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Solving GST conundrum for SME entrepreneurs

Goods and Services Tax (GST) has revolutionized the Indian tax system and is undoubtedly the biggest tax reform since Independence. Post implementation from 1st July, 2017 it has replaced the taxes such as Central Excise, Service Tax, State Value Added Tax (VAT), Central Sales Tax (CST), Entry Tax or Octroi and other indirect taxes

What is GST?

GST is a consumption based tax levied on the supply of goods and services. It is applicable to transaction value which includes packaging, commission and other expenses incurred during sales.

GST has brought uniform taxation across the country and will allow full Input Tax Credit from Inputs and Capital Goods on procurement which can later be set o¬ff against GST output liability. The reform gives equal footing to the big enterprises and SME alike and removes the tax differentiation on stock transfer.

Effects of GST on SME

It’s been a month since GST has been implemented and it has been observed that SMEs and startups are the most affected with the GST rollout. Large organizations have engaged various experts to help them transition to the GST regime but SMEs are still struggling to get themselves acquainted with GST. Some of the vital issues that need to be dealt with under GST are stated below-:

Technology Upgradation

GST is technology-driven and so it is necessary for SMEs to get themselves accustomed to operating in the changed business environment. SMEs will now need to automate their business processes and accounting systems.

GST Compliant Invoices

A proper GST invoice is critical to error-free return filing. Accordingly, SMEs need to raise Tax invoices in accordance with the compliance requirements under GST. The key details which tax invoice shall contain our - name, address and GSTIN of the supplier and the recipient (if registered), a unique number of the invoice and the date of issue, description of goods, the value of goods, rate of tax, amount of tax and signature.

Regulations to follow for GST registration and filing

Businesses need to register themselves separately in all the states in which they have business operations. For each registration, they need to file three (3) GST Returns on monthly basis with one Annual Return. The basic features of the returns mechanism in GST include electronic filing of returns, uploading of invoice level information and auto-population of information relating to Input Tax Credit (ITC) from returns of the supplier to that of the recipient, invoice-level information matching and auto reversal of Input Tax Credit in case of a mismatch.

Payment to Suppliers within time

Buyers will not be able to take Input Tax Credit in case of non-payment to suppliers within 180 days from the date of invoice. So it’s crucial for SMEs to make payment to their vendors within time.

Purchases from Unregistered Vendors

Purchase of goods/services from unregistered suppliers could attract the levy of GST in the hand of a recipient resulting in unnecessary compliance burden. So Large Enterprises will not deal with unregistered SME’s. So it’s important for MSMEs to get themselves registered.

Compliance Rating and its significance

The concept of Compliance Rating Score has also been introduced in GST. This will probably keep track of the record of the business in GST Returns Filing, Payment of Taxes and Mismatch of Input Tax Credit. Most of the Large Enterprises, Bankers and Investors will review the GST Compliance Rating Score of the SME’s before entering into any business relationship. Further, all the Customers and Vendors will refer to this rating before entering into any business transaction so it is crucial for SMEs to remain compliant.

So we can say that GST will result in streamlining of processes with an increase in compliance requirements for SME’s. GST has been designed to have a minimal human interface and would be implemented through strong IT platform run by GSTN. Also, in the earlier regime, there were multiple compliances required for taxes such as Central Excise, Service tax, VAT etc. with Centre and State. GST makes it single and uniforms compliance for indirect taxes across the country. Under GST, there is just one interface with no face-to-face meeting between taxpayers and tax authorities and practically every activity will be done online.

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Indranil Choudhury – Co-Founder & CEO – Lexplosion Solutions Private Ltd. B.A. LL.B. (Hons.) National Law School of India [1994]; M.St. (Legal Research) University of Oxford [2001]; SMP IIM Calcutta [2007] Indranil is the co-founder and CEO of Lexplosion Solutions Private Limited. Lexplosion has done pioneering work in the technology-enabled compliance management space. Its cloud-based compliance application, Komrisk, is a market leader with companies like Vodafone; GE and Microsoft as its clients. Indranil is a lawyer-entrepreneur with diverse professional interests. He is a leading industry voice on compliance management and has been associated with several initiatives including NASSCOM’s Emerge and CII’s IT, ITeS and e-Commerce Committee. Indranil’s current focus is in effectively using technology to implement compliance management programs for small and medium enterprises both within India and outside. He is working with a team of Lexplosion lawyers and software developers in converting complex legal analytics into binary code. Indranil had previously worked as lead counsel for Genpact India. He had also led operations for one of Genpact's fastest growing sites in India. Prior to Genpact, Indranil had worked for Amarchand Mangaldas as a lawyer. Indranil is a member of CII National Council on IT, ITeS and e-Commerce and is also member of CII National SME Council and Co-Chair the Sub Group on Ease of Doing Business for the MSME Sector. Indranil speaks about building efficient and cost-effective compliance management programs at various NASSCOM and CII conferences. These have evinced interest from diverse professional groups such as General Counsels; Heads of Compliance; Risk; HR and Finance.

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