GST regime brings in a tremendous change to how taxation is managed in the country, both from the perspective of the administration and also the organisations filing taxes.
For organisations, the biggest change is the fact that while they were filing yearly reports earlier, they now need to communicate the information of the invoices they generate every month. Another big change that organisations need to adapt to is the invoice reconciliation linked Input Tax Credit calculation. This for organisations means that they need to ensure that their invoices match with those of their suppliers. How can you manage this beforehand and plan your Input Tax Credit better?
Watch this video by R.N. Iyer, CEO and Co-Founder of Vayana Network, to find the answers.
Iyer says, “Fundamentally what everyone needs to realise about GST is that it is a very collaborative process. You require Seller’s invoices to get matched to a Buyer’s invoice and that I think is going to be the crucial difference between all other forms of taxation which are all enterprise-led and they do not have to get any support from others. In this case, the Buyer has to ensure that whatever is in his ledger matches with the Supplier’s ledger.
In a typical trade transaction, if you just look at it from a business to business perspective, at 5 or 10 or 15% of these records will not match between a Buyer and Supplier. The obvious reasons are obviously that the quantities do not match, there are some rejects; the rates that were agreed upon on the purchase order do not match what is quoted on the invoice; there are some contractual issues; there are a variety of issues of why these invoices won’t match.
Till now, in trade, you just took care of it on an ongoing basis. You just took what you had and registered it against future invoices and the taxation implications were not many.
Under GST, given the fact that every month by the 20th you are filing return; that is by 17th you are making sure that what you have as a Buyer matches with your Suppliers and you can only take credit for that condition being met. There are many other conditions that need to be met. Therefore, if you look at it from a working capital point of view, there is going to be a whole amount of unreconciled items between a Buyer and a Seller that you will not be able to claim credit for. Or if you claim credit, there will be provisional credit which for any reason in the next two months doesn’t confirm, the Buyer has to pay a penalty for.
That is the real reason why Vayana Network, which is very much focused around this reconciliation in its traditional business of financing Short Term Trade, figured out that it is very important for enterprises to daily reconcile the information that they get from their Suppliers and also for the Suppliers to know that the Buyer’s information is reconciling with them. And that is the real purpose why we decided to bring in a very powerful collaborative invoice confirmation and acceptance product called VICAS which is Vayana Invoice Confirmation and Acceptance Services.
The idea behind that is, on an almost daily basis with no change to your systems, your indirect tax guys on both sides can have a single version of truth of all the trade that is happening between them. They can manually, on a daily basis, check those items with their procurement or sales team to go a reconcile if there are any discrepancies. So that by the time it comes to the filing of the GSTR 1 on the 10th or the GSTR 2 confirmation on the 15th, you already have all the details that need to get reconciled and you don’t have to wait for the last date.
You can get that rectified on an ongoing basis and therefore have a lot of your Input Tax Credit pretty much verified before you even claim it. I think it is going to be a huge boon to not just last corporates and even the smaller ones to avoid tying up your working capital on account of unreconciled invoices. That is one of the reasons why we believe VICAS will have a really powerful draw.”