The Goods and Services Tax (GST) touted to be India’s biggest tax reform has been rolled out from July 1, 2017 and the success of GST depends on the smooth running of the GST network i.e. GSTN, the technology and the backbone of this reformed tax. For GST to become a huge success i.e. what it aspired to become, can only be achieved by flawless implementation of GSTN, which will capture each transaction of purchase, sale and stock of all the registered businesses in India and remove the possibility of any multiple taxation or evasion.
But that’s where the main challenge lies, i.e. the implementation, which may not be a smooth ride for the taxpayers, be it a businessman or a professional because under GST, they are required to file as many as 37 returns every year and this coupled with the fact that a large number of our businesses are still unorganised and irregular in maintaining their tax returns and paying taxes. But if you look at this in the other way round, then this may well end those problems as well and will transform this unorganised sector to an organised one after the initial hiccups. Let’s understand more:
Number of GST returns and due dates!
A tax return is a form that every taxpayer is required to file as per the governing law and as per GST rules, a taxpayer is required to furnish three returns on a monthly basis and one annually, which takes it to a total of 37 returns annually. Likewise, separate returns are required to be submitted by a taxpayer, who has registered under the composition scheme, Input Service Distributor and a person who is liable to collect or deduct the tax i.e. TDS/TCS.
As mentioned above and as opposed to the existing rules where these taxpayers are supposed to file one return for VAT or a half yearly return for services tax, now they will have to file three returns every month apart from one Annual Return, which makes it to a total of 37 Returns every year.
How many returns you actually need to file?
Well, that depends on whether you have any branch in the other Indian states, then the same 36 returns and 1 Annual Return needs to be filed for respective states as well. So, for example, a dealer who has businesses spread across 10 different states, he needs to file total 370 Returns. GST registration is given state-wise and therefore in case if you have ten branches in a state itself, then only one registration will be given and the turnover of all the branches will be clubbed in a single return only. But, if you have branches across different states, then you need to have a separate registration for each state and, therefore, you need to file 37 Returns for every state.
How will this process work?
As you are aware, the entire framework and mechanism of GST depends on self-monitoring, which enables in matching the invoices between suppliers and the recipients of the goods and services. And the input tax credit will only be available to the recipient after matching all the invoices and payments of taxes by the suppliers. This apart from the fact that every compliance and returns will be filed digitally via the GSTN platform.
The other important fact, which many people are not aware of, is about GSTR-2 and GSTR-3, which gets auto-populated from GSTR-1 return. The moment you file GSTR-1, which has the details of supplies made by you, it automatically populates into a GSTR-2A of your buyer, which needs to be confirmed by him. And once he confirms, this automatically becomes an entry into GSTR-2. Likewise, once all your transactions of sales and purchases get incorporated in GSTR-1 and GSTR-2 respectively, the information then will flow into GSTR-3 and on that basis, your final tax liability will be computed. You need to file for only those transactions, which your supplier has missed to file.
Change in the Compliance structure!
GST is also set to change the way compliance used to be a One-Day kind of an activity like if we see today, most of the small business taxpayers file their returns in a day by summarising purchase and sales transactions but the compliance will now spread across the entire month under GST regime.
The other important effect will be on the business relationships between the customer and the vendor. Now any customer will look forward to do business only with the vendors, who are fully compliant and that will result into a major change in their relationship. The emotional relationship between a customer and a vendor is set to change towards more compliance in nature. Because under GST regime, any non-compliance has a multiple effect and apart from hurting your cash position in paying fines or penalties, it will also affect your business growth, continuity, and rating.
And one of the major compliance change will be the moving offline data maintenance and recording to the online recording for filing your tax return. At present, many small businessmen transport data from the books to offline tools and then file their tax returns. But under GST regime, inward supplies and outward supplies are set to be auto populated by GSTN and accordingly, the same would be reconciled with their books.
As seen above, though the returns are going to be auto-populated at the very first instance itself, the returns forms are complicated and need every minute details, which makes it be a huge task coupled with the fact that any new transition will take some time to settle in.
Then, every purchaser needs to monitor each and every transaction of their suppliers and if the suppliers have not entered their data correctly, then the buyer has to enter the same manually in order to save himself from any financial loss, which involves considerable time and effort in preparing and filing the return.
Since the entire compliance is web-based, there will be lots of teething issues especially looking at the level of penetration of internet in India and doing everything right from paying taxes to filing returns, online.
Compliance cost is set to go up due to purchase of new software and seeking professionals help for compiling all the transactions details.
I am hopeful that once the required processes and technology sets in, the same technology will play a crucial role in helping you stop, prevent and provide for an early detection or correction of any gaps before you set out to file your tax returns. It will also help you reconcile your books with the GSTN. The GSTN platform and technology will ensure that you have timely compliance, which helps you manage your cash flows much better and further adds up in building your compliance credibility.
Rishabh Parakh is a Chartered Accountant and the Founder Director of Money Plant Consulting. He also runs a personal finance blog called ‘Mango Investor’ aka ‘AAM Niveshak’ at www.mangoinvestor.com. Readers can revert to firstname.lastname@example.org.