and taxpayers having turnover up to Rs 5 crores can file returns quarterly. This will ease the small taxpayers’ compliance and increase the cash outflow as the small taxpayers can opt for the quarterly filing.
To avoid any additional cash outflows, the large taxpayers should support the small players and release the tax amount at first; this will ensure that the small taxpayers will be not opting for the QRMP as it is likely to increase the compliance cost for the small taxpayers.
The large taxpayers should identify all such small taxpayers, take them into confidence and help with their cash flows. This would increase the workload to some extent to large taxpayers, but they can automate the same. Most ERPs have the facility to run payments in batch processing and components like only tax or the basic amount or the basic amount plus tax. Automation will ensure that things will not go wrong and, at the same time, ensure to be 100% tax compliant and take part proudly in the Atmanirbhar Bharat.
Returns Filing Process
There will be an impact on the return filing process also for both the small and large taxpayers. In the case of large taxpayers, where they have inward supplies from large taxpayers, they can import the data of e-invoices directly into their GSTR – 1. If they are using any ASP/GSP solution or automation for GST Return filing, this point must be considered and addressed accordingly.
In the case of small taxpayers, they can file returns quarterly, but payments have to be made monthly. The small taxpayers can upload the invoices in the new facility called Invoice Furnishing Facility (IFF), and the data uploaded in LFF will be automatically updated to GSTR – 1.
Another change for the taxpayers who have opted for the QRMP scheme is related to payment of taxes; a proper decision must be taken to optimize the cashflows. The taxpayers can make 35% of the payment in the first two months of the quarter based on the previous quarter or pay the tax liability after availing of the input tax credit. If the taxpayer has to avail input tax credit and then determine the output liability, it will save his cash outflows and, at the same time, enable his customers to take the input tax credit on his invoices. This process will increase the taxpayers’ workload but keeping given the cash flow; it should be adopted.
Matching is mandatory now, and the option the taxpayers have is to avail the input tax credit on a provisional basis or after matching. The taxpayers have to take a judicious call after doing the cost-benefit analysis on the return filing process’s complexity with cash outflows.
Large taxpayers can evaluate the process of outsourcing their payables functionality or use Robotic Process Automation (RPA), as it will minimize the error of data entry and will ensure the matching of Purchase Register with GSTR – 2A/2B with ease. Automation of activities saves time and improves accuracy.
e-waybills were introduced as an anti-tax evasion under GST. With the rollout of e-invoice, the e-waybill be generated while creating the IRN only. The taxpayers who are required to generate e-invoice can no longer generate the same from the e-waybill portal.
Large taxpayers who are using API access for the generation of e-waybills have to revisit their Accounting/ERP as this is no longer allowed for the B2B invoices, but for B2C documents, it is still required. The changes have to be made accordingly. Even the taxpayers in the future cannot import the e-waybill data while filing GSTR – 1 with the rollout of e-invoice.
The recent changes announced by the Government in GST are applicable from 1st January 2021, will impact the business process or the various software being used in the organization. The changes in the GST provisions should be used as a mechanism to improvise the business process. This will help in avoiding the cost of no-compliance and, at the same time, improve operational efficiency. If the business processes are not changed based on the changes in legal provisions, it will create many challenges at the time of claiming ITC or computing Tax Liability or while preparing the GST Returns. These will increase the cost of compliance and will unnecessarily attract the tax official’s attention. With the ever-changing provisions in the GST, it is necessary to work in as a team rather than in silos as it impacts various transaction processing areas. No individual in the organization has insights into the functions of all the departments. The management and the tax professionals have to make a resolution to work in teams and carry out the impact analysis on the business process whenever there is a change in the GST provisions.
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