July 1st 2017 is the date chosen to implement GST in India; GST is not a new idea, in fact it is being used in some developed economies for decades. GST will be a game changer for most of the business, they will need to change a lot of things according to GST guidelines for GST implementation in their business. But as this is new to our system some mistakes can occur. The common mistakes that you should remain alert of during GST implementation can be categorized as given below:-
Mistakes that you should watch carefully during GST implementation
1. Poor record keepings:
A large number of businesses in the country are unorganized and irregular in filing returns and paying taxes. This could be due to knowledge gap, situational issue or perception among businessman that they are small in size, operations and earnings, and it is okay to miss the deadline. As a result, they end up getting a notice from the tax department demanding tax payment, interest, late fee and penalties for non-compliance.
You should keep a good record because if a business is registered for GST, it must issue a GST invoice whenever it supplies taxable goods or services and there are many other good reasons that shows the necessity to keep good records. Verification of th records that happened in half yearly will be done per month after GST implementation hence increasing the need for proper record keeping.
Hence keeping good records of your business will save you from a lot of hassle under GST.
2. Dealing with unregistered parties:
A registered person is one who has registered under GST and unregistered person is one who is not registered under GST. This is a simple definition of registered and unregistered person in a layman language. As a registered person to comply correctly with GST law, you must understand certain requirements applicable when dealing with an unregistered person. During the course of your business you might purchase certain items, for example papers, pens etc. from a local vendor who is not registered under GST. You need to pay tax on his behalf.
Section 9(4) of CGST Act, specifies that registered person shall pay the tax in case supply to him is made by an unregistered person. Further all provisions are applicable to him as if he is the supplier discharging tax liability. In short “If you buy any product or service from an unregistered person, then you have to pay tax.”
3. Input Tax credit:
Input tax credit is really important for every organization and after GST implementation this will become more stringent as not following proper guidelines that are provided by GST council can result in loss of Input tax credit. GST council have almost 10 rules and organizations have to comply to all of them if they want proper input tax credit, ensuring each time that if you have complied with each rule or not will take a lot of time for the organization and will also be troublesome. Hence proper steps should be taken to see if all the guidelines provided by the government for input tax credit is being followed or not.
4. Not reviewing supply chain and mapping with GST law:
As mentioned above GST is the largest tax regime change ever in India. Supply chain contains a lot of different materials brought in by different areas. GST will affect all the materials brought in by an organization hence properly reviewing each part of the supply chain is necessary as supplier can be non registered or materials cost may got more expensive after implementation of GST , any small change can have a large scale consequences in an organization so before implementation proper evaluation should be done.
5. Not filing timely returns:
The return cycle under GST will put an end to the existing practice. Today, most of the small business prepares their returns in a day by summarizing their purchase and sales transactions. This will no longer be relevant since GST Return cycle is spread across the month. Secondly, the businesses need to move from offline data recording to online data recording to file the return. Today, most of the small businesses port the data from their books to offline tools and file their return. This will prove to be a costly affair since, under GST inward supplies and outward supplies will be auto-populated by GSTN and need to be reconciled with books.
Business registered under the goods and services tax (GST) regime will be assigned a rating, business rating will drop if it is not filing timely returns, The ratings will be made public on the GST Network (GSTN) website as tax authorities seek to build peer pressure among companies to ensure compliance hence poor ratings can result in loss of future business for the organization as in case two suppliers offer the same price to the manufacturer, the company may opt for the one that has a better compliance rating. Hence keeping this rating good is necessary for organizations
Technology will play a pivot role for businesses under GST as GST is highly transaction based compliance system. The technology should help you to seamlessly prevent, detect and correct the exceptions before the filing of return and reconcile your books with GSTN. With the right technology, businesses will have timely compliance credibility. This will help avoiding this mistake.
6. Lack of IT readiness:
SMEs needs to have a reasonable IT infrastructure in place in terms of business process reinforcement, tax configuration, inventory data storage, document numbering, data amendments, impact analysis on interfaces, reversal of open transactions, and so on.
Upgrading tax modules for the new tax scheme transition to work out successfully can be an exhaustive task amidst the continuously evolving framework of GST. Complex billing and invoicing requirements will arise due to the valuation provisions of GST bill which may complicate filing of tax returns and make credit flow mechanism little difficult in general.
Customization of IT will empower organizations to handle challenges such as increase in compliance costs. Soon enough, enterprise resource planning (ERP), a subcategory of business-management software systems in accordance, will undergo a sea change in functioning.
A good IT infrastructure will make the transition smoother from old taxation system to GST while if the IT sector of the organization is not prepared it will create a lot of hassle and will result in huge loss of opportunity and will cause production delay.