GST, which is set to roll out from July 1, is expected to see eight million taxpayers come under the new tax regime, with more than 2 billion invoices expected to be filed every month. India’s biggest tax reform in history is also set to make its small to medium
businesses more transparent.
On July 1, as India rolls out its landmark national sales tax, businesses that make less
than 100 million rupees which the government refers to as micro, small and medium
enterprises will all have to digitise
The GST filings are expected to be one of the most significant data points for flowbased
lending, given the authenticity and complete information of an SME’s financial health. Flow based lending entails lending based on cash flows of a company as opposed to collateral or asset based lending. “GST data will become the largest repository of verifiable cash flows and transactions of business.
While small and medium businesses are expected to face teething trouble in complying with the Goods and Services Tax regime, the new tax system will also open an opportunity for them to access credit as GST filings are set to become a significant
data source for flowbased lending.
Small businesses are the backbone of Indian economics. They drive the velocity of
country’s economics, industrial growth, and catalyst for job creation. However, a large
number of businesses in the country are unorganized and irregular in filing returns and
This could be due to knowledge gap, situational issue or perception among businessman
that they are small in size, operations and earnings, and it is okay to miss the deadline.
As a result, they end up getting a notice from the tax department demanding tax payment, interest, late fee and penalties for noncompliance.
Especially in case of VAT dealers, the severity of consequence in terms of monetary impact is lesser to extent of additional cash outflow to the extent of default.
GST, a comprehensive indirect tax system is all set to subsume a host of existing indirect
taxes and with its implementation, compliance will become a key factor for the success and credibility of a business. GST works on a selfmonitoring mechanism, which is matching the concept of invoice between supplier and recipient of goods and services.
Only after matching of invoices and payment of tax by the supplier, the input tax credit will be available to the recipient.
Thus, a customer will always want to do business with vendors who are compliant. This results in a change of relationship between supplier and recipient from ‘customercumemotional relationship to compliance relationship’.
Hence under GST, noncompliance will not only affect your cash outflow in paying fines, interest, and penalties but also affect the continuity your business and compliance rating.
There will now be four different rates for indirect taxes on goods and services: five, 12, 18 and 28 percent. Except, of course, there are actually five rates, since some things won’t get taxed at all, so zero percent should also be in that list. An additional surcharge will apply to some high tax products and the rate of that surcharge could be anywhere from three percent (on personal jets) to 12 percent (on sodas), 17 percent, 21 percent, 61 percent, 72 percent, 142 percent, 160 per cent, 204 percent or 290 percent (on pipe tobacco). For a reform meant to introduce a single, simple and low tax rate to India, this bewildering maze is a little farcical.
Monthly Statutory Returns under GST
Based on the category of registered person such as monthly return is to be filed by Regular, Foreign Non Residents, ISD and Casual Tax Payers whereas Compounding/Composite tax payers has to file quarterly returns:
In the table below, we have provided details of all the returns which are required to be filed under the GST Law.
|Return Form||What to file?||By Whom?||By When?|
|GSTR-1||Details of outward supplies of taxable goods and/or services effected||Registered Taxable Supplier||10th of the next month|
|GSTR-2||Details of inward supplies of taxable goods and/or services effected claiming input tax credit.||Registered Taxable Recipient||15th of the next month|
|GSTR-3||Monthly return on the basis of finalization of details of outward supplies and inward supplies along with the payment of amount of tax.||Registered Taxable Person||20th of the next month|
|GSTR-4||Quarterly return for compounding taxable person.||Composition Supplier||18th of the month succeeding quarter|
|GSTR-5||Return for Non-Resident foreign taxable person||Non-Resident Taxable Person||20th of the next month|
|GSTR-6||Return for Input Service Distributor||Input Service Distributor||13th of the next month|
|GSTR-7||Return for authorities deducting tax at source.||Tax Deductor||10th of the next month|
|GSTR-8||Details of supplies effected through e-commerce operator and the amount of tax collected||E-commerce Operator/Tax Collector||10th of the next month|
|GSTR-9||Annual Return||Registered Taxable Person||31st December of next financial year|
|GSTR-10||Final Return||Taxable person whose registration has been surrendered or cancelled.||Within three months of the date of cancellation or date of cancellation order, whichever is later.|
|GSTR-11||Details of inward supplies to be furnished by a person having UIN||Person having UIN and claiming refund||28th of the month following the month for which statement is filed|
10th of Subsequent Month Form – GSTR1
In Form GSTR1, you need to declare the details of all the outward supplies of goods and/or services effected during the month. Invoice wise details of outward supplies made to registered dealer and aggregate taxable value of supplies made to consumer are required to be declared. In case, taxable value of supply made to consumer is more than Rs 2.5 lakh and if it is interstate supply, you need to declare invoicewise details.
11th of Subsequent Month Form – GSTR2A
On 11th, the visibility of inward supplies is made available to the recipient in the autopopulated GSTR2A.
This is generated based on the outward supplies declared by your supplier in Form GSTR1. The period from 11th to 15th will allow for any corrections (additions,
modifications and deletion) in Form GSTR2A.
This is the most critical phase of filing of your return, as any omission or correction not reconciled as per the statement in Form GSTR 2A with your inward supplies register, will impact your Input Tax credit eligibility. To save time, quicker and accurate reconciliation, technology will play a key role in your compliance.
15th of Subsequent Month Form – GSTR 2
After reconciling, any additional claim or correction as per Form GSTR 2A needs to be incorporated and submitted in Form GSTR 2 by
15th of subsequent month. Based on the claim reported in Form GSTR2, ITC will be credited to your Ecredit ledger on provisional basis and post matching of invoice, it will be finalized.
16th of Subsequent Month Form – GSTR1A
The corrections (addition, modification and deletion) reported by you in Form GSTR2
will be made available to your supplier in Form GSTR1A.
The supplier has to accept or reject the adjustments made by the customer by verifying with suppliers outward supply register.
20th of Subsequent Month Form – GSTR3
On 20th, based on the Form GSTR1 and Form GSTR2, an autopopulated return GSTR3 will be available for submission along with the payment.
Final Acceptance of Input tax credit in Form GST MIS1 After the due date of filing the monthly return in Form GSTR3, the inward supplies will be matched with the outward supplies furnished by the supplier, and then the final acceptance of input tax credit will be communicated in Form GST MIS1.
The following details will be considered in the matching of invoices:
GSTIN of the supplier
GSTIN of the recipient
Invoice/or debit note number
Invoice/or debit note date
Taxable value and
The claim of input tax credit will be considered as matched, if the amount of input tax credit claimed is equal to or less than the output tax paid on such tax invoice or debit note by the corresponding supplier.
Also, the mismatch input tax credit on account of excess claims or duplication claims will be communicated to recipient in Form GST
MIS 1 and to supplier in Form GST MIS 2.
Discrepancies not ratified will be added as output tax liability along with interest. However, there will be some breathing space since the law provides a window of two months to ratify the discrepancies before reversing the ITC claim on provision basis.
A Way Forward
Activity. The return cycle under GST will put an end to the existing practice. Today, most of the small business prepare their returns in a day by summarizing their purchase and sales transactions. This will no longer be relevant since GST Return cycle is spread across the month.
Secondly, the businesses need to move from offline data recording to online data recording to file the return. Today, most of the small businesses port the data from their books to offline tools and file their return. This will prove to be a costly affair since, under GST inward supplies and outward supplies will be autopopulated by GSTN and need to be reconciled with books.
Technology will play a pivot role for businesses under GST as GST is highly transaction based compliance system. The technology should help you to seamlessly prevent, detect and correct the exceptions before the filing of return and reconcile your books with GSTN.
With the right technology, businesses will have timely compliance, manage cash flows better and adding up to compliance credibility.
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