Finally, GST has been rolled out. It is a big step forward for the country, and is one of the most complex GST rollouts worldwide. While tax rationalisation and ease of doing business pan India have been touted as the main reasons for pushing this tax reform, the Government of India is taking this opportunity to bring businesses online and digital, by forcing tax filing to be done digitally, and asking for a level of detail in filing that almost forces businesses to use software for their transactions and billing.
Beauty and wellness businesses now need to evaluate their readiness level and act accordingly. Being blissfully ignorant of the complexity of the rollout can get businesses in trouble!
Key Implications of GST Rollout
Here are the key changes businesses have to brace themselves for – Tax rates have been rationalized. Products and services have been categorized into harmonized codes (SAC and HSN) and rates are set at this level. This means modifying the tax rates for products and services and assigning right codes.
Tax invoice sequence numbers have to be strictly adhered to. If your business takes partial payments, advance payments, offers redeemable instruments (like gift card, membership, packages), there are many complex scenarios that need to be handled as part of tax filing because each of them is treated different and thus separate returns must be filed for each.
Goods attract destination based tax. So while procuring goods, One has to be very methodical about tracking the taxes incident upon a particular delivery and collect detailed information from their vendors (including the reference numbers from their filing of tax invoice on GST portal), otherwise it will be hard to get input tax credits.
GST returns require transaction level details and matching of transactions across filings (for ex: if you collected advance payment for a service in July, and delivered the service in September, September filing of that transaction need to be tied to the advance payment filing you did in July) so you need this level of detail captured in your systems.
Receipts and invoice formats require to be changed and provide much more details than what is required today.
There are two aspects of GST readiness: readiness of business processes, and readiness of IT systems. Given that GST lays heavy emphasis on electronic filing and transaction level reporting, preparedness of IT infrastructure is crucial. This article focuses on IT side and recommends key steps to determine if your current software can help you comply with GST easily. Given the amount of reporting required, if you do not use any software, it is time you get one, because it is going to be extremely hard to stay compliant.
It would be a good idea to focus on these six areas and check if your current software can help you effectively. If you are a franchisee owner, ask your franchise owner or demand to talk to the software vendor. Also, ask your vendor to demonstrate to you, how these new functionalities are working.
A few areas where setup of master data needs to change are Right codes for services (SAC) and goods (HSN), New rates based on GST council recommendations, Invoice and receipt formats relevant for your business, Additional details for suppliers, and Purchase Order and invoice formats for your supplies. Also, talk to your software vendor and see what all changes have been done for various areas of setup and how existing information will be upgraded.
Managing Customer Billing
Keep in mind matters such as, how do you ensure right GST taxes are applied when a service or a product is sold by front desk? How will these be handled (whatever is applicable to your business) – partial payments, advance payments, gift cards, redemption of advances across different centers? Which receipt and invoice formats will be used in each of the different scenarios of sale? How do you ensure that all tax invoices and receipts are always sequential in all cases?
You would also need to be aware of – what information is captured when receiving supplies so that input tax credit can be easily claimed? How do you ensure that supplier has filed their invoice on GST portal so that input tax credit can be claimed? How is destination-based tax applied when multiple centers (hence potentially multiple tax regions) are being served by the same supplier?
Producing Data That Will Facilitate Returns
Using data available from master data, transactions from billing and procurement, and GST logic of preparing returns, data needs to be produced that can be used for preparing returns for filing on GST portal. There are GST Returns formats (there are about eight that may be relevant to your business) that you should look at and ask your software vendor if the system can directly generate these returns, or at least provide all the information necessary for generate returns. List down various scenarios (‘sell a service’, ‘sell a service and three products in same invoice which have different codes’, ‘book an appointment and collect payment in advance’, ‘sell a gift card in Andheri (Mumbai) centre in July and customer redeems it for a service in Khan Market (Delhi) centre in Sept.’, etc.) and ask what goes in each of these filing.
You can choose one of the options below to file returns – CA who takes the details and files manually or uses some accounting software), use a small business accounting software in-house to generate returns, either integrated with billing software or standalone, or use an ERP system, hooked to the billing system. Once you finalise how you are going to file returns, check whether
your software can provide all the data required to produce these returns.
Handling Disputes/ Queries
Since all records are filed digitally at transaction level, a lot of questions can be raised by tax authorities, and you need to have a system capable enough to respond to ad-hoc queries from them in a timely manner. Look through past questions you have been asked by the tax authorities and check with your software vendor/ CA to see how easy it is to get the answers and supporting data.
Businesses need to be aware of where they are and take steps to be 100 per cent ready. Software systems will play a key role in this preparedness since GST is a digital, online based tax reform. This article presented a few areas where you can examine your system or your vendor and ensure you are on right track. There are many more areas to examine, but this should serve as a good starting point. We also reiterate that having a good software system is more essential now than ever before.