Since the inception of Goods and Services Tax (GST), the main intention of the government was to have a robust system for allowing invoice level reconciliation of transactions. It was envisioned in the form of the returns- GSTR-2 and GSTR-. However, the government had to replace them since it was cumbersome for the taxpayers, especially small businesses to file multiple returns on a monthly basis.
Hence, a temporary summary return (GSTR-3B) with a self-assessed input tax credit claim and tax payment was launched while GSTR-2 and GSTR-3 were kept on hold. As a final solution to ensure smooth compliance for taxpayers as well as to ensure better transparency in the system, the new GST returns filing system is being launched. Is this new GST return filing system really simple or is it just old wine in a new bottle, let’s understand more.
The government intended to implement its principle idea of invoice-level reconciliation by following the sequence of returns GSTR-1, GSTR-2 and GSTR-3. Now, under the new return filing system, the government maintains a similar working model, however at the same time the new system aims to reduce manual efforts and use technology extensively.
It aims to achieve this by having a single main return(GST RET-1/2/3) supported by two annexures (GST ANX-1 & GST ANX-2) that work dynamically on a separate facility. In the present return system, the reconciliation is mostly manual as a taxpayer does reconciliation once at the time of filing either monthly or quarterly, as the case may be. The taxpayer will compare his GSTR-2A with his purchase books and if there is any invoice not available in GSTR-2A separately, he can simply claim it as provisional credit to the full extent in GSTR-3B.
However, most of the taxpayers are still not aware that reconciliation must be done first and then ITC must be claimed in in their GSTR-3B. This helps avoid reconciliation issues and additional tax dues later. Since there is no validation in place before filing, the critical part of reconciliation is likely to be missed at times. Whereas, the new GST return system is automated; involving the reconciliation of invoices before proceeding with ITC claims. Annexures replace returns for the purpose of invoice reporting and system allows certain actions to be taken on them.
Therefore, it saves taxpayers from the physical efforts required in return filing. Further, it helps avoid manual errors to a large extent at the source itself. As a result, taxpayers may be able to avoid litigation related to ITC claim that may follow later. They must first make sure ITC is available to them and then pay whatever tax is due. However, there are certain complications that need to be understood. The new GST return system advocates the concept of regular invoice upload. It can be done at the discretion of the taxpayer and may lead to further complications.
For example, if a monthly return filer has purchased goods from quarterly return filer and the seller is not uploading invoices regularly, the recipient may suffer the loss of regular credit. Even though the concept of provisional credit is available in the new return filing system, it is not fully crystallised yet and seems that it won’t be without some pre-conditions. The buyer may be asked to report these missing invoices within T+2 where ‘T’ signifies the tax period (in case of monthly return filer) or T+1 (in case of quarterly return filer) otherwise the buyer must reverse the ITC claimed earlier provisionally.
This may make the new return system inconvenient for provisional ITC .. If the buyer does not find the invoice in GST ANX-2, he has to continuously follow up with the seller until the 18th of next month. Hence, the tracking of invoices in the new return filing system will need greater vendor management. There are some more challenges to a taxpayer; like ensuring sales invoices are accurate will be critical, recording purchase invoices with each and every detail in their books, besides regular follow-up with the vendor regarding missing invoices. Hence, technology plays an important role in reconciliation under new return system as raising of online invoice becomes necessary, vendor communication becomes critical and tracking invoices is a tedious task which definitely needs automation .
Reconciliation can be done for regular matching of: - Input claimed, thereby utilizing the working capital effectively - Monthly turnover, thereby ensuring smooth submission of GST return - Monthly tax paid, for arriving at the correct liability The taxpayer has to focus on providing proper training to employees. Further, it is ideal to adopt & utilize tools and technologies for ensuring smoother reconciliation.
The taxpayer has to ensure that details entered are accurate to claim the right amount of ITC. Even though the new GST return system looks promising, it puts the onus of reconciliation on the taxpayer as he has to be in regular follow up with the vendor and he should maintain his records more accurately. This can be done with ease by using proper tools and adopting effective technologies which can simplify the process of reconciliation.
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