Many small businesses are grappling with the challenge of reducing GST compliance costs, leading some to contemplate quitting the GST regime altogether. While the government has tried to ease the compliance burden for small businesses, challenges persist in navigating the complex procedures. To alleviate some of these challenges, the government raised the GST registration threshold limit from INR 20 lakh to INR 40 lakh per annum turnover, effective April 1, 2019. Despite this apparent relief, concerns remain regarding the overall cost implications of compliance procedures. In this blog, we’ll explore top methods for small businesses to effectively reduce their GST compliance costs, offering practical solutions for smoother operations and financial savings.
What is GST?
GST was enforced in India on July 1, 2017. It represents a comprehensive, multistage, destination-based tax structure, having absorbed nearly all indirect taxes with a few exceptions for state taxes. Unlike the previous tax regime, GST is applicable at every stage of the supply chain and is based on the place of consumption. This departure from the earlier system, where taxes were imposed at the point of origin, marks a significant shift in India’s taxation landscape.
Significant Aspects of GST Law
Levy on Supply Chain:
GST is set on the supply of goods and services at every stage, from manufacture to final sale. Input tax credit is allowed, enabling reimbursement of taxes paid at previous stages.
Destination-based Tax:
GST, as a destination-based tax, is imposed on the utilization of goods and services rather than on their production or sale. The tax is typically levied where the goods or services are utilized, with some exceptions..
Uniform Tax Rate:
GST is imposed on providing goods and services rather than their monetary worth.
Multistage Tax System:
Operating as a multistage tax, GST is levied at each stage of the supply chain, starting from the manufacturer to the final sale. Credits for GST paid at each location are available against GST payable at the subsequent stage, ensuring that only the value-added component incurs taxation.
Cost-effective GST compliance measures
Automation of GST Return:
- Utilize software programs to automate GST return preparation and lodgement.
- Enter GST-related transactions into the software to calculate GST payable or refundable automatically.
- Review and make necessary changes before lodging the return directly with the relevant authority.
Using Accounting Software:
- Employ accounting software to automate GST return generation and track GST payable and receivable.
- Choose suitable software based on business needs and set up the account with financial information.
- Leverage accounting software to facilitate GST refund claims for overpaid GST.
Claiming GST Credits:
- Ensure valid GST invoices for claiming GST credits on business expenses.
- Complete GST returns accurately, including the total amount of GST credits to be claimed.
- Provide supporting documentation to the relevant authority if claiming GST credits for the first time.
- Maintain accurate expense records to avoid overclaiming GST credits and potential penalties.
Maintaining Good Records:
- Keep detailed records of invoices, receipts, and GST amounts paid or charged on purchases and sales.
- Utilize a separate GST account in accounting software for efficient tracking.
- Reconcile the GST account with bank statements regularly and retain copies of filed GST returns.
- Document any adjustments made to the GST account to ensure compliance and accuracy.
Hire CA Collectively:
Business associations or unions can collectively hire a chartered accountant (CA) to assist every member, reducing the cost per head.
Utilize GST Practitioners:
Engage authorized GST practitioners for GST-related accounting work, offering cost-effective services compared to chartered accountants.
GST Staff Training:
Arrange periodic training sessions by experienced GST professionals for staff to enhance technical, and operational skills, reducing the need for full-time professionals.
Tax Software Training:
Invite professionals from tax software companies to provide training on using GST software and clarify doubts regarding return filing procedures.
Utilising Free GST Software:
Take advantage of free accounting and invoice software announced by the government in the 32nd GST Council meeting to reduce compliance costs and ensure secure filing as per government standards.
Leveraging Technology for Streamlined GST Compliance
GST implementation has extensively leveraged technology to simplify taxpayers’ tax compliance. Here are some critical technological initiatives:
GSTN System
The Goods and Services Tax Network (GSTN) provides the IT infrastructure and platform for all GST compliances. This robust system enables real-time processing and eliminates the need for physical paperwork.
GSPs and ASPs
GST Suvidha Providers (GSPs) and Application Service Providers (ASPs) offer technology services and solutions for filing returns and other compliances. These providers assist small taxpayers in meeting their GST obligations more efficiently.
API Integration for GST
Taxpayers can integrate their accounting/ERP software directly with the GSTN system through Application Programming Interfaces (APIs) provided by GSPs/ASPs. This integration facilitates seamless data flow and auto-population of returns.
Taxpayer Services
The GSTN portal offers various facilities such as online registrations, grievance redressal systems, call centers, tutorials, and more. These services are aimed at addressing taxpayer queries and resolving issues effectively.
Also Read: Impact Of GST: Invoice, Simplified Tax System And Reduce Compliance Burden
Conclusion
It is essential to remember that GST applies to all supplies of goods and services within India, barring exemptions, and also extends to imports. By implementing the strategies outlined in this article, you can maintain accurate records, ultimately minimizing your GST compliance costs. These cost-effective methods empower small businesses to streamline their compliance processes, freeing up valuable resources for investment in other critical aspects of their operations.
Also Read: How Digital Billing Solutions Simplify Challenges for MSMEs
Frequently Asked Questions(FAQs)
What advantages does employing a GST practitioner offer?
Using a GST practitioner can help reduce GST compliance costs by ensuring accurate and timely filing of GST returns. They can also represent taxpayers in dealings with the department and assist in resolving GST disputes.
What are a few approaches to minimize GST compliance expenses?
There are several methods to reduce GST compliance costs. One approach is to minimize the number of GST returns required to be filed. Utilizing GST software to automate the filing process is another effective method.
Additionally, businesses can enlist the help of GST consultants to navigate the compliance process.
Who can file GST compliance?
Companies involved in the supply of goods with a turnover exceeding ₹40 Lakh in the previous financial year must file GST compliance.
What records must I keep to reduce GST compliance costs?
To minimize GST compliance expenses, it’s essential to keep thorough records of all business transactions, covering sales, purchases, invoices, receipts, and payments. These records facilitate the monitoring of GST obligations and guarantee precise GST reporting.
