Goods and services tax (GST) is a comprehensive indirect goods or service consumption tax. The main aim of this tax is to reduce any form of receipts sales or tax-related corruption. The Indian Union Government mooted this tax from 1986 to 2006. The President and GOI launched it at midnight on 1st July 2017.
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Preparation of GST – Roadmap
The road map for the preparation of GST has been quite arduous. The basic structure of the tax itself had faced stiff opposition. However, the computerization of commercial taxes in 2010 paved the way. The GST finally rolled out after much deliberation, dispute resolution, and changes.
The GST tax rates are specific for more than 1200 categories of goods and services. They fit into different slabs of 0% (no tax), 3%, 5%, 12%, 18%, and at the highest, 28%. The four key transactions covered by the law include Central, State, Integrated, and Union Territory GST.
The registered taxpayers have to adhere to the GST-compliant rules. The tax invoice has detailed references in section 31 of the CGST Act, 2017.
The supplier has to give the tax invoice to the recipient during the transaction. Some reforms introduced the new invoice rules under GST 2020-21.
When the Indian government first introduced this tax to the general public, aggregate turnover was a key criterion.
Those whose aggregate turnover was less than 1.5 crores do not have to mention the HSN code on the invoice.
For turnover between 1.5 and 5 crores, a two-digit HSN code is necessary. A four-digit HSN code on the invoice is mandatory if turnover exceeded five crores.
For exported goods of all kinds, the requirement is an eight-digit HSN code.
The invoice also must specify addresses, issue date, GSTIN or UIN, signatures, tax rates, transaction amounts, etc.
The HSN Code is for goods, while service providers have the Accounting Code.
The invoice, also known as a bill of sale or contract of sale, is of various types. The GST-compliant invoices account for both the registered and unregistered persons.
Importance of Tax Invoice
- The tax invoice is a crucial document under the GST.
- It is proof or evidence that goods and services are supplied by the business.
- The tax invoice is used by recipients to avail of Input Tax Credit (ITC).
- The document proves the time of supply or (and) receipt of payment.
- The rules get uniformly applied for all composition dealers.
Invoice Rules and Tax Frauds
The new invoice rules under GST in 2020-21 focus on ensuring better compliance. The Finance Minister presented the amendments to this year’s budget.
The rules also put a check on fake invoices and fraudulent ITCs. The changes include the introduction of stringent penalties, including non-bailable arrests for certain offenses.
Modifications made to the tax framework will come into force from 1st April 2020. The Central Board of Indirect Tax and Customs also approved e-invoicing, recently.
The taxpayers will also have to comply with e-invoicing rules from April 2020 onwards.
Fake Invoice Generation
The new invoice rules under GST can help to curb fake invoices. The suppliers exploited the old rules to deliver their services and goods to avoid taxes.
They would supply at lower rates, without any receipt, to the buyer. The invoices for these transactions get generated in the name of a third party for tax purposes.
Thus, the supplier, the real buyer, and the other parties get enriched by evading taxes.
Fraudulent Tax Benefits
The old rules were misused to create fake tax credit recipients. The companies use PAN and ID cards of laborers, daily wage workers, and rickshaw pullers for this purpose. The government hopes to eliminate these GSTIN rackets in the future. The new rules are designed to stop revenue leakages.
New Invoice Rules
Medium and small enterprises benefit from the transformed tax framework. The innovative steps lower the burden on these businesses. The taxpayers will also heave a sigh of relief due to the proposed amendments. The new rules extend to the financing of MSMEs through trends.
The steps for filing the GST tax and returns are now more straightforward than before. As per GSTR-3B and GSTR-1, registered taxpayers have to submit numerous details.
If there is no monthly business turnover or profitability, then nil returns can be filed.
The online portal or SMS facility can help individuals with this purpose.
There is a late fee of INR 20 for taxpayers who delay their nil returns filing.
Those registered under GST will also incur INR 200 per day penalty if they fail to file the nil returns before the deadline.
The digital facilities are not just for online GST accounts and dashboards.
In the 2020-21 budget, the Finance Minister introduced e-invoicing for GST. Experts say the new invoice rules under GST have to become even strengthened. They expect a robust e-framework and secure portal in the future.
E-invoices are essential for registered taxpayers who sell to a designated buyer. This rule applies to those with an annual financial turnover of more than INR 100 crore.
The taxpayer has to register online using the GST INV-01 form. They will receive an Invoice Reference Number (IRN) for filing the returns. Only the e-invoices are valid GST invoices. All other sales and contract bills issued by a business will be deemed null and void.
Small and medium businesses have a hard time with these invoice rules. Compliance procedures and filing complexity burden them. These companies expect a different, lower-bracket framework for a sustainable way of e-invoicing filing.
Digitization and e-invoicing also raise many other concerns. From online transaction safety to taxpayer ignorance, there are many contentious issues. Businesses also expect a 24×7 helpdesk that can assure competent service and knowledgeable advice to the general public.
The tax invoice is a GST instrument that focuses on mass-scale development. The taxpayers exploit loopholes in various rules, exceptions, and other areas.
The new tax invoice rules under GST also demotivate fraudulent activities with severe punishment, including imprisonment:
5-years of jail term without bail for tax evaders. Those who fail to furnish invoices would receive varying punishments based on the intensity of misconduct.
It also includes fraudulent input tax credit claims. The rules include severe punishment for high-value frauds above INR 50 lakhs.
Amaey Anand is a certified accountant with over 10 years of experience in the finance industry. He has worked with various organizations to streamline their petty cash management processes and reduce inefficiencies. He has also written several articles on financial management for leading publications such as Zensuggest and The Wall Street Journal.