The goods and services tax system’s effectiveness rests on the production of invoices. To keep the taxes balanced, taxable supplies made by your business must match with the taxable purchases made by the buyer of your supplies. Transactions for products or services offered by a business are associated with an invoice under the GST law. Return filing and GST benefits are entirely based on the accuracy of invoices presented by your small business.
The government included invoice matching as part of the initial GST rollout. This was done to ensure a high level of integration between the buyer and the seller. Invoice matching helps smooth flow of information and accuracy in the validation of transactions. Tax compliance is its primary rationale. It is also applicable to the processing of input tax credit claims from the buyer.
Manner of Issuing Invoice
All businesses registered under the GST act are required to create invoices for every transaction. Mandates related to invoicing differ depending on your business offering.
- If your business deals in products, two copies of the invoice are required when you move goods.
- If you offer a value-based service to your customers, three copies of the invoice are required. These invoices must be issued within 30 days after delivering the service.
- Your invoice must indicate taxes applicable to the transaction. One or more among the SGST, CGST, and IGST taxes implemented at the state, central, and integrated levels may be mentioned.
- Completed invoices are uploaded to the GST network.
Businesses Exempt From Issuing Invoice
Certain business transactions are exempted from raising invoices. These include:
- When a reverse charge is involved
- When you move your products to different locations for the same business
- When your buyer is not registered under GST and does not request an invoice. In such cases, a consolidated invoice suffices.
Contents of Invoice
All invoices are required to contain information relating to your transaction. These include:
- Unique GST identifier or GSTIN of the seller and buyer
- A unique code for your product or service — the SAC or HSN code.
- Transaction details including its brief description, value, and applicable taxes
- Date when the transaction was carried out
- The location for the transaction
- Invoice number
- Name and address of the recipient
- Rate and amount of taxes, that is, CGST, SGST or IGST
- Whether tax is payable on reverse charge basis
- Signature of the supplier
Most small business owners will agree that the use of an accounting software solution such as Quickbooks is a necessity for accuracy. The future is lucrative for small business owners with the GST council approving a simpler GST process. Changes to the return filing process may take up to a year to normalize financial dealings.
The matching process starts with the supplier filing form GSTR-1 for the supplies made by him/her. GSTR – 1 is a monthly return of outward supplies. Basically, it is a return showing all the sales transactions of a business. Once the supplier files outward supplies in GSTR – 1, the particulars for inward supplies get auto-populated in GSTR – 2A of the buyer. GSTR – 2A is a read only document that contains all the purchase transactions of business. This is an auto – generated document which is for the information purpose only. All the particulars in GSTR – 2A are same as the ones in GSTR – 2. GSTR – 2 is a monthly return of inward supplies. Basically, it shows all the purchase transactions of a business and is the form that can be edited by the buyer in case of any discrepancy in the details filed in GSTR – 1 by the supplier. Hence, this way, the buyer furnishes the final details of his inward supply.
Now, based on the Form GSTR-2 of the buyer, the particulars of outward supply as validated by the buyer would be made available for the supplier. Such particulars get auto-populated in GSTR – 1A for the supplier. The supplier may accept such details to update and finalize his Form GSTR-1 submitted earlier.
Finally, the matching of ITC would be done only after both the supplier and recipient file their monthly returns. This monthly return is filed in Form GSTR-3.
What to Expect for Invoices in the New GST System
Major changes to the existing system are planned in response to feedback from business owners. In spite of technology support and simplified taxation, small businesses still find it cumbersome to work their way through the invoicing process. This transition will take about 1-1.5 years. The new GST system will not expect buyers to upload invoices. Further, invoicing is projected to be significantly less complex.
- Invoice matching is no longer required.
- Several forms will be combined for the sake of simplicity.
- As a seller, you will have the option to upload invoices on a continuous basis. These invoices will serve as a reference for the buyer.
- Acknowledgment for the invoice is incorporated into the system when our customer accepts the invoice. You will not have the option to edit this invoice.
- In the future, buyers will receive input tax credit on the basis of the information in the seller’s invoice.
- The automated online process for reversal of input tax credit through a notice and order issue will further reduce the need for human intervention.
Future updates to the GST will be a welcome change for small businesses. SMEs and startups will face less hassle while filing returns along with the elimination of excessive online documentation.