Challenges of the new GST return filing system

Although it has been two years since Goods and Service Tax (GST) was implemented in India, there are many aspects that are vague even now. Taxpayers are still struggling to understand the concept in its entirety and the bearing it has on business.

In a bid to boost accuracy and clarity and address some of the gaps in the present Goods and Services Tax (GST) return filing process, the GST Council has ratified a simpler GST return format in its 27th Council Meeting. This new GST return format will be implemented from April 2020. Now, as with any new system, this too will have its set of preliminary challenges.

New GST Return Filing system
New GST Return Filing system


Uploading invoices in real-time

Real-time invoice uploading will be complicated, especially for small business that may not have the resource or technological support for compliance. A taxpayer won’t be able to claim Input Tax Credit (ITC) where it is not reflected on the GST portal even if he holds a hard copy of the invoice. Taxpayers filing monthly returns will face a loss on Input Tax Credit for purchases made from vendors filing quarterly returns if the filer does not upload invoices consistently.

Businesses will need to be aware of their vendors’ GST return filing habits i.e. monthly or quarterly. Small-time vendors will need to make arrangements to comply with real-time invoice uploading for outward supplies. Not doing so may result in boycotting by larger enterprises in favors of more accurate and regular vendors.

Matching invoices frequently

After an invoice is uploaded, the challenge of constant reconciliation by the supply recipient. Continuous communication with the vendor will also be required in the case of any mismatches. Vendors will have to ensure accuracy in invoices to avoid invoices being returned for modifications. It would be advantageous for taxpayers to implement systems that would automate the acceptance, rejection or marking of invoices as pending.

The existing system of GST return filing does not require any action from a supplier or recipient once the invoice is uploaded. However, with the new GST return filing system, once the supplier uploads an invoice to the GSTN, the recipient or buyer can accept, reject or mark the invoice as pending. Once the buyer accepts the invoice, the ITC will automatically get credited to their e-credit ledger. If the buyer is ineligible for ITC, they will need to reverse ITC in the GST RET-1. Any deceitful or ineligible claims of ITC which have not been reversed can invite penal action by the Income Tax department.

Passing multiple adjustment entries

Even though the new GST return filing system has been approved to improve the ITC claim process, how adjustment entries will be passed for ITC reversals still remains a matter of concern for taxpayers. The ITC reversal process becomes challenging now, in the case of goods which are damaged or not received in full for which a credit note has not yet been received, as ITC gets credited automatically to the e-ledger of the buyer.

If the buyer reverses ITC to the extent of goods not received, then another adjustment entry will need to be passed once they receive the actual credit note for the same in the succeeding tax period. Otherwise, they will lose out on credit twice. Credit taken on a provisional basis in cases where suppliers have not uploaded their invoices will need to be reversed once the supplier uploads invoices and files his return.

Organizations that deal will a large volume of transactions on a daily basis need to be careful as adjustment entries need to be passed in summary and not an invoice level. A system needs to be put in place to refrain from wrongful ITC claims, losing out on eligible ITC and to track and manage reversals.

ERP integration and updating

Business, particularly small businesses, will need to update the software they use obtaining data such as POS summary, HSN wise summary and so on. ERP changes are required for compliance with the requirements of the new GST return filing system.

E-invoicing will be incorporated for a trial period at the beginning of the next financial year. This will necessitate re-aligning of ERP systems so that compliance is as per the mandate. Businesses that do not focus on changes in their ERP systems may face penalties and interest due to non-compliance.

Taxpayers have not yet been able to grasp the nitty gritty of the GST system that was implemented earlier, hence any changes in tax law should accompany enough time for taxpayers to comply.

For those of you who are still confused about how to go about GST return filing, you can file your GST return with us!


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