The proposed new GST return system aimed to simplify filing but raised practical challenges for businesses. This article explains the key hurdles in the new GST return framework and how taxpayers can prepare.

The Goods and Services Tax (GST) was implemented in India several years ago, yet certain legal provisions remain unclear. Taxpayers, with assistance from professionals, continuously strive to comprehend the implications of these provisions on their business operations. Many taxpayers are adopting various technological solutions to adapt to the GST framework. The GST Council decided to introduce a new GST return system starting in April 2020. This new system aimed to address deficiencies found in the existing return mechanism. However, its implementation still presents several challenges.

Latest Updates

As of March 14, 2020, the new GST return system is scheduled for implementation from October 2020. The current return filing system (GSTR-1, 2A & 3B) will remain in effect until September 2020. Note: This is subject to official notification from the CBIC.

Educating Stakeholders

Adapting to changes in tax laws requires time for taxpayers. While this transition period allows compliance, it poses a significant challenge for chartered accountants to educate their clients on the functionality of the new GST return system. For instance, a chartered accountant must guide clients on real-time invoice uploads, the process of taking actions in ANX-2 to claim Input Tax Credit (ITC), and how to report missing invoices effectively.

Continuous Invoice Upload

The new GST return system provides a feature for taxpayers to upload invoices continuously and in real-time to GST ANX-1. For taxpayers to adopt continuous invoice uploads, they will need a new mechanism capable of capturing and uploading all issued invoices and related documents to the portal. This presents a difficulty because the concept of real-time invoice uploads does not exist in the current return system. Consequently, taxpayers must exert additional effort to continuously upload accurate invoice details.

Regular Matching

The process of regular matching involves verifying invoices uploaded by suppliers against the recipient’s books of accounts to claim ITC. Since suppliers upload invoices continuously, recipients must also match these invoices on an ongoing basis. Invoices uploaded by a supplier in their GST ANX-1 will automatically populate into the recipient’s GST ANX-2. Typically, taxpayers reconcile their invoices with their books of account when filing their GST returns. The difficulty with frequent matching is that taxpayers must either dedicate time from their daily business activities or assign specific personnel for this task. For example, if a taxpayer only matches invoices at the time of filing under the new GST return system, they will have insufficient time to follow up with suppliers, potentially leading to incorrect or inaccurate ITC claims.

Invoice Tracking

Scenarios may arise where a recipient possesses a physical invoice, but it is not available on the GST portal for necessary actions. The recipient must identify these missing invoices and report them to the supplier. This requires the recipient to continuously monitor whether the supplier has uploaded the invoices to the portal. This process adds an extra responsibility for the recipient, even after they have paid the tax amount to their supplier. The main challenge is the persistent follow-up with suppliers to ensure invoice uploads, which could potentially strain relationships between suppliers and recipients.

Vendor Communication

Effective vendor communication is crucial within the new GST return system. Vendors must pay closer attention to accounts receivables and accounts payables compared to the previous return filing system. Accounts receivable will determine the value of sales/debtors and ITC claimed, while accounts payable will influence the value of purchases/creditors and output tax liability. Therefore, robust vendor communication is essential for following up on missing invoices and resolving discrepancies. This is a primary aspect taxpayers need to manage for a streamlined GST return submission process.

Transitioning to the New GST Return System

Taxpayers currently operating under the existing return system will require considerable time to adjust to the new GST return framework. Although the government has provided a prototype of the new system, not all its specified features are fully enabled. The main challenge during this transition is for taxpayers to become familiar with new functionalities such as uploading invoices to GST ANX-1, taking actions in GST ANX-2 for ITC claims, regularly reconciling differences, and claiming provisional credit for invoices that are not yet available. To mitigate these challenges, taxpayers can leverage modern technologies available in the market, which can facilitate an easier adaptation process to the new GST returns. These technologies offer features like bulk invoice uploads and tracking, continuous reconciliation of books with GST returns, and streamlined communication with numerous vendors.

Frequently Asked Questions

What was the new GST return system meant to achieve?

It aimed to replace multiple forms with a simpler single-return model, with annexures for outward supplies and inward credit, to reduce compliance effort and mismatches.

What are the main challenges of the new return system?

Businesses faced difficulties with invoice-level matching, IT and ERP readiness, real-time upload of supplies, and reconciling supplier data to claim input tax credit accurately.

How can businesses prepare for GST return changes?

Keep books and e-invoicing systems updated, reconcile purchase data with supplier filings regularly, and use reliable filing software or expert help to avoid losing input tax credit.