If you invoice your customers for products or services, your invoices need to be compliant with the new Goods and Services Tax (GST) guidelines. Originally, the GST Council had tough rules for invoices, but it has removed or relaxed the majority of the original requirements to make the process relatively straightforward.
Business Information for Invoices
To be GST compliant, your invoice should have your Permanent Account Number and your GST Identification Number plus your customer’s PAN and GSTIN. Ideally, you should also list your company name, the customer’s name, and both of your addresses. Finally, you need to include the place where you supplied the goods or services because for inter-state transactions, the place has a direct connection to the taxes accessed on those transactions.
Simplified Rules for Invoices
Initially, the council wanted business owners to create separate invoices for tax exempt sales, but you can now list everything on the same invoice. You also don’t have to note the tax for each individual item. Instead, you simply list all your items and their prices including tax. At bottom of the invoice, list the total value of items in each tax slab along with the tax assessed.
Imagine you’re creating an invoice for the following items at the following prices: children’s picture books ₹200, chutney powder ₹100, coffee ₹50, and a sewing machine ₹250. First, you need to list all those items, and then since picture books are tax exempt, you list ₹200 tax exempt at the bottom of the invoice. The next two items fall into the 5% tax slab, so you total them and note the tax amount. Their total is ₹150, which makes their base price ₹142.86 and the GST ₹7.14. Finally, note the ₹250 for the sewing machine and its 12% tax.
If you aren’t sure of the GST amount, you can work backward from the total price as long as you know the tax slab. To do that, take the total price and divide it by the GST rate plus one. To illustrate, take the ₹250 sewing machine mentioned above that has a tax slab of 12%. When you add one, that becomes 1.12, and to calculate the base price, you divide ₹250 by 1.12. The result is ₹223.21, or the price of the sewing machine without GST. If you multiply that by 12%, you get the GST of ₹26.79.
To make sure the numbers are correct, add them together. The total should be the total price of your item. In this case, ₹223.21 plus ₹26.79 is ₹250, so you know you’ve done the calculations correctly. As you create your invoices, you may have to use this calculation numerous times. To calculate the GST for multiple items, just add them together, and then divide by the GST rate plus one as explained above.
QuickBooks offers a GST-compliant invoicing feature that takes the guesswork out of your calculations and gives you more time to spend on other areas of your business. Using this software also makes your life easier by providing a single interface that lets you create, print, view, and track all your invoices in a single spot.
The government plans to track business compliance with the new GST regulations. Compliance can affect your business positively, but not following the rules may lead to issues with claiming input credits. That’s just one of the reasons you need to ensure your invoices meet the current criteria.