Why this is a welcome step for MSMEs?

Earlier the government has introduced rule 36(4) which says that a taxpayer can claim ITC of only those invoices which are appearing in 2A. A variation of only 10% is allowed. This rule was inoperative for the period from February 2020 to August 2020, but now it is operative.

By the introduction of this rule 36(4), the quarterly filers of GSTR-1 are facing a unique problem. Let’s understand this through an example.

The invoice appears in GSTR-2A only after counterparty files GSTR-1. The quarterly filer files GSTR-1 quarterly. The invoice of this taxpayers appears in GSTR-2A of the counterparty once every quarter. Say if the invoice date is of April 2020 and he is filing the quarterly return on 28th July 2020, his invoice will appear in the GSTR-2A of the counterparty on 28th July 2020. By then the counterparty must have already filed its monthly return GSTR-3B for June month.

This creates a situation that a person purchasing from a quarterly filer can claim ITC credit after a long period which can extend up to 4 months.

This provision alone has created a great hardship on the quarterly filers. The MSMEs who are supplying to large companies are getting continuous requests to file the GSTR-1 monthly.

But the taxpayer cannot change the option to monthly return filing in a mid of the year. This created a situation where the large companies started to avoid doing business with such taxpayers who are filing their return quarterly.

By the introduction of this new due date, quarterly filers get a marginal relief. The period of delay of a maximum of 4 months is now reduced to 3 months.

But this still does not solve the problem completely. Unless the quarterly filers get to change the option of filing GSTR-1 from quarterly to monthly in the mid of the year, the problem cannot be completely solved.

The post Why due date for filing quarterly GSTR-1 is changed first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

This rule is one of the most complicated rules to apply in practical circumstances. Let’s discuss what this rule is all about.

In layman’s language, rule 36(4) says that the input tax credit of regular invoices availed in a particular month cannot exceed 110% of the value of invoices matched in GSTR-2A.

Further, as per the circular, an additional condition is also specified. It says that the ITC from the suppliers who have filed their GSTR-1 within the due date will be eligible for availment in the same month. If supplier files GSTR-1 late, then that invoice will become eligible for availment only in next months.

Now, the taxpayers who want to comply with this rule has to do the following exercises every month.

1. Prepare the list of invoices on which he wants to claim ITC.
2. Match those invoices with the invoices available in GSTR-2A.
3. Bifurcate the matched invoices in 2 categories. 
   1. Matched invoices of vendors who have filed GSTR-1 within the due date.
   2. Matched invoices of vendors who have filed GSTR-1 after the due date.
4. Identify the matched invoices of past months, which are becoming eligible for availment in the current month.
5. Keep a record of invoices which are becoming eligible for availment in next months so that they do not get missed out from ITC claim.
6. Claim the ITC of invoices which are eligible for availment in the current month. A variance of 10% is allowed.

As we can see, the above steps can appear very simple to write but believe us they are really difficult to implement in practical situations. Now let’s see what are the difficulties, the taxpayers will be facing? 

1. Matching of Past Invoices: As per GST rules, the ITC of a particular invoice can be claimed up to September of the next financial year. This means that to do the matching, at the maximum the taxpayer can be required to match GSTR-2A of the last 18 months. 
2. Dynamic nature of GSTR-2A: GSTR-2A is a dynamic document. Thus for the matching process, the taxpayer is required to download the GSTR-2A for each of the past months.
3. Tracking GSTR-1 filing dates of vendors: As per the new condition, the ITC will become eligible for availment based on the GSTR-1 return filing dates of the vendors. Thus the taxpayers have to track the return filing dates of vendors.
4. Keeping a record of availment eligibility of the invoices: Due to vendor filing date condition, the taxpayers have to keep a record of availment eligibility of invoices. He needs to track when a particular invoice will be eligible for availment. 

Thus with these challenges, the taxpayer has to complete a very difficult task of complying with rule 36(4). 

We at Digitax Automation are in the process of streamlining this process. Rule 36(4) reports will be added in our system very soon. You can contact us at support@digitaxindia.com for any queries. 

The post How to comply with Rule 36(4) for claiming GST Input Tax Credit first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

This is not a new thing in the tax regulatory system in India. In the time of service tax and excise duty, the Income Tax Department used to share the 26AS data with CBIC. There are so many cases of tax evasion found out by CBIC just by sharing of 26AS data.

In our previous article, we emphasized that now GSTR-2A is the new equivalent of 26AS. GSTR-2A contains such vital information about a particular business that it can be a huge data mine for the income tax authorities in finalising the assessments. 

Now the government has openly come up with an MOU with its 2 departments. This means that in future, the GSTR-2A will play a very important role in income tax assessments.

How GSTR-2A can play a game-changing role in tax assessments, let’s discuss.

1. Expense Verification: The verification of expenses claimed by an income taxpayer can be done from the GSTR-2A data. If expenses data primarily matches with the GSTR-2A, it can be reasonably assumed that the expenses are verified. If data is not matching then there is something fishy about it.
2. Unexplained Expenses: GSTR-2A can show the data of such expenses which have not been claimed by the income taxpayer. This will form a basis of enquiry as to check for the source of such expenses incurred. If the taxpayer is not able to justify the source of the expenses incurred, then it can be treated as unexplained expenses by the taxpayer.
3. Underreported income: GSTR-2A can give a good idea about the size of the business. At present, many cases are showing on the income tax compliance portal where the taxpayer is having entries in his GSTR-2A but not filing the income tax return or not disclosing adequate turnover in the income tax return. This will help in unearthing the underreported income by the income tax department.
4. Non-existing firms: In GST era, the government is facing serious challenges in the form of the dummy and non-existing firms. There are many cases where a GST registered firm is running in a person’s name without the knowledge of the said person. With data sharing between CBIC & CBDT, this will introduce an additional check for finding out the non-existing firms in GST.

The above points are just a brief view of how powerful GSTR-2A can be in tax compliance. Government is now sitting on huge data where it can extract such information which an ordinary taxpayer cannot imagine.

Reconciliation of GSTR-2A is now more important than ever before as it will be treated as a “Janam Kundali” of the taxpayer by the assessing authorities.

The post GST Department to share GST data with Income Tax Department first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

Role of CFOs and Tax Heads is critical

Essentially, in this new GST regime, the role of CFO has undergone a sea-change and been imposed with significantly more responsibility of being true and correct in relation to tax reporting and compliances. As legislation imposes heavy corrective penalties in case of errors resulting in short payment of taxes or incorrect availing of ITC, the job of CFO has become more challenging.

Challenge of GST reconciliation

Ever-increasing regulatory requirements and with the vast volume of data CFO is getting it increasingly difficult, if not impossible, to manage whole work manually or with traditional spreadsheets. This reconciliation of the ITC data process requires:

• To find the mismatch in the data
• To find the missing entries in the returns filed by various
• To track the returns filed by the vendors.
• To get the timely alterations in the returns filed by the
• Manually editing or adding the data.
• To keep the records of ITC already claimed and pending

One of the recent studies has found that due to this tedious and time-consuming nature of the claim process, 40% of business houses are still grappling with GST compliance.

The only real solution here is the complete automation of the reconciliation process. This will not only eliminate all the above issues but will also enhance overall end-user experience and free up employees for more core responsibilities. With the adoption of advances technology such as direct import of data from the accounting software as well as GSTN portal and seamless integration with the returns filed by various vendors, the overall ITC matching process can shrink to a matter of 2 to 3 hours only. It will not only save the precious productive time but completely wipe off the fear of any future tax or interest liability.

To know more about GST automation solutions, you can contact at support@digitaxindia.com

The post Critical Role of CFOs and Tax Heads in claiming GST Input Tax Credit (ITC) first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

You must be thinking, how is this even possible because the money passes through so many direct-indirect channels so its quite tedious task to do but in the advancing technological world everything is easy and can be done on a click. Just like using GRECS for ITC reconciliation to save time and money with a perk of doing it from home!

So, here we are to help you out with your doubt of how the government keeps a check on your tax credit claim. Let’s get started with the following pointers telling the exact method and process followed by the government. 

• Government is sitting on voluminous data in the GST regime.
• Earlier, the power of access to such huge data was unavailable.
• Government engages in the heavy use of Data Analytics with industry and sector benchmarking regarding ITC claim.
• Next comes the smart monitoring systems available with assessing officers configured with various kinds of analytical, graphical and ratio analysis.
• The advancing technology helps in keeping a close eye on unscrupulous refund claims.
• Availability of data trail enables the identification of circular trading transactions.
• Identification of fake entities and registrations using locational mapping techniques helps in tracking down the defaulters. 
• All India e-way bill system tracks the transportation of goods which is now linked with www.vahan.nic.in which provides transparency. Moreover, a proposed system of e-invoicing will further strengthen the control of the government.

With the increasing use of technology, there is less and less requirement of any human intervention in finding out the red flags among such big data. Hence, technology is being used in pinpointing the exact event of fraud and has increased the accuracy of anti-evasion measures undertaken by the department.

Do let us know in the comment section how do you like this piece of information. 

The post How GST department is monitoring your Tax Credit Claim? first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

Nowadays, the GST portal has started showing monthly summary reports of Liability declared and credit claimed by the registered persons in a financial year. Following reports can be viewed in the GST site – 

1.   Liability statement other than export and reverse charge

2.   Liability due to reverse charge

3.   Liability due to export and SEZ supplies

4.   ITC credit claimed and due.

Out of these 4 reports, the ITC credit claimed and due report is one of the most important reports which is useful in the preparation of ITC related information in GSTR-9.

This report shows a monthly summary of ITC claimed in 3B and appearing in GSTR-2A auto-populated for that month.

Case Study

The following is a sample view of ITC credit claimed and due report of a particular case.

        ITC Credit Claimed and Due Report

However, when we see the auto-populated figure in point no. 8 of GSTR-9 of the same GSTIN, that figures are slightly different from the above report. The following is what appears on the screen. 

                Auto populated figures in point no. 8 of GSTR-9

As you can see that the auto-populated figures of 2A as showing in point number 8 of GSTR-9 and figures as showing in the ITC Credit claimed and due report, there is a difference in IGST figure. Total of IGST in ITC claimed and due report is 63,43,276.76 whereas in point no. 8 of GSTR-9 it is shown as 61,91,525.11. There is a difference of Rs. 1,51,751.65 in these 2 figures.

One may think, how this can be possible, where one report on the GST site shows one figure and the same GST site is showing another figure in another report.

How Digitax helps in finding this difference?

In Digitax G-Recs ITC reconciliation software you can see the consolidated 2A report for the whole financial year in various formats.

1.   Invoice Wise 2A report classified into Regular Invoices, Amended Invoices, Credit Note Debit Notes and Reverse Charge Invoices

2.   GSTIN Wise 2A report

3.   GSTIN wise 2A summary

4.   Month wise 2A Summary

Now, let’s see in the above case, how the difference can be easily seen.

When we see the invoice wise 2A report for the financial year in Digitax, the software classifies the Regular Invoices, Credit Notes, Debit Notes, Amended Invoices and Reverse Charge Invoices appearing in 2A for the whole financial year.

In the above case, when we see the 2A report for the FY 2017-18, the following classification comes.

From above it becomes clear that in the point no. 8 of GSTR-9, the auto-populated figures of ITC does not include Reverse Charge Invoices on which tax is liable to be paid on reverse charge basis. However, the credit claimed and due report, the credit of reverse charge invoices is included.

Sorting out the above difference without the help of any tool is quite challenging, whereas, with the right tool, you can save your valuable time and energy while preparing for GSTR-9.

For more information on Digitax G-Recs ITC reconciliation software, you can write to support@digitaxindia.com.

Stay tuned for more such information about GST and G-RECS.

The post Difference between auto-populated data of GSTR-2A shown in GST Login: A Case Study first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

Conditions To Claim Input Tax Credit under GST – 

• The due date of filing the GST Return for September of the next Financial year

• the date of filing the Annual Returns for that Financial year.

• Effecting exempted and taxable supplies
• Business and non-business related activities

Items on which Credit can not be availed – 

• It is made obligatory by the government for employers to provide such to the employees.
• Goods or services are taken to deliver the same category of services or as a part of composite supply. For example, Mr Abid uses the service of rent-a-cab to supply to Mr Zakir, a client, then the credit of ITC paid on purchases will be allowed.

The post ITC: Conditions To Claim Input Tax Credit under GST first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

What is Input Tax Credit (ITC)?

Input Tax Credit basically refers to the reduction of the taxes paid on inputs from taxes to be paid on output. When the supply of goods and services is supplied to a taxable person, the GST charged is known as Input Tax. The concept of ITC is not entirely new as it already existed under the pre-GST indirect taxes regime (service tax, VAT and excise duty). Now just the scope of it has been widened under GST. Earlier, it was not allowed to claim ITC for Central Sales Tax, Entry Tax, Luxury Tax and other taxes. In addition to all these, the manufacturers and service providers were barred from claiming the Central Excise duty. Though, it should be noted that Input Tax Credit can not be applied to all types of inputs. Each and every state or country can have a different set of rules and regulations to be followed. Input Tax Credit can also be applicable to a dealer who has purchased goods to resale. These rules are quite stringent and particular in their approach. Let’s take an instance, where a manufacturer needs to figure out his final taxes after claiming the ITC. Let’s say, the tax to be paid on the final product is Rs. 500 and the purchase tax paid is Rs. 350. The Input credit he claimed is Rs. 350, then the final taxes he will pay is Rs.150. Under GST, It is a very critical activity to claim for ITC for every business to settle the tax liability. So, let’s learn how to claim ITC.

How to claim Input Tax Credit (ITC)?

If you want to claim and be entitled to your Input Credit Tax then the following must be followed as per the GST laws –

1. One should be a registered taxable person.

2. One can claim Input Tax Credit only, in the case, where the goods or services received is used for business purposes.

3. Input Tax Credit is taxable and can be claimed on exports or zero-rated supplies.

4. If you are a registered taxable person, and the constitution changes due to merger, sale or transfer of business, then the unused Input Tax Credit shall be transferred to the merged, sold or transferred business.

5. One can credit the Input Tax Credit in his/her Electronic Credit Ledger in a provisional manner on the common portal as per the model GST law.

6. Supporting documents such as a debit note, tax invoice, supplementary invoice, all are needed to claim the Input Tax Credit.

7. Input Tax Credit can be claimed if there is an actual receipt of goods and services.

8. The Input Tax needs to be paid through Electronic Credit/Cash ledger.

9. All GST returns like GST-1, 2,3, 6, and 7 needs to be filed.

So, this was all about Input Tax Credit, stay tuned for more!

The post What is Input Tax Credit (ITC) and how to claim it? first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

What is GSTR 2A?

•  GSTR 5 (supplied by non-resident taxable person)
•  GSTR 6 (Input Service Distributor) 
• GSTR 7 (Person liable to deduct TDS) 
• GSTR 8 (collected by TCS E-commerce) 

GSTR 2A Purpose:

The post Brief Introduction: What is GSTR 2A? first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

Offences under the GST Act – 

Invoicing and Documentation related offences under the GST Act – 

1. Supplying goods and services without issuing an invoice or with issuing a false or incorrect invoice. 
2. Using GSTIN of a different GST registered person or entity for issuing invoice or document. 
3. Transporting taxable goods without the appropriate or correct documentation.
4. Issuing a GST invoice without supplying goods or services in reality. 
5. Failing to maintain relevant documents and records as per the requirements of the GST Act. 

 Tax Evasion related offences under the GST Act –

1. Tax evasion by deliberately under-reporting or suppressing overall turnover. 
2. Collecting the tax from a receiver of goods/services but failing to pay tax to the government within three months of the due date. 
3. Collecting the GST in contravention of provisions specified by the GST Act but failing to pay tax to the government within three months of the due date.
4. Trying to take and utilise the Input Tax Credit (ITC) without the actual receipt or supply of goods or services. 
5. Avoiding tax liability under subsection 2 of Section 52 of GST Act, i.e., Failing to deduct tax, or even if deducting tax, the amount deducted is less than the actual amount or not paying the tax owed to the government.
6. Avoiding tax liability under subsection 3 of Section 52 of GST Act,i.e., Failing to deduct tax, or even if deducting tax, the deducted amount is less than the actual amount deducted or not paying the tax owed to the government.
7. Breaching Section 20 and its sub-sections of GST Act by taking and utilising Input Tax Credit(ITC). 

 Fraudulent Intent related offences under the GST Act – 

1. Submitting false information at the time of GST registration or a later date.
2. Supplying fraudulent information to obtain a GST refund. 
3. Fabricating documents or records and provide incorrect information with the intention of tax evasion.
4. Avoiding registration under GST when it is necessary to do so as per the GST Act. 
5. Damaging and disposing of the goods that have been seized or detained under the GST Act.
6. Intentionally, supplying, transporting and storing the confiscated goods as per the GST rules. 

 Obstruction related offences under the GST Act – 

1. Obstructing any official from performing his/her duties as per the GST Act. For instance, hindering an officer during the audit by tax authorities. 
2. Meddling with or destroying material pieces of evidence or documents. 
3. Providing fabricated or false information to an officer during proceedings. 

GST Act – Minor Breach and Major Breach 

GST Penalties for the offences under the GST Act – 

In Case Of Fraud – 

• Abated someone in committing the fraud. 
• Acquired goods or services which are against the provisions of GST, even after having the information in this regard. 
• Failed in/to issuing/issue a genuine invoice.
• Failed to maintain the proper records or the books of accounts.
• Failed to appear before the ad rem authority upon a summon issued to his/her name.

1. If the amount of tax involved is up to Rs. 50 lakhs, then the person has to serve a jail term of 1 year along with paying the penalty.
2. If the amount ranges between Rs. 50 lakhs to Rs. 1 crore, then the jail term shall rise up to three years with the penalty. 
3. If the amount is more than Rs. 1 crore, then the person shall face a jail term up to 5 years plus the penalty.

Prosecution –

• Issuing an invoice without making a supply of goods or services.
• Claiming a refund of CGST/SGST by fraud.
• Abetting in the fraud under GST. 
• Submitting fake documents or returns.

The post Offences and Penalties under the GST Act first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.