The 20 Step ‘GST Ready’ Checklist
Gaining know-how on GST rules and implications is the first step towards becoming GST-compliant and becoming tax-savvy. GST will typically impact any company at two ends of the spectrum where transactions are involved i.e. for input transactions and for output transactions, so we need go through a step by step checklist to meet the requirements for100% GST compliance.
This article will help you understand the essential to-do list in order to have “Zero Tension” for GST compliance and be ready for next level of business growth.
1. Classify transactions for applicability of GST :
We need to understand all business processes in the GST scenario and classify transactions as goods or services :
We also need to segregate the transaction under the following categories:
- Interstate transactions – applicable for IGST.
- Intra-state transaction where CGST and SGST will be applicable.
2. Understand ‘Slabs’ of tax for goods or services within GST:
Ensure that classification is understood and applicable GST rates are updated in systems and processes.
3. Identify the ‘Place of Supply’ and “Time of Supply” for goods and services :
We need to be clear about the provisions applicable for goods and services
- Provisions differ with location, industry and type of product and service. Identify relevant provision for applicable goods and services.
- Map harmonized system of nomenclature to ensure classification of goods and services is in accordance with GST.
- Capturing Place and Time of Supply can appear to be confusing, a good ERP can calculate these automatically.
4. Update the Item masters:
Item codes, categories and pricing in your Accounting & ERP systems need to be reconsidered
- Based on GST classification, companies should re-assess classification on item and category codes.
- Ensure enough time and resources are committed to complete this activity.
5. Registration based on Location codes :
It is essential to prepare in advance since all warehouses and setup locations to be registered
- Ensure that all relevant manufacturing, warehousing and service point locations are identified and registered.
- Ensure that all exceptions to processes are revisited and identified all relevant locations.
6. Provision for Liability of monthly or quarterly GST payments :
All organizations without exception need to understand liability of GST payment & provision for the same
- Ensure that vendors are GST registered.
- If vendor is exempted from registration, ensure process of reverse charge mechanism is defined and monitoring & control processes for GST payment are updated.
- Importers should formulate the process of GST payment.
- E-commerce sales process should be separately designed to ensure compliance with tax collected at source.
7. Define compliance across stages of business operations :
Make sure that your core team across departments, understands the implication of GST on pre, during and post manufacturing of goods produced and shifted
- Develop framework to understand tax implication on goods transferred from vendors – to manufacturing –to warehouse –to customers
- Based on scenario analysis define role of each function to optimize tax payable.
8. Prepare charts of accounts:
Based on stages of business operations, changes in charts of accounts should be captured
- Ensure that charts of accounts are revisited.
- Companies planning e-tailing option should evaluate changes required post GST in chart of accounts.
- Also, companies with services offered from multiple states need to revisit structure of charts of accounts to make it GST compliant.
9. Finalize logistics model for compliance:
Understand balance between tax applicable and cash flow impact of tax
- Understand tax payable on movement of goods from factory to warehouse.
- Redefine inventory policy to optimize tax cash flow.
10. Define sales policy & analyze impact of discounts /schemes :
Revisiting sales policy post GST including schemes, discounts and returns
- GST has changed the competitiveness of various companies in different markets, for example one may have to pay GST on free gifts offered along with products.
- Ensure that the pricing policy has been revisited to understand competitiveness of company and its offerings.
11. Review all contracts :
Ensure that all your POs and sales contracts are compliant with GST
- Revisit POs and sales contracts to make them compliant with GST.
- Make sure that there are enough levers to incentivize and penalize required behaviour from vendors and customers.
- Ensure transaction approval mechanism is in place where the items, location of supply, taxes, Terms of Payment etc are approved by both Supplier and Customer.
12. Revisit Customer masters :
Place of supply needs to be captured post GST as customers will have separate registration for different place of supply, so
- Ensure that mapping between sales process and customer GST registration is conducted.
- Design process to ensure new locations and edits and seamlessly integrated with the existing process.
- Invest enough resources to ensure this compliance for B2C transactions.
13. Review of all suppliers :
List all your suppliers and their locations, also review of nature of goods, place of supply and contractual terms
- Finalize supplier rationalization process.
- Ensure tenure and contractual terms with vendors/suppliers are consistent with vendor rationalization plan post GST.
14. Review Vendor masters :
Update all vendor masters in your accounts,
- Ensure vendors have collected necessary information including HSN Codes for items.
- If Reverse Charge is to be applied, then ensure mechanism for the same is in place.
- Encourage all vendors to file returns and pay taxes on time. If the data they are sending to government do not match with data you are sending, you will not get the necessary tax credits.
15. Regularize Filing of returns:
Submission of correct and timely returns is very important in order to avoid high penalties.
- Returns for any supply needs to be filed in subsequent month. Returns to be filed monthly, quarterly and annually.
- Ensure team is trained and processes are defined for verifying accuracy of returns.
- Budget for increase in resources to match increase in filing frequency.
- Incomplete returns may be considered as invalid returns.
16. Update Tax masters regularly:
If your ERP is not cloud based with auto updation of tax slabs as per regular changes by the tax council, ensure that you create process to capture tax master at regular intervals.
- Ensure entity level and consolidation tax masters are prepared and reconciled at regular intervals.
17. Plan for ‘Commercial Business Continuity’ :
Plan for Processes and budget for resources required for compliance. Potential slowdown in regular operations has been a reality for many ill-prepared companies and slowdown in sales due to adjustments for changes in schemes etc could also be real.
- Ensure Finance/procurement and other relevant divisions must receive 3 Ts (training, tools and technology)
- Budget the costs required for 3Ts in the first 2 to 3 years
18. Factoring Cost of compliance:
SMEs usually file returns on their own to cut costs, but in the case of GST, the monthly compliance may require you to outsource some parts.
- The most important item in the cost of compliance is capturing and maintaining transactional data with the level of detail required for tax filings. No external agency (including CAs) can help create data. That responsibility lies with the business. A good ERP is a good start.
- Classification of transactions for eg : B2B and B2C, transactions with unregistered parties as against registered parties etc are all treated differently.
- Seek assistance from professionals and audit firm to assist in GST compliance
- Budget for costs associated with tax services.
19. Inventory management & costs adjustment:
Post July 1st, GST charges for older inventory may not be fully offset against previously paid taxes, and there could be a adjustment in stocks costs in the Q2 of this year.
- Implement plan for smooth and rapid inventory sell-off through sales and discount schemes.
- Ensure all CENVAT payment records pre-GST have been maintained and shared with tax authorities.
- Ensure stock details pre-GST are recorded and maintained.
- Account for marginal loss of credit.
20. Ensure Technology preparedness :
All tax systems and processes will be digitized and moved to online platforms, making it mandatory for companies to have internal technical skills.
- Apply appropriate technology – budget for technology spend
- Restructure IT systems such as ERP systems to accommodate the requirements of GST and filings.