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Evolved role of Accounts Department in MSME’s post GST

GST has been termed as biggest single tax reform post-independence. It will subsumed various Central and States tax laws and is expected to give major boost to the Government of India’s initiative of “Ease to do Business” and inclusion of all segments of society in the development of the Country.

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Tax payers are required to upload transactions details on the GSTN (GST Network) and these transactions would be matched with second leg reported by the counter party to the transaction. Processes will be online and report generation etc. would be done on the GSTN system.

GST is expected to bring in many changes in the way businesses are done in India, requiring unlearning old processes and learning / relearning new ways of doing business, necessitating changes in procurement, sales, supply chain etc. Employees will be required to be trained so that they have knowledge on new laws and can cop-up with requirements. However in entire GST impact discussion, the most impacted function, Accounting & Finance function, is seems to have been least discussed.

This post tries to bring focus on the impact of GST on the Accounting & Finance function. GST will increase work load on the department and also increase function’s responsibility.

  1. Though reporting of carried forward input tax credit has to be done before by 29 September,  the available input tax credit needs to be reconciled as on Day One as post effective date, the stock position would start changing with new purchases and sales. After reconciliation only, return can be filed.

  2. Opening stock has to be verified and reconciled so as to determine write offs. GST input credit on write off is not allowed so it’s prudent to write off excess input credit on the impaired / lost stock.

  3. Goods with job worker has to be reconcile and both have to declared / reported stock. Any discrepancies have to be identified and sorted out.

  4. Financial statements needs to be reconciled with ER-1, VAT returns, ST-3 return. Any difference have to be appropriately accounted.

  5. Getting necessary forms like C,F,H,I etc. from the customers and vendors and submitting the same to the tax department. Regular follow-up would be required for these forms, explaining counter parties about the importance of releasing the required forms. Unless the forms are given in time, it may lead to penalty and rejection of concession claims.

  6. A tax payer will have to file various returns in a month. Midsize tax payer will have to file three returns per GST registration. So in case a tax payer has GST registration in 10 states than monthly 30 returns have to be filed. For more entities in a group, number of returns would increase proportionately. Though reporting dates have been specified, GST being online system, tax payers are encourage to report regularly  transaction details so that last moment rush is avoided. Accounts function will be under continuous pressure they would be either filing return or reconciling and following-up for reconciliation.

  7. In case of more than one place of business, accounts relating to each place should be maintained at each place. This would require increase in accounting staff to take care of local accounting and reporting. Those tax payers who were having centralised registration so far, will have to get state wise registration for the states where may supply goods / services. This will increase number of returns to be filed as an entity.

  8. The concept of TCS / TDS is also proposed to be introduced in GST which could pose challenge to accounts team. Non awareness could result in additional cost to entity in form of interest and penalties.

  9. Each tax payer would be assigned rating by the GST system on the basis of performance of a tax payer as regard various compliances. Basis rating, vendors and customers would evaluate the ease of doing business of that tax payer before doing business with him as timely filing of returns, taxes would give them benefits like input tax credit. In order to maintain rating, the accounting function will have to plan and ensure compliances ongoing basis throughout year.

  10. Ascertain status of various tax litigation under earlier laws and need to evaluate likely liability. Depending on the stages at which litigation is going on and various factors like value involved, number of pending assessments etc. dedicated staff who has knowledge and understanding of old laws will have to be involved. So though other function would move to GST, Accounts function would be dealing with both new and old tax laws.

  11. Accounting system would undergo change with opening of several new accounts like output CGST/SGST/IGST, input CGST/SGST/IGST , ITC CGST/SGST/IGST, interest, penalty, etc. necessitating  change in accounting process.

  12. Accounts team will have to get accustomed to new provision like reverse charge mechanism, reconciling ITC, reversal of ITC due to non-payment etc. This will require regular monitoring of GST ledgers in the GSTN and constant follow-up with vendors and customers. A tax payer can be denied input tax credit if the seller has not reported the transaction. There will be shift in relationship from personal touch to compliance based and dealing with counter parties would be a challenge for the accounting function.

  13. Changes in formats and reports such as tax registers, tax invoices etc.GST would bring paradigm shift in indirect tax laws. The accounts team should be aware of changes and in addition, the changes required in all relevant registers, invoices and forms should be undertaken. The manual registers and reports to the extent possible should be done away with as most of the information in GST would be automated.

  14. Registration requirements

All tax payers registered under any of the present indirect tax laws, except centralised registration, would get automatic GST registration. In case of service providers with multiple locations having centralized registration, there is a need for obtaining registration for each of the states having presence.

Those who have multiple registration, would need to evaluate whether those registration are required post GST.

  1. Agreement modifications with vendors / customers

     

Post GST effective date, many of indirect taxes would discontinue. This would require review of major agreements entered with vendors and customers so that they are in compliance with GST. The major points to be considered are:

a. All existing agreements where reference have been made for service tax, VAT/CST or excise duty needs to be replaced by GST.

b. Purchase orders issued to vendors would require modifications on introduction of GST. During transition time also, care should be taken to ensure that the vendors are passing on all tax benefits with break up on the invoices.

c. All new agreements proposed to be entered into may have to include a specific reference that tax clause would be revisited / amended as proposed in GST amendments.

An entity will have to evaluate increase in activity for the accounts team and will have to plan accordingly. Due to shortage of staff, compliance should not suffer which could have impact on the entity’s rating and input tax credit. Separate team should be formed for reporting, reconciling and for day to day accounting work. Coordination with other locations, vendors, customers would be required and would require experience accounting staff.

 

By Nitin Dave, Executive partner

ixCFO Services Pvt Limited

davenitin@gmail.com, info@ixcfo.com

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