The Goods and Services Tax (GST) law has recently undergone significant changes. These changes have increased the importance of reconciling GST data more regularly to avoid differences between GSTR-1, GSTR-3B and GSTR-2B. It has also given rise to new business challenges that can effectively be addressed using technology.
The changes in GST law
From 1st January 2022, businesses can no longer claim an Input Tax Credit (ITC) if it does not appear in GSTR-2B. This form provides eligible and ineligible Input Tax Credit (ITC) that a business can claim and it is constant for every month. Here the monthly data remains the same even if any changes are made by vendors (suppliers of a business) in any later months.
Businesses can claim ITC when the vendor reports an invoice or debit note in their GSTR-1 or Invoice Furnishing Facility (IFF). If there are instances of excess claims or failure to follow this condition, such businesses become liable to penalties or may even face suspension of their GSTIN.
The next important change from 1st January 2022 is a revision to 'self-assessed tax' for the recovery proceedings. Businesses have to report all their sales invoices in GSTR-1 and declare a summary of sales, ITC claims, and net tax payable in GSTR-3B.
As per the amendment, the tax officer can recover taxes without issuing show cause notice and initiate a recovery process if the taxpayer fails to pay the self-assessed tax in GSTR-3B. Such taxes will also include the tax unpaid on outward supplies reported in GSTR-1 but not reported in GSTR-3B.
The liability to pay GST arises while filing GSTR-3B but not GSTR-1, which was a loophole in the GST law. The government brought this change to prevent fraudulent invoicing by sellers reporting larger sales in GSTR-1 to allow purchasers to claim ITC. Such sellers deliberately suppress sales in GSTR-3B to lower GST liabilities. This change gives exclusive power to GST authorities to initiate recovery proceedings where the tax liability is under-reported in GSTR-3B compared to GSTR-1.
Another change is again to curb non-filing or delay in GSTR-3B filing from 1st January 2022. Businesses cannot file GSTR-1 of the current period if the last period's GSTR-3B is not filed. Before the amendment, blocking GSTR-1 filing on the GST portal happened if businesses did not file GSTR-3B of the last two tax periods.
The impact on businesses
With these stringent restrictions in place, sellers or vendors cannot afford to delay the filing or misreport details in GSTR-3B compared to GSTR-1. On the other hand, buyers or recipients cannot claim 5% additional ITC beyond GSTR-2B, where sellers have not reported the purchase invoice.
The manual route of reconciliation and communication becomes complicated, laborious and time-consuming. Moreover, if vendors delay, businesses must bear additional GST in cash until the vendor complies, thus losing money.
Hence, all these have necessitated businesses to maintain consistent and accurate reporting across returns without delay. Therefore, companies must regularly look out for variances and establish a communication link with their business partner.
Solutions for enterprises
Enterprises must adopt a dynamic and real-time system of ITC reconciliations as frequent as every week or several times a week. They will need a tech-based solution to match their purchase invoices between books and GSTR-2B more often to determine missing ITC.
They should proactively communicate and nudge their non-compliant vendors to report invoices. It is crucial to follow two-way vendor communication and vendor compliance grading.
Businesses must follow new policies or strategies such as holding vendor payments to discipline their non-compliant vendors. It could be done for GST value at an invoice level and every payment cycle. It is beneficial to have real-time automated payment blocking mechanisms built into their Accounts Payable (AP) system.
Enterprises must be able to auto-prepare GSTR-3B by auto-populating GSTR-1 and GSTR-2B details. It helps avoid errors and inconsistencies in GSTR-3B due to manual interventions. Further, their compliance solutions must provide them access to instant comparison reports such as 'GSTR-3B vs GSTR-1 vs books' and 'GSTR-3B vs GSTR-2B vs books' to save their teams' time and effort.
The solution should give a single view of return filing status on a dashboard for GSTR-1, GSTR-3B, GSTR-9 and GSTR-9C across periods and all GSTINs under a PAN.
Enterprises will find cloud-based solutions economical that can automatically upgrade for changes in portal and law. These solutions are future-oriented since they are run on artificial intelligence and machine learning. The recommended solutions will ensure that enterprises smoothly comply without affecting their working capital or facing government notices.
-The author Archit Gupta is the Founder and CEO of Clear. The views expressed are personal.
(Edited by : Priyanka Deshpande)
First Published: Mar 1, 2022 4:49 PM IST
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