The Government of India ushered in the Goods and Services Tax Act (GST) across India on 1st July 2017. Such a tax regime was implemented to bring about uniformity in the indirect tax laws. The GST Act is comprehensive. It covers all stages of production of goods, and bringing various service offerings under its fold too. Further, it replaced the earlier Sales Tax and VAT regime and subsumed several other disparate taxes. Also, GST Registration and GST Return filing were moved online.
Thus, the GST Council has been introducing periodic changes in the system to make it more user-friendly. These changes are notwithstanding the initial hiccups encountered while migrating to the new system. The Council took in feedback from the industry, understood the issues faced and then made changes. Still, CAs continue to face multiple problems while using the online GST system. They even face challenges while aligning their books and records to fulfill the new GST requirements.
In our earlier post , we discussed the issues that CAs face on a day-to-day basis when it comes to GST compliance. Chartered Accountant Mr. Manoj Kumar and other accountants revealed the pain points while making GST compliance for their clients. The biggest fact we uncovered was that CAs continue to face a huge drain on their time due to manual data entry and chasing clients for information.
Therefore, it’s worthwhile unpacking what is involved and why this is happening.
1. Increased Paperwork in the New Regime
The need to capture and document varied details has increased tremendously in the new GST regime. Invoices have to be raised differently, incorporating various details like HSN Code (Harmonized System of Nomenclature) for products; and SAC Code (Services Accounting Code) for services. The code also needs to be displayed differently for different turnover slabs.
Further, the customer’s address and GST Number have to be captured and displayed in the invoice. Also, various other documents like Debit note, Credit note, Bill of Supply, Receipt Vouchers, and E-Way Bill. These documents are issued under different circumstances and in a specific format providing all the necessary details.
Thus, the Debit and Credit Notes have to be correctly numbered and need to display the original Invoice Number to which they are linked. This is because these documents impact GST credit. These need to be maintained and tracked separately as their details also need to be captured in the GST Returns.
2. Increased Administrative Effort
All GST-registered businesses have to mandatorily file several returns. Thus, the applicability of the filing returns changes depending upon the constitution of the business and the sales turnover. The table below illustrates this:
|Serial Number||Business/Constitution||GST Return and Filing Period|
|1||Annual turnover up to 1.5 Crores||GSTR-1, Quarterly|
|2||Annual turnover over 1.5 Crores||GSTR-1, Monthly|
|3||Business under composition levy||CMP-08, Quarterly|
|4||Non-resident taxable person||GSTR-5, Monthly|
|5||Business who is an Input Service Distributor (ISD)||GSTR-6, Monthly|
|6||Business of e-commerce operator||GSTR-8, Monthly|
|7||Authorities deducting tax at source||GSTR-7, Monthly|
|8||For all businesses||GSTR-3B, Monthly|
GSTR-2 (To Be Notified)
3. Persistence of Manual Data Entry
Data has to be manually entered into different tools to conform to the GST system’s requirements. This can be better understood by the series of steps outlined below.
- First, a company has to enter all the invoices and other bills in a software or spreadsheet that it maintains.
- Then, necessary details for creating GSTR reports have to be fed into the software or entered manually in separate spreadsheets.
- The company’s purchases, sales and tax claims details have to be cross-verified with those uploaded by suppliers and customers. And mismatches have to be manually corrected.
- Finally, after all reconciliations, the returns and supporting data have to be uploaded onto the Government’s GST portal using a separate software or tool.
While this means increased effort, it also increases the possibility of errors. In addition, a CA has to spend time repeating all these multiple steps involved in the GST Returns filing process for each of his clients. This is definitely a veritable waste of time.
Complexities of Input Tax Credit Reconciliation
The basic premise of the GST system is to ensure that due credit is given to the manufacturer-cum-seller. This is an input tax credit. Such a credit is given on all the taxes that the manufacturer pays on raw material and labor utilized while manufacturing a product or providing a service to the customer.
To do this, the seller has to maintain proper records of purchases showing the detailed tax break-up. That is the details regarding the amount of tax paid towards CGST, SGST and IGST need to be separately maintained. This is input tax.
Thus, the seller’s invoice reflects the tax component on the finished product sold or the service provided to the customer. Once this is collected from the customer, he has to settle the net amount and remit the difference to the Government. The net amount is nothing but the GST collected on sales less GST paid on purchases. While the concept per se is simple, its execution is extremely complex and fraught with challenges.
4. Matching Tax Details to Claim Input Credit
Records of the seller’s tax details should match entries in his suppliers’ records in order to to claim input credit. The onus is on the seller to ensure that both their records are synchronized. This reconciliation of data between the seller and his supplier is a very time consuming task. The seller can claim input tax credit only when the records are reconciled and matching. Towards this, the supplier has to file the GSTR-1 report which lists out the details of outward supply. The seller will be able to see these details of inward supply in the Form GSTR-2A. He then has to reconcile the relevant tax credits for each of his suppliers, make modifications if necessary and file the relevant GSTR-2 form.
5. Matching Purchase Register With Supplier’s Books
The seller has to match his Purchase Register with the GSTR 3B (the monthly return) and with the GSTR-2A (Details that are uploaded by the supplier). If the books are not streamlined, it will be difficult to align these monthly returns. This may lead to a lowered claim of input tax credit, resulting in additional and unnecessary payment of taxes.
The GST reconciliation activity is a recurring event, either monthly or quarterly, depending on your turnover. All parties involved must exercise proper care and due diligence so that there are no errors. Once an incorrect or faulty return is filed, correction may not be easy. For instance, if you find an erroneous amount listed in the GSTR-2A that you download, the correction may have to be done by your customer.
Intuit has been focusing on reducing time spent on avoidable manual accounting tasks, while ensuring data accuracy. Some of the features we are working on include:
- Real-time document exchange
- Higher team productivity
- Automatic bank updates
- Value added tools for importing and exporting data, reconciling, budgeting
- Anytime, anywhere access.
For CAs, time saved is directly proportional to growth in practice. Intuit is fully committed to supporting you with this. Watch this space for some exciting news on this front. There is light at the end of the tunnel!