Negative Impact of the GST Portal’s New Invoice Management System on Quarterly Return Filers
The Goods and Services Tax (GST) portal’s new Invoice Management System (IMS) promises better compliance and transparency. Yet, for taxpayers filing quarterly returns, it introduces unforeseen challenges. The delay in GSTR-2B generation for the first two months of a quarter is causing compliance and cash flow issues, particularly for small and medium enterprises (SMEs). This blog explores the changes, impacts, and ways to manage them effectively.
What is the Invoice Management System (IMS)?
The IMS is an advanced feature of the GST portal designed to streamline invoice-related processes and reduce mismatches in Input Tax Credit (ITC). While it aims to improve compliance, it has created obstacles for certain taxpayers.
Objectives of IMS:
- Enable real-time invoice reporting.
- Minimise reconciliation errors in ITC.
- Promote transparency in tax compliance.
Key Features:
- Real-time access to invoices.
- Accurate tracking of supplier-buyer transactions.
- Reduced errors in ITC claims.
Role of GSTR-2B in GST Compliance
GSTR-2B is a crucial statement providing details on available ITC based on supplier-uploaded invoices. Its accurate generation ensures smooth GST compliance and minimises discrepancies.
Why GSTR-2B Matters:
- Acts as a reference for ITC reconciliation.
- Ensures accurate tax payments.
- Helps in managing cash flow for quarterly and monthly filers.
New GSTR-2B Changes for Quarterly Filers
For taxpayers under the Quarterly Return Filing and Monthly Payment (QRMP) scheme, GSTR-2B will now be generated quarterly. However, it will not be available for the first two months, leading to:
- ITC Uncertainty: No clarity on eligible ITC during the first two months.
- Manual Reconciliation Burden: Taxpayers must reconcile invoices without automated assistance.
- Risk of Errors: Greater reliance on estimates increases the likelihood of compliance errors.
GST Payment Methods for Quarterly Filers
Quarterly filers can use one of two methods to discharge their GST liabilities monthly:
- Fixed-Sum Method: Based on 35% of the previous quarter’s tax liability paid in cash.
- Example: If last quarter’s tax payment was ₹20,000, taxpayers pay ₹7,000 monthly for the first two months.
- Self-Assessment Method: Based on actual sales and purchases for the month.
- Example: Monthly GST liability = GST on sales – GST on purchases.
Challenges Posed by the IMS
The delayed generation of GSTR-2B creates numerous issues for quarterly filers:
- Compliance Burden:
- Increased manual reconciliation efforts.
- Dependency on supplier-uploaded invoices.
- Financial Strain:
- Cash flow disruptions for small businesses.
- Risk of ITC Loss:
- Errors in manual calculations may lead to under-claiming or overpaying ITC.
Impact on Small and Medium Enterprises (SMEs)
SMEs, lacking access to sophisticated software, are disproportionately affected. Manual reconciliation demands time, effort, and expertise, often resulting in:
- Higher compliance costs.
- Increased likelihood of mismatches and penalties.
- Challenges in meeting monthly GST payment deadlines.
Proposed Solutions to Address the GSTR-2B Gap
- Provisional GSTR-2B: Allow a temporary statement for the first two months.
- Policy Updates: Advocate for monthly GSTR-2B for quarterly filers.
- Enhanced IMS Features: Include options to access monthly data.
- Awareness Campaigns: Educate taxpayers about managing the transition effectively.
While the Invoice Management System aims to streamline GST compliance, it has introduced challenges for quarterly filers, particularly SMEs. By adopting robust record-keeping practices, investing in technology, and advocating for policy changes, taxpayers can overcome these hurdles. Collaborative efforts between taxpayers and the GST portal are crucial for ensuring a seamless transition and minimising compliance risks.