In table 13 of the GSTR – 2, the tax invoices issued during the month should be shown after adjusting any advances paid during previous months. The tax invoice issued during this month should be shown only for the net amount of tax payable.
Advances paid for supplies falling under Reverse Charge are to be shown in Table 12 of GSTR – 2. For each and every advance being uploaded here, a unique identification number will be generated by the GSTN for the advances paid for supplies falling under reverse charge where invoice is not received.
Table 11 of GSTR – 2 will show the invoices for which input tax credit has been taken partially in the previous returns. This is for capital goods where 100% credit is not available like telecom towers, pipe lines or in banking, financial institution or non-banking financial company. The balance credit is auto-populated based on the tax invoice number selected.
The amount of tax recovered by the e-commerce operator as collection of tax at source (TCS) should be shown in Table 10(2) of GSTR – 2. It is applicable only when the goods or services are supplied through e-commerce operator. TCS Taxes eligible for ITC are TCS_IGST, TCS_CGST and TCS_SGST.
Implementation of Goods and Service Tax in India is not a tax reform a but business reform, the way business has to be done under GST will undergo a sea change, and the company need not worry about the tax implications for setting up of new business or running the business. Business thrives well when there is business process under place. For running these business process, IT plays a vital role, and with the implementation of GST, there will be a complete transformation of the business process. Implementing GST is not like the implementation of any tax like Education Cess, or Secondary Higher Education Cess or Swach Bharath Cess or Krishi Kalyan Cess. It requires a considerable amount of time and efforts to adopt the same else the market is lost to the competition.
Most of the organizations have implemented the Enterprise Resource Planning in their companies apart from the Supply Chain Management tool or Customer Relationship Management tools etc. to run the business efficiently and to take decisions on time. Implementation of GST wherever ERP’s are implemented is like re-implementation of ERP or up gradation from a lower release/version to higher release /version.
There is a lot of uncertainty in the implementation date of GST as well as the requirements under GST. Say, for example, software is defined as service in the Model GST Law released in June 2016 but the same brought in the dimension of ambiguity or confusion in the revised Model GST Law published in November 2016. Or in the treatment of free goods, in the previous law it defined as taxable, but in the revised, Model GST Law it is defined as non-taxable for the purpose of valuation under GST. With this level of changes, it will be challenging to design a solution by the ERP / accounting software vendors. So the first problem we see is, the software itself will not be ready completely due to the changing requirements, with this constraint the organizations are required to pre a roadmap and implement the same for running the business smoothly without any disruptions from the day one of the implementation of GST in India.
Similarly, to the first time implementation of ERP in the organization, the same model can be adopted with some changes. As the tax and regulatory requirements are still not in place fully, mapping the same in the same in the ERP will be a challenge. In this context, we need to have a plan factoring this also. The core group has to be reconstituted again with people having taxation as well as ERP knowledge.
As described in Figure 1, the core team has to be constituted, and they are expected to review the requirements under GST and conclude on the impact of the same on the Master Data and Transaction Processing. This amounts to a change of business process to a large extent. Say for example under the current Central Excise or Value Added Tax or Central Sales Tax there is no requirement to issue a tax invoice/receipt voucher for receipt of advance from the customer for the supply of goods but under GST the same is required. This also results in the changes the ERP / accounting software. Now the ERP should be having a provision to issue a tax invoice on the receipt of money from the customer and also to generate a tax invoice. The series for the tax invoice number can be different from the regular tax invoices. There should also be a provision to upload the tax invoice for receipt on the GST portal to generate reference number.
To implement these changes in the ERP, the requirements can be broadly categorized into four different categories, and they are
Master Data is critical to any transaction in the digital world be it in an ERP or an SCM for a CRM. Master Data comprises the key data which is used on the transactions for it to be compliant as per the regulatory requirements in place from time to time.
For any ERP to functional efficiently from the day one of the GST rollout the following are to be in place
- Registration Number – the existing registration numbers will be replaced with new registration number called GSTIN, and it is state based. The registration number of the implementing company, the business stakeholders like the Customers, Suppliers, Bankers, etc. have to be captured in the system at the State Level.
- Tax Codes – Tax Codes – there will be a new set of tax codes to be defined for GST, and these codes are new once, and the same has to be supported by the ERP vendor. The tax codes required for GST are Central Goods and Service Tax (CGST), State Goods and Service Tax (SGST), Integrated Goods and Service Tax (IGST), Cess applicable on sin goods, luxury goods and on the aerated drinks, Tax Deducted at Source Tax Codes for CGST, SGST, IGST and not sure of the cess.
Likewise, for the Tax Collected at Source for CGST, SGST, and IGST. These are the basic tax codes to be provided in the system by the ERP vendor and defined in the ERP.
The codes should be defined separately for the reverse charge taxes, as they are required to be reported separately.
The tax codes for goods and services can be defined separately as there are some reporting requirements specific to goods and services or if they can be flagged at the transaction level to classify it is line relating to the supply of goods or services.
- Tax Rates – the ERP should provide provision to define tax rates for the tax above defined tax codes at the state level. This is required keeping in view of the following
- In future, there may be bandwidth given to states to determine the tax rates
- Based access control, users are given access to these data based on the state or location
- Chart of Accounts – new accounts have to be added to track and trace the recovery accounts, liability accounts, interim credit account, etc. for the tax codes mentioned above state wise. This makes reporting easy.
- HSN Code – all items have to be associated with the Harmonized System Nomenclature for all the taxes. Currently, HSN codes are known as Excise Tariff Codes, and the reporting under GST is based on HSN codes. Quantitate details are also required to be provided by HSN in the GST Returns. The Item Master data for each and every item must be defined with an HSN Code.
- SAC Code – Services accounting codes are associated with the supply of services, and they are similar to service categories in the current service tax regime. Reporting under GST is done at the transaction level, and this has to be captured at a master data level and defaulted on the transactions, most of the ERP’s do not have this feature currently for Indian Taxes. The same needed to be explained to the ERP vendors and ensured that the same is available in the product before the rollout of GST.
- Tax Defaulting – the defaulting in GST is based on the “Ship To” location, as GST is a destination-based taxation. Ensure with the ERP / accounting package vendor that the same is supported in the product else take up the same with them and get the same developed and released for testing much before the rollout of GST as it requires a lot of time for testing.
1. There are no changes for creation and approval of purchase order/sales orders etc. and receipt of goods for the regular supply of goods or services or both. There are changes in the areas of tax invoice generation and issue and along with the processing of input tax credit.
2. Input Tax Credit – under GST, the input tax credit can be take only on the payment of taxes by the supplier and receipt of goods or services, and the buyer is in possession of the tax invoice. The input tax credit has to be processed based on the data given in the GSTN.
Under GST, the input tax credit can be taken only on the payment of taxes by the supplier and receipt of goods or services, and the buyer is in possession of the tax invoice. The input tax credit has to be processed based on the data given in the GSTN. A new process/session /form has to be provided by the ERP / accounting package vendor to avail in the input tax credit.
There are also restrictions on the utilization of the input tax credit. These restrictions have to be built in the ERP or the accounting package.
Check with the ERP vendor for having a provision to avail input tax credit on the provisional basis, if the organization decides to avail input tax credit on the provisional basis. The organization has to take a decision for availing the input tax credit on payment of taxes by the supplier or provisional basis, and the users must be trained accordingly for processing the input tax credit.
3. Reversal of Input Tax Credit – there should be a provision in the system to reverse the input tax credit availed on inward supplies of services if the payment to the supplier is not made in 3 months. Similar provisions are there in the existing service tax.
4. Tax Invoice – as per the Model GST requirements, tax invoice has to be issued based on the “Time of Supply for Goods and Services.” Proper care should be taken at the time of transaction processing as there is no provision of tax invoice cancellation. The end users must be trained accordingly.
There is also only one document for communication between the buyer, seller, and tax authorities and that document is the tax invoice. In the current ERP’s, there are two different document numbers for the sales transactions, and this creates a lot of confusion and reconciliation issues. Proper care should be taken to educate the users about the same.
There is also a requirement as per the MGL to issue a tax invoice for the purchase of goods or services from the unregistered taxpayers and on the notified goods and services. Check with the ERP vendor if the provision for the same is provided, if not ensure to have the same in the system before the rollout of GST. This is a tricky requirement as the tax invoice has to be issued on the earliest of the following dates, date of receipt of goods /services or the date of accounting or date of payment. As it touches both the purchasing and inventory module along with the finance modules, it has to be developed properly and through testing has to be done.
For enabling the mobile check posts to authenticate the supply of goods, a reference number is required to be printed on the tax invoice. This reference number is obtained on uploading the tax invoice data in Jason file format on the GST portal. Check with your ERP vendor if the same is provided or not, if not get the same provided else it will be next to impossible to ship the goods without this reference number.
5. Reference Number for advance receipts – under GST, all the tax invoices or receipt vouchers issued under GST have to be uploaded on the GSTN during the month of receipt of the advance. The same has to be given as reference on the final invoice of supply of goods and services. Check with the ERP / accounting package vendor if the same is provided in the system if not ask for the tentative delivery of the same.
The reporting requirements under GST are different from the current tax reporting. Transaction level reporting is the requirement under GST. The returns under GST have to filed per registration number.
There are three returns to be filed on a monthly basis and one annual return for regular taxpayers, and in the case of taxpayers who have works contract deductions, a separate return has to be filed on a monthly basis. In the case of service distributor, a separate return has to be filed on a monthly basis. Check with your ERP vendor if the same are being provided or not.
The returns under GST have to be filed through a GST Suvidha Provider(GSP), and there will be some nominal charges also. Before rollout of GST, engage with GSP and ensure that all the data required for the return filing is available in the system.
As reporting is very complex and data has to be provided in various groupings which will be next to impossible to generate such reports in any ERP / accounting software. To file the returns, ensure that two primary reports, one for inward supplies and another for outward supplies are provided in the system. The file format of the reports can be in xls or any other format which is user-friendly. The data file generated in the respective format has to be mapped one time with the format given by the GSP. The GSP then process the data and submits it to the GST servers for validation of the returns. This mapping is a one-time activity, but the filing of return is a monthly basis, so ensure that all period close is done in the ERP as per process and then only data is generated.
- Data Migration
The next crucial step is migration. Though data is available in the ERP system but still migration is required for the open purchase/sales orders etc. These documents are created with Excise / VAT / Service Tax but when the receipt or shipment is taken post-rollout of GST, the taxes will be as per GST. Check with your ERP / application vendor that the migration of open documents will be done automatically or to be done manually. Based on the reply, make provisions in the system and then plan the activity
On the accounting date I.e. on the date of the rollout of GST, there will be some receipts which have been made but not accounted, ensure that there are no such cases and input tax credit is taken. If not then the same is not part of the returns before the accounting date and not in the closing balance, as a result, the same cannot be carried forward to GST as opening balance of input tax credit. This would have a great impact on the cash flows and working capital. Ensure that there are no receipts pending for accounting at least two or three days before the accounting date.
Another important thing is to plan your procurement accordingly, ensure that there are no goods in transit on the accounting date, else it will be tough to manage the same and if there are any such cases account the same immediately, expedite the QA process and pass on the documents to finance.
Check if all the existing balance of taxes are eligible to be carried forward to GST regime as opening balance, if not try to utilize the same before the rollout of GST so that the same is not reflected in the P & L as an expense, thereby straining the bottom line.
Minimize or stop all the incoming at least two to three weeks before the accounting date, so that there are no migration transactions. For this plan the procurement accordingly. Similarly, on the outbound side also, ensure that the shipments are minimized or stopped before at least one week before the accounting date or ensure that the goods reach the customers’ place before the accounting date and he completes all the accounting activities before the rollout date.
For successful migration to GST and smooth transition, engage all the stakeholders from the beginning. Train the vendors and customers who are in the medium and small segment as they do not have the required infrastructure and resources. Train them and have change management sessions so that you will not have any surprises after rollout. The reason is, the returns under GST will be validated only if the buyer and seller record matches else it will be treated as invalid returns. This will have an impact on the compliance rating. If the compliance rating is reduced, it will have a negative impact on the sales and this will impact the bottom lines.
Training is also required to be provided to the end users, as they are the owners and run the system on a day to day basis. Training has to be provided for them on the GST point of view, from the systems point of view and also from the business point of view. If there is any GAP in any of these three points, then a lot of challenges will be there after rollout.
- Working Capital Assessment
Have a provision for one of the most scarce resources called cash as the input tax credit under GST will be available on payment of taxes that means there is a time lag in the availing the input tax credit. Ensure to have additional working capital requirements in the form of owners funds infusion or enhanced working capital limits. Increasing the working capital limits is not an overnight job, it has to be planned and executed at least two or three months earlier, as it requires board approvals from the organization and banks.
The cash flows statements have to be reworked and a conservative approach must be taken for the initial period, as the sales may take a hit on account of migration to new system, and provision for input tax credit has to be made as input tax credit under GST is not available on receipt of goods like in current central excise.
- Re-engineering Business Process
The business process has to be re-engineered to adapt to the changes to the GST regulations. Say for example in GST, if there are any shortages or rejection of goods, the credit note has to be issued by the supplier only and not by the recipient. This means the existing practice of creating the invoice for the purchases for the net amount only has to be changed. There are many such business processes which are required to be evaluated in detail and changed to meet the requirements under GST.
The core team has first to evaluate all the existing business process and then see the impact of each business process under GST and make an assessment. If there are any changes to the business process, the same has to discussed with the senior/top management and take their concurrence for the changes. Once this activity is completed, the same had to be updated in the standard operating procedures and explained to the users. The changes required are to be evaluated in the ERP and seen if the same is supported or not, if no then the same has to be discussed with the ERP vendors to provide the same.
- Post go live support
Once the users are trained and on the accounting date, the GST is rolled out, there will be some unforeseen issues arising due to last minute changes in the rules or understanding or for any other reason, in such cases there should a core team in place to evaluate the same and suggest the next course of action, this ensures smooth running of the business.
There can be some user mistakes also due to new requirements from the compliance perspective, changes in the ERP, new business process, etc. to rectify the errors, there should be a 24X7 support team to tide over such mistakes.
Implementation of Goods and Service Tax is not the implementation of tax reform but a business process change. The same is evident from the above lines; the above things are described at a high level for generic business process and the same may change from organization to organization and based on the nature of the industry.
Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.
If a tax payer is also registered as Input Service Distributor, the Input Tax Credit transferred from ISD through Tax Invoice will be auto populated in Table 9 of GSTR – 2.
GST Tip – 101 : Inward supplies from Composite Tax Payer, Un Registered Tax Payer, Non-GST Inward Supplies, Nil Rated Supplies and Exempted Supplies should be shown in Table 8 of the GSTR – 2 at a summary level for both inter state and intrastate supplies.
In GSTR – 2, the total amount of Input Tax Credit (ITC) available should be shown for each and every transaction and also the amount of ITC eligible / available for credit during the month. This has to be shown for inward purchases from registered tax payers for domestic transactions and for import of goods and services.
Tax Deducted at Source under GST will be shown in Table 10 of GSTR – 2, basis of the return filed by the deductor in the return GSTR – 7. The amount of TDS deducted under TDS_CGST, TDS_SGST and TDS_IGST will be eligible for ITC and can be utilized for payment of output tax liability.
GST Tip – 98 : GSTR – 2 return is for inward supplies of goods and services and it has to be filed by 15th of next month. Data in GSTR – 2 will be auto-populated based on GSTR – 1 & GSTR – 5.