GST Returns 2.0

Returns are required to be filed in tax regime by the taxpayers declaring the details of their income in case of direct taxes and the amount of tax on it. In case of indirect taxes, it is a statement which shows the details of the purchases, the amount of input tax credit claimed on it, the total value of sales and the amount of tax payable on the same. Apart from this, the returns also act as a medium of information flow between the taxpayer and the department, whereby giving full visibility to the Government on the amount of taxes being collected based on items, services, or class of taxpayers or geographic regions. This information helps the Government in the determination of the policymaking on the tax rates and also which areas/goods there is more demand and which industry needs support from the Government.

In India, GST has been rolled out from the 1st of July 2017, and there is 360change in the return filing process. Salient features of existing GST Return filing is

  • Mandatory filing of online returns
  • Same return formats for the State and the Central Taxes
  • Filing of transaction-level data
  • Same return formats across India
  • Different return formats based on the nature of registration like Regular, Composition, Input Service Distributor, e-commerce Operator, etc.,

Though transactional data filing is mandatory in GST, the same is not effective in minimizing the revenue leakages as Matching of buyer’s data with the seller’s data is not implemented. It has resulted in the reduction of tax collections as a section of taxpayers is misusing it. To curtail this tax evasion, the Government is introducing the New Returns formats along with matching and e-invoicing.  In the new returns, the number of returns to be filed by the taxpayer has been reduced, but at the same time, the need to have additional data to be uploaded. To implement the same in organizations, the taxpayers and professionals have to understand the requirements clearly and the basis that they have to revisit their business process.

Salient features of new return formats

  • A single return to be filed for the inward and outward supplies
  • Transaction data to be reported at HSN Level
  • Each return is supported with two Annexures, Anx – 1 for the outward supplies and Anx -2 for the Inward Supplies
  • Suppliers can upload the sales invoices on a real-time basis continuously
  • The information flow between the supplier and the recipient is on near real-time basis
  • For ease of taxpayers there returns formats have been introduced
  • Quarterly filing of returns is available for the taxpayers having a turnover up to Rs 5 crores
  • Debit / Credit Notes need not be tagged with a tax invoice
  • Payment of taxes is to be discharged through PMT-08
  • Different due dates for return filing for the monthly and quarterly taxpayers to reduce the load on the GSTN Servers to provide better user experience to the taxpayers.
  • Matching tool for reconciling the Purchase Register with Anx – 2

New Returns 1

Compared to the existing GSTR -1, which has lots of tables for classifying and reporting the various transaction, debit notes/credit notes, and amendments to the invoices. All these different tables make complex and confusing to the taxpayers and basis on the inputs received from the industry, trade bodies, professionals and department personnel the returns have the revised and made simple. The new returns will improve the user experience and also reduce the load on the GSTN portal as they are simpler, and the due dates for the regular and quarterly taxpayers are different.

New Returns 2

Differences between the three returns data for Outward Supplies

New Returns 3

Differences between the three returns for the Inward Supplies

New Returns 4

Basis on the nature of transactions the taxpayers have, they have to select appropriate returns in GST. Newly registered taxpayers have the option of selecting any of the three return categories.

Data flow from Supplier to Recipient in the New Returns

New Returns 5

  • Once the Recipient accepts the invoice, the same gets locked in the Supplier’s return, and he cannot edit or modify the same.
  • If the Recipient does not take any action, at the end of the month, the liability is finalized and updated in the returns accordingly.
  • If the Recipient Accepts the invoice, the same is updated for his input tax credit.
  • If the Supplier uploads the invoices before the cut off period, say 10th of the next month, if the Recipient accepts the same, can avail the input tax credit in the same month.
  • If the Supplier uploads the invoice after the cut off period say 10th of the next month, the Recipient even if he accepts the same, the input tax credit will be reflected in the subsequent month.

Data from Anx – 1 and Anx -2 flows the respective returns, and then the liability is frozen. An option is also provided for the taxpayers to enter the input tax credit on the invoices issued before the rollout of the new returns but claimed after the rollout of the new returns.

With the new returns in place, a lot of changes are required in the business process and accounting. These changes will help to implement the same without any challenges and also ensure that there are no GAPS in the GST Compliance and data is readily available for the Annual Return and GST Audit if applicable.

Training

As there is a requirement of matching of the supplier invoices before availing the input tax credit and payment of taxes, the taxpayer should train all the concerned stakeholders like Purchasing Team, Stores Personnel, Finance Team along with the taxation team. Even training has to be provided to the IT Team will be aware of the requirements and accordingly develop or make changes to the existing ERP’s / Accounting packages.

Business Process

The business process of procuring the goods have to be changed at the earliest as a change in any organization faces resistance. The Purchase Department should have a process to check for the supplier return filing status as one of the conditions before the release of the purchase/service/work orders. This condition should be added along with the existing criteria like Quality, Price, Post Service, Warranty & Delivery period. As per the new provisions, even if the data is auto-populated in Anx – 2, if the Supplier does not file returns for two months, the input tax credit cannot be availed. Any deviations in the above process will strain the cash outflows as the taxpayer is deprived of the input tax credit and has to discharge the liability through cash.

Follow up with Vendors

The purchase department team’s  KRA should be enhanced now to follow up with the suppliers for filing of returns and payment of taxes. Access should be provided for them for Anx – 2 so that they will have updated information and have regular follow-ups. This will help the organizations to avoid the last-minute rush at the time of filing of the returns. As the data is being updated on a near real-time basis, the purchasing department will have a complete picture of the upload of invoices by the suppliers from time to time.

 Automation

Reconciliation is a tedious activity, and it requires a lot of patience and concentration. To steam line this activity, the large taxpayers should think of automating this whole process by making necessary changes to their ERP / Accounting software wherever possible or go for third party solutions with proper integrations. Alternatively, they can also outsource this activity and concentre on their business only. This will be a win-win situation as it creates more employment and at the same time, improve productivity.

Accounting

As per the latest changes in the existing input tax credit mechanism and with the New Returns, the input tax credit is available only after matching. To keep track of the invoices which are matched and which are not matched, the accounting policies also have to be changed accordingly. The accounting entry at the time of receipt of goods or invoice entry should be debiting the interim / suspense account for respective taxes. At the time of matching the actual credit, the entry should be updated. This process will ensure you have to checks and balances in the system and also minimize the outflow of cash. Here also automation can help a lot; check if your accounting / ERP has this feature and if not explore for the option of customization and implement the same.

Additional Fund Requirements

As input tax credit is available only matching, this means there will be a requirement of funds in the short run. The additional requirement of funds should be projected accordingly and also make necessary arrangements for the same.  Arrangement of additional funds also takes time and cost; this has to be factored accordingly.

Apart from this, the automation process and training also involve cost; budgets should be allocated for the same accordingly.

Management Blessing

The top management and the key decision-makers should be appraised of the upcoming changes in the return filing system along with the implications. Management approvals are required in every organization and this will also help them in the decision-making process. In any organization, the implementation of the new process or change is possible to be implemented successfully if it is a top-down approach. This will give the finance/tax team to implement the same easily.

On the face of it, New Returns looks to be simple but the undergoing changes are tremendous and it requires proper planning and execution. For the adoption of new returns to be successful, the organizations have to strive hard and at the same time, ensure that there also lapses in compliance. If all the organizations adopt the same with full vigor and efforts, we can envisage the bouncy in the tax collections, which can result in tax rates reduction of goods and services.

 

Disclaimer

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 author 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.

This article is published in the Supervisor released during the Third National Seminar on Taxation held on Bhubaneswar in Dec 2019.

 

Role of Technology in GST 2.0

Goods and Service Tax has been rolled out in India from 1st July 2017, and now it is about 28 months, and during this period, we have seen a lot of changes being announced by the Government. The roll out of GST is dubbed to be the largest reform after Independence, but in reality, it is a business process reform as the trade and industry have to change their business process, and also, the Department has adopted technology and started doing data analytics to find out the errant taxpayers. All these are the things of the past,  there are a lot of changes being announced, and for that, the trade and industry have adopted to them else they will receive the same as a shocker like the roll out of GST or matching of invoices for availing the input tax credit.

As we are in the era of digitization from banking to day to day payments, if we do not embrace technology, we will be missing the bus, and it will impact the top line and bottom line of our business. In GST, very important changes are announced, and some of them are already effective some or going to be rolled out in 2020. The areas in which technology can help us to run our business smoothly and without

Matching for availing input tax credit

One of the major changes seen in GST is in the Return filing process. In the erstwhile tax regimes, the filing of returns was done manually or in some cases, filed electronically. There was no validation between the suppliers’ returns and the buyers’ returns, but in GST, it is implemented as the Government was to weed out the black sheep from the system. Matching was part of the GST law and the return formats, but it has to be deferred as small taxpayers were not used to it and did not have the know-how of doing the same. Now the same has been made effective from 9th Oct 2019 through Notification No 49 – Central Tax. The taxpayer is eligible to take input tax credit only based on the supplies filing of GST Returns. Invoices uploaded by the supplier has to be matched with the buyers purchase register, this can be done manually if the number of transactions is less as in case of small traders but in case of medium to large organizations where there are thousands of purchase invoices and multiple GST Registration Numbers, matching manually is a challenge, technology can adopt us the do this job seamlessly. There are various solutions available in the market where the GSTR – 2A data can be imported using the API’s and then uploading the purchase register with the relevant data, matching will be done seamlessly and accurately.

Adoption of technology for this activity not only saves time but also safeguards the organizations from paying interest and penalty on account of availing input tax credit wrongly due to human errors.

e-invoice

Tax evasion is one of the biggest challenges which the Governments face across the globe, and as part of it, many of them have adopted/implemented e-invoicing. If technology is adopted, e-invoicing is very simple. The suppliers will generate the tax invoice in his system and send the data through APIs (without human intervention) to the Invoice Registration Portal (IRP), and once the IRP validates the data, a unique number is generated and sent back. The same is imported, and the tax invoice can be printed. All these activities take place with the help of technology and happen in a matter of a few seconds. It will ensure that there are no disruptions in the business process; alternatively the taxpayers can upload the data manually on the IRP, but there will be room for data entry and human errors; this will lead to another set of compliance issues.

IRP not only generates the IRN but also shares the data with the supplier and updates in Anx -2, updates the Anx- 1 of the supplier, and also generates the Part – A of the e-waybill. In a nutshell, the adoption of technology for one activity has resulted in the accomplishment of three different tasks.

e-invoice is being rolled out from 1st Jan 2020 voluntarily and for B2B transactions, with matching in place for availing input tax credit, this makes the life of taxpayers very easy if the technology is adopted and taxpayers start issuing e-invoices.

New Returns

As a part of the simplification of the GSTR Return filing process, the Government has consolidated multiple returns into a single return with annexures. This is a welcome move, but again, this requires some changes in the business process and the way transactions are recorded.

The major shift we have seen in GST is filing of returns electronically and reporting of transaction data, but with the new format for GST returns, the Government is going one step ahead and is asking the taxpayers to report the same at the HSN level. It means that the taxpayers have to start filing the returns at the invoice line level or group at the HSN level if there are multiple lines on the invoice with the same HSN. This activity cannot be done manually, and for this, digitalization is required, and there are no exceptions for filing. The only exception is for the periodicity of return filling but not for the data. To make the life of MSME’s simple and easier before the rollout GST, the Government has shortlisted and validated free accounting software for MSME to adopt them.

Entering the data manually will only complicate the process and gives room for human and data entry errors. As the new returns are applicable from 1st April 2020, the taxpayers should have a plan for the adoption of digital ways for the issue of tax invoices so that the return filing is accurate and duplication of work is avoided.

GST Audit / Annual Returns

Every taxpayer who has to file the GST Annual Return GST Audit, the data to be uploaded in the returns are at a micro-level. Being the initial years of rollout of GST, many of the taxpayers are not having the data required for filing of the GST Annual Return. To give legroom for the taxpayers, the Government has relaxed the requirements for the first two years, but going forward, the micro-level data has to be uploaded.

The data has to be captured at the transaction creation time only, and it cannot be done as a post-mortem activity. For the data to be in place, again, digitalization is the only solution. This will help in the maintenance of the books of accounts easily and being GST compliant. For this, the taxpayers have to revisit their ledgers/chart of accounts and create new once wherever necessary, so that the transactional data is updated accordingly.

Apart from the ledgers, the HSN summary and tax rate wise data also have to be uploaded; this is possible only if the taxpayers have a proper accounting system in place. For small taxpayers, it may not be a challenge, but for the MSMEs and the big taxpayers, it is going to be a challenge if necessary changes are not incorporated in the accounting packages / ERP.

As the compliance requirements are stringent and mandatory, the taxpayers have to adapt to the new age technologies and start doing business. The adoption of technology helps them to concentrate on their core business areas rather than spending productive time on compliance work. We as professionals, have to guide the taxpayer accordingly and help them in the technology adoption. Things can be done without technology, but they will consume a lot of time and effort. As business is slowly moving from the unorganized sector to the organized sector, there will be some teething troubles, and we should join hands together for the transformation to happen smoothly.

Disclaimer

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 author 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.

This article is published in Souvenir released in the Southern Regional Cost Convention held in Chennai in Nov 2019.