GST is India’s biggest tax reform. It has simplified the process by bringing everyone under the umbrella of ‘One Nation, One Tax’. The idea behind this move is to collate the information regarding movement of goods and services within the country, and to bring everyone, including SME India, under the ambit of GSTN – Goods and Service Tax Network.
For a business with a turnover over 1.5 crores, it is mandatory to file returns every month, while businesses with turnover less than 1.5 crores need to do so once every quarter. If the process daunts you, don’t worry. The government has actually made it easy to file returns online. Keep in mind these tips for a flawless transition into the new system, post-GST.
- Calculate your Input Tax Credit
What is Input Tax Credit, you might ask? At the time of paying tax on output, you can deduct the amount of tax paid on input and pay just the remaining sum.
This is how it works:
When you purchase inventory or raw material from a supplier, you pay tax on the purchase. And when you sell your finished good to your customers, you collect tax from them. While filing your returns, you adjust the tax paid at the time of purchase with the tax collected on sales, and only pay the balance as your tax liability to the government.
Let’s make it clearer:
Tax payable on output (final product) = Rs 500
Tax paid on input (purchase) = Rs 350
You are eligible to claim Input Tax Credit (ITC) of Rs 350 and only pay Rs 150 in taxes.
- Keep your invoices and transaction recorded
Maintain a strict record of all your financial transactions – purchase and sales, and even business loans. This is useful for calculating not just your ITC but also ensures you pay the proper amount while filing your returns. If there are no invoices for sale or purchase, or business loans, there is no proof of the transaction.
- Computerise your bookkeeping
Bookkeeping is easier and more systematic if you computerize it. Information is available at your fingertips and instantly. Data is accurate, and computing is error-free and completely reliable.
Lastly, a computerized accounting system is scalable, and can keep pace with your business as it grows, or as you acquire more business funding.
- Select a compliance software
While you’re at it, streamline your tax filing process by deploying a reliable tax compliance software. This tracks your tax liability by checking your income against the proper tax bracket. This allows you to calculate your tax liability by minimising human error or oversight. This is especially critical if you have availed of any business funding that needs to show up in your balance sheet.
There are several software options available online. Look for one which suits your needs particularly.
- Anticipate cash troubles
Filing returns isn’t going to be difficult. What you must keep in mind and be ready for is cash trouble. What do we mean by that? With almost all transactions becoming digital, it is going to be tougher for anyone to evade filing tax returns. What this means is that there will be less actual cash in the market and you need to anticipate and plan for it accordingly.
The government has made it simple by having separate forms for each taxpayer category. Find yours and begin the process of filing tax returns with confidence.