A value-added tax levied on goods and services sold in the country, GST is also referred to as VAT in many countries. Here are the changes proposed in the GST in last year and their implication.
- Prashant Maheshwari
For something that’s so young in India, it’s interesting to note that GST is in fact a senior citizen — older than most of us who work with it. First implemented in France in 1954, the Goods and Service Tax has since been adopted by more than 160 countries across the world. A value-added tax levied on goods and services sold in the country, GST is also referred to as VAT in many countries.
GST is applied to certain goods and services defined by the government. It is added to the cost of the product or service by the business providing the product or service. The GST thus collected by the business from its customers is passed on to the government.
India adopted the dual GST structure in 2017, seventeen years after a committee was set up in 2000 to design a feasible GST model for the country. India’s dual structure has a two-level taxation, with a central GST (CGST) and a state GST (SGST). In the last few months though, there has been a lot of chatter about certain changes that were introduced late last year. Let’s look at them in more detail:
Restrictions on generating e-way bill
The change: Blocking of EWB generation for taxpayers, who have not filed GSTR 3B return for two consecutive tax periods, has been implemented on EWB Portal from 1st December 2019. The users won’t be able to generate EWB for such GSTINs (whether as consigner or consignee).
Why was the change introduced: As per the GST regime, an electronic waybill must be generated for movement of goods valued more than Rs 50,000, be it inter-state or intra-state; and consignments cannot move without an e-way bill. The e-way bill generation system was not linked to the GST system, and hence GST defaulters could keep evading paying tax but carry on their businesses as usual. In the months of September and October 2019, for example, around 20.75 lakh GSTINs did not file their returns, but out of this, almost 3.47 lakh GSTINs generated e-way bills.
What the change means: The blocking and unblocking of e-way bill generation was introduced with a goal to crack down on GST defaulters and evaders. Anyone who has not filed their GST returns for two consecutive months would be blocked from generating the bill, either as a consignor or as a consignee. The system will unblock the business only after the pending GSTR-3Bs are filed for the default period.
Transporting goods without an e-way bill is a punishable offense and the goods can be seized if caught. Businesses will also be fined as per the prevailing rates. Moreover, since defaulters are blocked both as consignors and consignees, their external stakeholders including vendors, clients, partners etc. will also be affected.
All organizations would hence need to be compliant themselves and periodically check compliance of every business that they are associated with.
Restrictions on input credit
The change: The GST Council has recommended imposition of certain restrictions on availing Input Tax Credit (ITC) by recipients where suppliers have not furnished details of outward supplies. The amount of ITC for invoices missing in GSTR-2A cannot exceed 10% of the ITC for invoices uploaded in GSTR-2A.
Why was the change introduced: Earlier, ITC could be claimed by recipients on provisional basis and without restrictions; now, recipients can claim ITC based on the invoices reflected in their GSTR-2A after reconciliation with their purchase register. This measure was taken to curb fraudulent ITC claimed against fake invoices, and to boost monthly GST revenue collection.
What the change means: Suppliers must file GSTR1 on a monthly or quarterly basis depending on their annual turnover. For GSTR1s that are filed every month, recipients will find it easy to claim ITC after reconciliation with their GSTR-2A. But in case of GSTR1 filed quarterly, recipients will have to wait to claim the total eligible ITC. Apart from exercising due diligence in reconciliation every month, businesses may find it cumbersome to follow up constantly with their suppliers. However, the change will ensure that the government will receive all due GST as both suppliers and recipients in the chain will find it difficult to evade taxes or claim undue ITC.
The change: The move towards GST e-invoicing in India will soon become a reality. It is expected to be rolled out for companies on a voluntary basis from 1 January 2020 and based on a recent notification, will be made mandatory for companies having a turnover of above Rs 100 crores with effect from 1 April 2020 for B2B transactions.
Why was the change introduced: Since there was no generic template for e-invoices in the country, inter-operability of e-invoices across the GST ecosystem and portability of relevant information was a challenge? A uniform template for e-invoices has been finalized after extensive consultation with industry bodies, the key objective being machine-readability and uniform interpretation. This uniformity will ensure that all e-invoices can be read and understood by machines across systems, obliterating the need for human intervention and eliminating data entry errors. Further, there is a need for an integrated compliance process, that goes to curb tax evasion, bring ease in compliance and ensure consistency across the transaction life cycle to reduce the reconciliation process.
What the change means: This change is likely to have a significant impact on the financial and IT processes of all businesses, and it is imperative for organizations to get ready for the same in advance. IRN, known as Invoice Reference Number, is a unique number which will be allotted by the central system called the Invoice Registration portal (IRP) to tag and identify every valid e-invoice generated in India. Non-compliance with the new invoicing
system could cause disruptions in business operations, as post 1st April 2020, an invoice without an IRN would not be construed as a valid invoice. Businesses need to identify method of generation of IRN & assess its impact on systems & processes. As this is a major business change, the industry should start preparing on an immediate basis to meet the deadline.
- Prashant Maheshwari is AVP Corporate Affairs and Taxation, Sodexo BRS. Views expressed are the author’s own.