The GST Council approved a new simplified GST return format in its 27th Council meeting. The new GST return aims at enhancing transparency and accuracy of the return filing process. The Council has decided that the new return filing system will be implemented from April 2020.

Like with any new system being introduced, there is always a set of initial challenges that need to be managed. Some of the challenges that taxpayers could face after the new GST returns get implemented are-

Continuous uploading of invoices in real-time
The introduction of real-time invoice uploading could lead to certain complications, especially in the case of smaller businesses that may not have the necessary resources to comply with the same. A taxpayer will not be able to claim an Input Tax Credit (ITC) where it is not reflecting on the GST portal, although he possesses a physical invoice. Hence, a monthly return taxpayer could lose out on input tax credit relating to purch ..

A business will now need to be more aware of the vendors it deals with and the types of returns they are filing i.e. monthly/quarterly. For small vendors, the real-time uploading of invoices relating to outward supplies needs to be dynamic and accurate in order to avoid being boycotted by larger enterprises.

Mandatory action to be taken on an invoice after it has been uploaded
Once an invoice is uploaded, the existing system of filing GST returns requires no further action from a supplier or recipient. Under the new GST return system, after a supplier uploads invoices to the GSTN, the buyer will have the option to accept, reject or mark the invoice as pending. Once accepted, the ITC will get automatically credited to the electronic credit ledger of the recipient. In cases where ITC is ineligible, the recipient will need to reverse ITC in the main return i.e. GST RET-1. Any false claims of ITC or any ineligible ITC which the recipient has not reversed could result in penal action by the tax department.

The challenge that arises here is the continuous reconciliation needed by the recipients of supplies, and good vendor communication in cases of mismatches. Vendors, on the other hand, need to ensure accuracy in reporting to avoid invoices being returned for amendment. A taxpayer can also put a good mechanism or tool in place wherein he can use an automated process for accepting, rejecting, or marking invoices as pending.

Multiple adjustment entries to be passed
While the new return system is designed to simplify and make good the ITC claim process, what is now starting to concern taxpayers is how adjustment entries will need to be passed in case of ITC reversals. As ITC will now get automatically credited to the electronic credit ledger of the recipient, in the case of goods which have not been received in full or damaged goods for which have not been received in full or damaged goods for which a credit note is yet to be received, the ITC reversal process becomes tricky.

If the buyer reverses ITC to the extent of goods not received, then another adjustment entry will need to be passed once he receives the actual credit note for the same in the succeeding tax period. Otherwise, it would result in him losing out on credit twice. Even 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.

As adjustment entries need to be passed in summary and not at an invoice level, organisations having large volumes of data need to be extremely careful while handling the same. An efficient tracking system should be put in place to manage reversals, refrain from claiming ITC incorrectly and avoid losing out on eligible ITC.

ERP integration becomes crucial
Businesses will need to make necessary changes to the software they use for fetching information such as POS summary, HSN wise summary, etc. These ERP changes will be required in order to comply with the reporting requirements of the new GST returns. The new system of raising invoices i.e. e-invoicing, which will be incorporated on trial from the beginning of the coming year will also require a re-alignment of ERP systems to ensure compliance as per the required standards.

Businesses need to focus on incorporating the required ERP changes on high priority so that they do not end up bearing penalties and interest for being non-compliant.

There could be several other concerns that could come up during the actual GST return filing process under the new return system. Taxpayers are looking for simplification in filing returns, and hope that the new return system will achieve this. However, only time will tell if the benefits outweigh the concerns. The delay in the introduction of new GST returns should hopefully give businesses sufficient time to prepare for its implementation as well as set up the required IT infrastructure.