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.

Over Simplified GST Annual Return & GST Audit

Apart from the monthly filing of returns by the taxpayers in GST, all taxpayers have to file GST Annual Return and taxpayer with turn over above Rs 2 Crores have to file GST Audit Report yearly.  Annual Return under GST has to be filed through GSTR – 9 by all the taxpayers who have registered in GST even for a single day during the period 1st April 2017 to 31st March 2017.  The data to be reported is very much in detail, and most of the taxpayers have failed to maintain the data in the required manner as they have not reviewed or been guided based on the draft return formats released by the Government before the rollout of GST. The formats for the GSTR – 9 and GSTR – 9C (audit) have been released during Sep 2018; by that time, the financial year has lapsed, and most of the taxpayer was not in a position to get the data. This has resulted in requests from the trade, industry, and professionals for the extension of the due dates and simplification of the formats.

The Government has extended on multiple occasions from 31st Dec 2018 to finally now to 31st Dec 2019. Filing of Annual Return has been made optional for taxpayers having up to Rs 2 Crores has been made optional wide Notification No. 47/2019 – Central Tax for the Financial Year 2017-18 and 2018-19. Now, apart from this, the Government has simplified the return filing process for other taxpayers. This is good news for the taxpayers as their pain in collating the data is no longer required as most of them have been made optional for the Financial Year 2017-18 and 2018-19.

Simplifications announced in GSTR – 9

  1. Outward supplies can be reported net of Debit / Credit Notes and Adjustments

The outward supplies being reported from Table 4A to 4G now can be reported net of Debit / Credit Noted and adjustments optionally if the taxpayer is having any difficulty in deriving the data. The outward supplies that can be reported are

  1. B2B Supplies
  2. B2C Supplies
  3. Deemed Exports
  4. Supplies to SEZ with payment of Duty
  5. Exports with payment of duty
  6. Advance received but supplies not made
  7. Inward supplies on which tax is payable on account of reverse charge

 

  1. Consolidated reporting for Exempted, Non-GST, and Nil Rated Supplies

All the supplies related to Exempted, Non-GST, and Nil Rate Supplies, which are to be reported in Table 5D to 5F, can now be reported in Table 5D, i.e., Exempted as a consolidated amount optionally if the taxpayer has any challenges in deriving these amounts individually. These can be reported net of Debit / Credit Notes & Amendments rather than reporting them separately.

  1. Outward Supplies Without Payment of Duties

The taxpayers can report the supplies made to SEZ or SEZ Developers, Exports, or Supplies on which the Recipient has to pay taxes can be reported net of Debit / Credit Notes & Amendments. These supplies are falling in table 5A to 5C.

  1. Input Tax Credit

Inward supplies from other than imports or from SEZ Units, imports and liable for reverse charge which are to be reported in Table 6B separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6B – “Inputs” if the taxpayer is not able to provide the breakup of the same.

Inward supplies received from unregistered suppliers liable for reverse charge are to be reported separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6C – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

Inward supplies received from registered suppliers liable for reverse charge are to be reported separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6D – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

Inward supplies from SEZ Units are to be reported separately for Inputs & Capital Goods can now be reported as a consolidated amount in Table 6E – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

  1. Reversal of Input Tax Credit

Taxpayers are required to reverse the input tax credit if the supplier is not paid in 180 days as per provisions of Rule 37, Input Service Distributor as per provisions of Rule 39, reversal in cases where the goods or services or both used partially for taxable supplies and partially for non-business purpose or exempted supplies as per provisions of Rule 42 and for transfer or sale of capital goods as per provisions of Rule 43, Blocked input tax credit under Provisions of Section 17(5) of the CGST Act 2017  were supposed to be reported separately in Tables 7A to 7E can now be reported as a single amount in Table 7H.

  1. Refunds

The taxpayers are required to fill the amount for Refund Claimed, Refund Sectioned, Refund Rejected & Refund Pending are to be reported in Table 15A to 15D, now the taxpayers have the option of not reporting the same.

  1. Demands

Taxpayers are required to fill the amount of Demand raised, Amount of Demand Paid, and Pending amounts in Table 15E to 15G, now the taxpayers have the option of not reporting the same.

  1. Reporting of other Supplies

Taxpayers were required to report the supplies from Composition Tax Payers, Total amount  of material not received from job work, which is considered as deemed supplies and goods shipped on approval basis but received within specified period are not returned are required to report in Table 16A to 16C and now the taxpayers have an option of not reporting the same.

  1. HSN Summary for Inward & Outward Supplies

Taxpayers were required to provide the HSN Summary for the Inward Supplies and Outward Supplies in Table 17 & Table 18, and now the taxpayers have the option of not reporting the same.

  1. Applicability of the optional reporting

In almost all the sections where details are required to be reported, but now the same has been made optional. The flexibility applies only from 1st July 2017 to March 2018 and from 1st April 2018 to 2019. Thereby meaning that the taxpayers have to file the detailed amounts for the year 2019-20.

Simplifications announced in GSTR – 9C

GSTR – 9C is a reconciliation statement between the GST Returns and the Financial Statements. As part of the reconciliation statement, there is also a requirement to the return certified by a practicing Cost Accountant or Charted Accountant, the wording used in the same are also modified to shift the onus form the GST Auditor to the Taxpayer.

Simplifications announced in GSTR – 9C

  1. Revenue Reconciliation

Taxpayers have to reconcile the revenue between the GST Returns and the Financial Statements. The tax payment is based on the Time of Supply for the GST Returns, and for the Financial Statements, they are based on the Accounting Standards; as a result, there will be a difference between both the revenues and the same is required to be reconciled and reported in GSTR – 9C. The reconciliation is the GSTR – 9C is required to classify under the following sections

  1. Unbilled Revenue at the end of the Financial year
  2. Unbilled Revenue at the beginning of the Financial year
  3. Supplies treated as Deemed Supplies as per Schedule – 1
  4. Credit Notes issued for the supplies in the next financial year, not reflected in the GST Returns
  5. Trade Discounts accounted in the Financial Statements, but they are ineligible as per GST and not reflected in the GST Returns
  6. Turnover from 1st April to 30th June 2017
  7. Credit Notes accounted in the Financial Statements, but they are ineligible as per GST and not reflected in the GST Returns
  8. Adjustments on account of supply of goods by SEZ units to DTA Units
  9. Turnover for the period under composition scheme
  10. Adjustments in the turnover under section 15 and rules thereunder
  11. Adjustments in turnover due to foreign exchange fluctuations

All these are required to be reported in Table 5A to 5N of the GSTR – 9C, now the taxpayers have an option to report the same separately as a consolidated amount in Table 5O.

  1. Input Tax Credit Reconciliation

Input tax credit reconciliation is required to be provided in Table 12, and as a part of it in 12 B, ITC booked in earlier Financial Year claimed in current Financial Year is not mandatorily required to be reported. Taxpayers have the option of not reporting it also.

In table 12 C, ITC availed as per audited financial statements or books of accounts, taxpayers have an option of not reporting it also.

  1. Expense wise reporting of Input Tax Credit

In Table 14 of GSTR – 9C, taxpayers are required to report the input tax credit based on various accounting/expense heads mandatorily, now taxpayers have the option of reporting the same.

  1. Certification from GST Auditor

GST Audit has to be certified by GST, a practicing Cost Accountant or Charted Accountant, who is certifying the audit. The format and the content of the Certificate are the same except for the change of wordings from “true and correct” to “true and correct.” This gives a lot of breather for the practicing members as they are not coming forward to come and certify that the information provided by them is correct.

The simplification of the GSTR – 9 and GSTR – 9C is applicable only for the FY 2017-18 & 2018-19, and the extension of the due dates have been notified through the Removal of Difficulties Order No. 08/2019-Central Tax dated 14th Nov 2019.

From the above, it makes it clear that the Government wants all the eligible taxpayers to file the GST Annual and Audit returns. Once the filing is completed, the Government may be taking up the assessment of the same to ascertain the correctness of the data being furnished from time to time by the taxpayers and also detect any tax evasion which might have taken place. After the rollout of GST, to date, the taxpayers have not completed at least one audit or assessment.

 

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.

Circular No. 90/09/2019-GST

This was the point i am discussing with my friends and during my sessions of GST Audit that if the provisions of Rule 46 are not followed then penal provisions can be levied under Section 122 and Section 125. Rule 46 clearly states that on a tax invoice, the bare minimum details have to be shown and if any of the same are missing then 1st proviso of Section 122 can be enforced on the taxpayer which clearly states that penalty of Rs 10,000 per invoice. Refer to Section 122(1) (ii) talks about per invoice, so imagine if the department wants to issue notice for levy of penalty they can issue it per document which is not meeting the said provisions.

Now the same is officially clarified in the Circular #90/09/2019-GST

GST Audit report being prepared should cover this point also, so you can imagine the complexity, quantum of work involved and also the depth of knowledge required to execute it.

FAQ – 19

What are the transactions i need to show in the Point F of Part II of FORM GSTR – 9C, “Trade Discounts accounted for in the audited Annual Financial Statement but are not permissible under GST” ?

There could be some business cases where the discount being offered is not know at the time of supply or the discount could not be established to particular invoices or input tax credit is not reversed on the trade discount offered or it is not mentioned on the tax invoice. In all the above cases, the trade discount will be part of the financial statements but not part of the GST Returns.

FAQ – 18

In From GSTR – 9C, what is “Adjustments in turnover due to foreign exchange fluctuations” and in which cases do i need to fill it?

It has to be filled by all taxpayers who have outward supplies in foreign currency and where they issue a tax invoice as well as a commercial invoice. It can be in case of exporters or supplies to SEZ’s where they issue a tax invoice with payment of duty i.e as per the GST at the time of removal of goods and for the foreign customer, a commercial invoice is issued on a subsequent date. The different dates can some time result in different exchange rates being used. This could cause a difference reported in the financial statements and in the GST Returns, for this reason, it has to be mentioned in the Form GSTR – 9C.

For previous FAQ’s click here

 

FAQ – 17

What are the various reasons where the GST Liability as per financial statements and GST Returns could be different?

There could a difference due to the following reasons commonly

a) Revenue Recognition

b) Stock Transfer outside the states

c) Advance Receipt from customers

d) GST on paid on job work if not returned in stipulated time

e) Reverse charge on certain goods on outward supplies

f) Reverse charge on inward supplies paid

FAQ – 15

Do I need to do Reconciliationreconciliation between the Financial Statements and GST Returns for the turnover / outward supplies while preparing the GST Audit Reconciliation Statement?

Yes, as per Ind AS – 18, revenue will be recognized only when the risks and rewards are transferred whereas in GST, at the time of Supply (section 13,14 & 15 of the CGST Act 2017) GST Liability has to be accounted.

Example: Goods shipped on 29th March from Delhi to Chennai and they are delivered on 3rd April at Chennai. As per GST, liability has to be accounted and paid in the March months return and as per Ind AS -18, it will not be booked as revenue if the Risk & Reward is not transferred.