Five Commandments – GST for Year Closing

We are in the world of New Normal due to the ongoing pandemic globally. Pandemic has resulted in disruptions and business strategy changes based on consumer preferences and budget allocations. The organizations have started the new financial years on 1^st April 2020 in the lockdown period. None of the organizations have prepared or able to scale to the dynamic & ever-changing business environment. Time Never Stops, and History Repeats are the two common phrases we hear in our discussions in business circles. Come whatever may happen, organizations have to close their books of accounts for 31^st March year. Closure of books in time and properly helps the organization mitigate the risks and take timely actions for the coming year to improve the top line and bottom line. What is required for increasing the top line and bottom line is a strategy on how to achieve it, and compliance is one of the strategies meant to achieve the same. As we all know, GST is a Business Reform, not tax reform; changing few business processes in the organization here and there can ensure productivity while safeguarding the organization from hefty penalties and late fees. Following a structured process will ensure to minimize the same and at the same time be in good books of the tax authority and the suppliers. Professionals and taxpayers are required to complete the following before filing the GSTR – 1 and GSTR – 3B for March 2021 by 11^th of April 2021 and 20^th of April 2021 ( for few taxpayers, it will be 22^nd of April or 24^th of April if their turnover is less than ₹ 5 cores based on the state they are located).

1. Reconciliation of Outward Supplies
2. Reconciliation of Inward Supplies
3. Reconciliation of Related Party Transactions
4. Issue of Pending Debit/Credit Notes
5. Reversal of ITC arising out of pandemic

1. Reconciliation of Outward Supplies

A series of reconciliations have to be done while filing the returns for March 2021 if the reconciliations have not been done while filing monthly and quarterly returns.

Verify the following for the correctness of the data in return filing

• Taxable Supplies, Exempted Supplies are reported correctly
• Non-GST supplies are reported correctly
• Supplies to deemed exporters are reported correctly at lower tax rates
• Supplies to notified agencies at a lower rate are reported correctly
• All outward supplies transactions are reported correctly in the Sales Register
• Ensure that e-invoices are issued wherever required if applicable
• Ensure and validate that the GSTINs of the customers are entered correctly and reported
• Ensure and validate that no GST is charged for transactions within the state having the same GSTINs
• Ensure that all the debit and credit notes are issued as per the provisions of GST
• Ensure and verify that all the liability entries are passed in the books of accounts

Complete the following reconciliations before the filing of the March GST Returns

• Reconcile between the GSTR – 1 data and the Sales Register
• Reconcile between GSTR – 1 and GSTR – 3B
• Reconcile between GSTR -3B and Sales Register
• Reconcile the data for the HSN summary being reported in monthly GSTR – 1
• Reconcile e-waybill data with GSTR – 1 data, and if there are any differences, it is worth making a reconciliation statement and preserve it for future references.
• Reconcile the e-invoices reported in the GSTR – 1 with the e-invoices generated
• Reconcile between the Liability Ledgers on GST portal with the

The beginning of the year started with lockdown, and it has resulted in a lot of delays and cancellations of orders. Wherever there is a commercial element missing and open, try to close all such cases by the issue of debit and credit notes. Credit Notes have to be issued before the due date of filing of GSTR returns for the month of September or filing of Annual Return, whichever is earlier.

Section 37 (3), First Proviso

Provided that no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

If any excess tax is paid for the said period through GSTR – 3B, then the same should be reduced from the GST liability in March 2021, reducing the cash outflows. Also, please maintain a reconciliation statement for the same for future reference.

2.Reconciliation of Inward Supplies

One of the major features and business-friendly measures in GST is the availability of seamless input tax credit. Though it is a piece of soothing music to the business’s ears, it comes with a set of stringent measures like if input tax credit has been availed wrongly or excess amounts or claiming it if the supplier has not filed returns. Given all these, availing of the input tax credit process and claiming correctly becomes crucial for the business. 

One of GST rollout’s major benefits for the trade and industry is the availability of input tax credit seamlessly across the supply chain cycle. Though input tax credit is available, certain restrictions are available, and they are given in Section 16, Section 17(5), and in the corresponding rules.

Section 16(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Before doing the reconciliation, ensure to complete the following tasks

• Update the purchase register for the entire year and ensure all the transactions are updated in it.
• Verify that e-invoices are received from all the suppliers to whom it is applicable; else, it will not be considered a tax invoice and not eligible to claim the input tax credit.
• Verify and ensure that all the original copies of the tax invoice are available
• Verify and ensure that the goods and services are received before availing of the input tax credit
• Verify and ensure that all the credit and debit notes are updated in the system and accounted
• Verify and ensure that if any debit or credit notes are required to be issued by the supplier are issued, filed by the supplier in his returns and also accounted in the books
• Verify and ensure that RCM applicability on inward supplies is identified and accounted for, and paid.
• Verify and ensure that input tax credit is availed only on eligible inward supplies only
• Verify and ensure that input tax utilization entries passed in the books of accounts

Section 17(5)

(b) the following supply of goods or services or both—

• food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
• membership of a club, health and fitness centre; and

(c) works contract services when supplied for construction of an immovable property(other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

Apart from ensuring the steps mentioned above are completed and the do the reconciliation

Complete the following reconciliations

• Reconcile between GSTR – 2A / 2B with Purchase Register
• Reconcile between GSTR -2A /2B with GSTR – 3B
• Reconcile between GSTR-3B with Purchase Register
• Reconcile the ITC Ledger on GST portal with the various ledger accounts

Rule 69 – Matching

The following details relating to the claim of input tax credit on inward supplies including imports, provisionally allowed under section 41, shall be matched under section 42 after the due date for furnishing the return in FORM GSTR-3-

• Goods and Services Tax Identification Number of the supplier; 
• Goods and Services Tax Identification Number of the recipient;
• invoice or debit note number;
• invoice or debit note date; and
• tax amount:

3. Reconciliation of Related Party Transactions

In multiple instances, related parties are not accounted for properly, or returns are filed incorrectly. This results in a lot of tax litigation or reversal of input tax credits through discharge of liability. Though there is no loss to the exchequer, it is not as per the law’s provisions, and the taxpayer cannot amend the returns if they have claimed wrongly.

It is recommended to verify all such transactions if there are any related party transactions and rectify the same in the March months returns. This process will ensure no loss of input tax credit, excess payment of taxes, which impacts the organization’s bottom line. This will also eliminate litigation and save time and effort.

The above process is not required if the taxpayers reconcile their data before filing their monthly returns

4. Issue of Pending Debit/Credit Notes

In a going business concern, there will always be issues and challenges in the supply chain. The supply chain challenges could be damages or breakages in transit or delay in shipments or receipt of goods, or receipt of inferior quality or different ones from the ordered—all these results in some price negotiations or others. In GST, only the supplier of goods or services can issue a debit note, and the recipient cannot unilaterally issue a debit note or credit note on the supplier.

As the above case results in price negotiation, there will always be a delay in the process, and as it is the year-end, it is recommended to clear all such pending issues. A rigorous follow-up with the vendors is required, backed by documentation.

Another case could be on account of reconciliation, there could be some suppliers who must have missed filing their returns, or their registrations have been canceled; in all such cases where the supplier has not filed the returns, a credit note should be requested to be issued to compensate the loss of input tax credit. If the supplier does not issue a credit note and the payment is already made, then the taxpayer cannot do anything but reverse the input tax credit with interest at the rate of 24%; payment of interest will be an additional loss to the taxpayers. To avoid such cases, before the payment release, it is recommended to complete the reconciliation process or withhold the tax amount until the supplier files the GST returns. This process will ensure that there is an impact on the bottom line.

Similar could be the case in the case of outward supplies. Also, it is recommended to issue debit or credit notes before the 31^st of March 2021.

Section 34(2) – Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

Though there is no time limit for the issue of Debit Note but is advised to issue the same as the same will minimize the pending issues, the issue of debit notes brings is additional cash into the system, which has become scarce due to the business disruptions on account of the pandemic.

5.Covid Impact on GST

The pandemic has impacted every business directly or indirectly. The impact is on the sales front, profits front as well on the operations and employee front. As the lockdowns have been announced to curtail the spread of the deadly virus, many manufacturers and service providers have impacted their businesses.

Manufacturers

• If any spoilage/wastage of raw materials or work in progress, the same is being debited to the Profit and loss account simultaneously. If any input tax credit has been availed, the same has to be reversed and observed in the profit and loss account.
• If any goods have been expired due to the lockdown, the same is being written off to the profit and loss account. Similarly, the input tax credit has to be reversed if any availed.
• If the customers have returned the goods and the same could not be used, were scrapped or destroyed for not being used, the input tax credit has to be reversed on such goods.
• If the scrapped goods are sold at a nominal rate, then input tax credit need not be reversed as it is sold as scrap, and GST is paid on it as per one school of thought.
• The pandemic has also resulted in a delay in payments. Identify if the suppliers are paid within 180 days; if not, the input tax credit must be reversed on the amounts due from one hundred and eighty-first day onwards.
• If any return of the goods by the customers or dealers or distributors, issue the credit notes immediately without further delay. It will be a challenge in financial reporting if issued after 1^st April 2021.

Service Providers

If the advance is received from the customers and service is not being provided due to the lockdowns, advance received treatment becomes crucial in GST. The possible scenarios and treatment under GST

1. If the advance is returned in the same month, then no need to account for GST on receipt of the advance. Verify and validate all such advance receipts, and if GST is not paid, please pay interest on it if the invoice is issued in the subsequent months.
2. If the invoice is not issued till 31^st March and service is not provided, validate and verify if GST is paid on the advance receipt along with the interest
3. If an amount is partially returned in the subsequent months and service is not provided, validate and verify if GST is paid on advance receipt if not account it and pay along with interest

• The pandemic has also resulted in a delay in payments. Identify if the suppliers are paid within 180 days. If not, the input tax credit must be reversed on the amounts due from one hundred and eighty-first day onwards.
  • If any credit notes are required to be issued for the delay in service, complete the activity before filing GST Returns for March; else, reconciliation statements have to be prepared to explain to various stakeholders.
  • If any debit notes have to be issued for price variations, the activity must be completed before the GST Returns filing for March 2021; else, reconciliation statements must be prepared to explain to various stakeholders.

The points mentioned above are indicative and may vary from taxpayer to taxpayer. It is also recommended to address the following points before the filing of the March return  

1. Inputs sent on job work if not returned within the stipulated period; tax invoice has to be issued
2. Avail of the input tax credits if any is missed out
3. There is an exemption for reporting input tax credit by classification for the first two years only; the taxpayers must classify and claim input tax credit accordingly. If not done, prepare a reconciliation statement and validate that the same match the input tax credit claimed in GSTR – 3B.
4. Verify If any employee gifts above Rs 50,000 on which tax liability has to be paid
5. Verify if any input tax credit has to be reversed for the goods given without any consideration
6. Verify if any shortages or damage to stock on which input tax credit has been claimed? If any such items are there, reverse the input tax credit
7. Validate the input tax credit reversed on common inputs for taxable and exempted supplies being reversed
8. Verify input tax credit has been reversed on a pro-rata basis on capital goods from one state to another state
9. Verify the financial credit notes and debit notes issued according to the l provisions; else, issue GST Credit / Debit Notes.
10. File all the relevant returns as per applicability and complete the reconciliations
11. Verify if all the customers who have to file GSTR – 7 & 8 have filed their returns and accepted the same, this will save on the cash outflows.

Wherever possible, if any ITC has to be reversed or tax has to be paid, account for it and discharge it through GSTR – 3B.   

Verification of the above tasks is a time-consuming process, and it is recommended to start the process ASAP and ensure that no input tax credit benefit lapses. No removal of difficulties order has been issued for availing input tax credit for an extra period on account of a pandemic-like situation.

During the first three years after the rollout of GST, there was an option for corrections using the GSTR – 9 for liability. The same is being withdrawn based on the Finance Bill 2021, yet to be notified; if this is the case, there is no room left for the taxpayers for rectification. The wrongdoings can be seen only during the audit or scrutiny by the department officers over a period of time. By that time, the penalty amount along with interest also is going to be increased multi-fold. To avoid such challenges, it is highly recommended to follow the above steps before filing the returns for March 2021.

To avoid all the challenges, the return filing data should be captured in the accounting or ERP system accordingly. Wherever possible, automation should be introduced to minimize human efforts and automate the process of data entry and reconciliations. Let’s not forget that GST is a business reform and not tax reform.

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 within a 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.

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.

Impact on Enterprise Resource Planning – Transition to GST

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

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

1. 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.

2. 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.

3. 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

4. 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.

5. 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.

6. 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.

7. 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.

Transaction Data

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.

Reporting

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.

Migration

1. 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.

2. Operations

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.

3. Training

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.

4. 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.

5. 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.

6. 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.

 

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