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ITC Maximization

How to cushion the COVID 19 impact with 100% GST Reconciliation and maximizing ITC claim

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ITC Maximization

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  1. Taxation and Financial Management How to Respond, Recover and Thrive in the face of Change during the Pandemic?" IRISGST in Association with CII https:irisgst.com https:irisgst.com

  2. How to cushion the COVID-19 impact with 100% GST Reconciliation and maximizing ITC claim https:irisgst.com https:irisgst.com

  3. From Lockdown to Standing Up Again Unlock Lockdown One area to help manage crisis is ITC utilisation Maximum utilisation for minimum outflow of cash 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 Growth Curve Growth Curve • Economy came to a standstill • Growth curves suddenly turned flat • Sales Impacted • Operating Expenses – As-is/increase • Receivables Impacted • Sales started picking up • Receivables will still be staggered • Expenses steady • Liquidity Crisis • Govt delayed compliance burden 3 https:irisgst.com https:irisgst.com

  4. The not-to-be ignored ITC support January February March May April June Sales picked up, liability payment due Govt relaxed rules, but not done away • • 4 https:irisgst.com https:irisgst.com 4 https:irisgst.com https:irisgst.com

  5. Quick Recap of ITC Supplier pays tax Supplier reports Data is Perfect You do Accounting SUPPLIER CONSUMER You Take ITC Pay Tax to the Supplier You Collect Tax from the Consumer Supplier Pays Tax to the Government Life is Good.. But is it as easy as it seems? BUY MAKE/USE SELL You deposit tax with the Government 5 https:irisgst.com https:irisgst.com https:irisgst.com https:irisgst.com

  6. INVOICE INVOICE Taxpayer should be in possession of the tax invoice or debit note or relevant tax paying documents. RECEIPT RECEIPT He should have received the goods and services. GSTR 3B GSTR 3B Taxpayer has furnished return under section 39 i.e. GSTR 3B Rules to ITC - Internal PAYMENT PAYMENT Payment of invoice to the supplier should be done within 180 days from the date of issue of invoice DEPRECIATION DEPRECIATION No ITC if depreciation claimed TIME PERIOD TIME PERIOD Claim in within time limit specified APPORTIONMENT APPORTIONMENT Proper Apportionment of credit – Personal vs Business Purpose & Exempt vs Taxable supply BLOCKED CREDIT BLOCKED CREDIT Should not fall under the list of Blocked Credit. 6 https:irisgst.com https:irisgst.com

  7. GSTR 2A GSTR 2A Invoices booked by you need to present in Govt system (GSTR 2A) GSTR 3B GSTR 3B Your Purchase Data and GSTR 2A data Rules to ITC - External has to Match VENDOR VENDOR Vendor should have put proper details in 2A and charged proper tax. ON ON- -TIME FILING TIME FILING Vendor should have filed his GSTR1 and GSTR3B on time PAYMENT PAYMENT Payment of such tax is made to the government by the vendor through his GSTR3B AMENDMENTS AMENDMENTS Amendments if any should also be done within the time limit specified 7 https:irisgst.com https:irisgst.com

  8. Key Aspects of ITC REPORTING OF ITC INELIGIBLE ITC Lorem Ipsum is simply dummy text of the printing and typesetting industry. PROVISIONAL ITC Lorem Ipsum is simply dummy text of the printing and typesetting industry. ITC ON AMENDED INVOICES Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum is simply dummy text of the printing and typesetting industry. ELIGIBLE ITC ITC ON REVERSE CHARGE REVERSAL OF ITC NEGATIVE LIST Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum is simply dummy text of the printing and typesetting industry. 8 8 https:irisgst.com https:irisgst.com

  9. Available ITC to be Claimed INVOICES IN 2A AS WELL AS IN INVOICES IN 2A AS WELL AS IN PURCHASE REGISTER PURCHASE REGISTER INVOICES IN 2A BUT NOT IN PURCHASE INVOICES IN 2A BUT NOT IN PURCHASE REGISTER REGISTER – – DEFERRED CLAIM INVOICES IN PURCHASE REGISTERS INVOICES IN PURCHASE REGISTERS NOT IN 2A NOT IN 2A – – PROVISIONAL CLAIM PROVISIONAL CLAIM DEFERRED CLAIM 9 https:irisgst.com https:irisgst.com https:irisgst.com https:irisgst.com

  10. Provisional ITC 01 01 May 2020 May 2020 April 2020 April 2020 Current Rule Current Rule Up to 10% can be claimed provisionally 1100 b/f 11000 Eligible ITC as per books Eligible ITC as per books Eligible ITC as per 2A 5000+1100 Eligible ITC as per 2A 9000 7000 Provisional ITC (10%) 900 02 02 700 Provisional ITC (10%) Total Claim in April 2020 Carry forward ITC (as per 2P) Interprested Interprested as as Total Claim in April 2020 9900 6100 Over 10% of what comes in GSTR 2A 0 Carry forward ITC (as per 2P) 1100 Relaxation Relaxation Required Required 03 03 04 04 10% to apply cumulatively for Feb 2020 to Aug 2020 and any adjustment to be done in Sept 2020 return. Example : From Feb to Aug Total ITC as per 2A amount to Rs.600000 then the total provisional ITC taken from Feb to Aug 2020 cannot be more than Rs. 60000. Extra 10% claimed, needs to monitored for ensuring no double claim in subsequent period and if warrants ITC reversal 10 https:irisgst.com https:irisgst.com

  11. Practical Challenges ITC Entire supply chain has to Entire supply chain has to be GST compliant be GST compliant Invoices booked by you Invoices booked by you need to present in need to present in Govt system (GSTR 2A) system (GSTR 2A) Your data Your data has to be in has to be in sync with your supplier’s sync with your supplier’s data data Am I tracking ITC reversal Am I tracking ITC reversal Govt • Are the tax amounts ok? • Is the correct tax rate applied • Not only you but also vendor • What if supplier is quarterly filer, not yet uploaded • What if supplier has filed but your invoice not included • What if supplier has filed nil • What if….. 11 https:irisgst.com https:irisgst.com https:irisgst.com https:irisgst.com

  12. How to Streamline ITC Processes Internal Processes and Control Internal Processes and Control Lorem ipsum dolor sit amet, consectetur adipiscing elit. Praesent aliquet convallis pharetra. 01 01 04 04 Robust Robust Reconcilaition Reconcilaition Lorem ipsum dolor sit amet, consectetur adipiscing elit. Praesent aliquet convallis pharetra. ITC Process ITC Process Comprehensive Reports Comprehensive Reports Lorem ipsum dolor sit amet, consectetur adipiscing elit. Praesent aliquet convallis pharetra. 02 02 03 03 Vendor Compliance Vendor Compliance Lorem ipsum dolor sit amet, consectetur adipiscing elit. Praesent aliquet convallis pharetra. 12 https:irisgst.com https:irisgst.com

  13. Reconciliation – the soul of ITC 01 01 Match Match Process of comparing Process of comparing data data Your invoice and GSTR 2A invoices are same 02 02 Mismatch Mismatch To know what is ok, clear further processing – release payments, taking ITC Some mismatch between your internal data and invoices in GSTR 2A 03 03 To know what is not ok, for corrective actions – communication with vendor for noncompliance or missing invoices or mismatches Not Booked Not Booked Invoices available in GSTR 2A, but not yet booked by you 04 04 Not Uploaded Not Uploaded Invoices not in GSTR 2A but booked by you 13 https:irisgst.com https:irisgst.com

  14. Automated & Advanced Reconciliation 2 Reconcile across Reconcile across financial years as financial years as well well 1 Automated Annual Automated Annual Recon Recon Compare invoices in 2A and purchase register with same supplier invoice no.s across months within financial year. Timing difference between reporting of invoices. 4 3 Ignore invoice Ignore invoice no.s compare based on amounts compare based on amounts and document month and document month no.s and and Compare invoices even if Compare invoices even if invoice numbers are not invoice numbers are not completely matching completely matching Eg 2A has A001/19-20 and 2P as A001, then also these invoices are comparable and should be compared exact values or user defined tolerances also can be used 6 Allowing user to define Allowing user to define which invoices are which invoices are comparable comparable Deemed Match Deemed Match 5 Mismatch invoices with amount differences within a user specified tolerance If after all automated steps also still invoices remain in Not Booked or Not Uploaded category 14 14 https:irisgst.com https:irisgst.com

  15. Levels of Reconciliation Vendor Level Vendor Level Totals compared Net of debit and credit notes at vendor level • • Invoice Level Invoice Level Comparing invoice level totals Variations in tax rate, tax amount at item level not considered • For all vendors, net of For all vendors, net of credit and debit notes credit and debit notes Aggregate for months are compared For the year as a whole • Line item level Line item level Comparing every line item of an invoice Limited to data available in GSTR 2A • • 15 https:irisgst.com https:irisgst.com

  16. Tasks in Reconciliation RECONCILIATION COMPARE COMPARE ANALYSE ANALYSE ACT ACT COMMUNICATE COMMUNICATE • Compare data • Get results • Approach for amended invoices • Reason for mismatches • Internally solvable • External dependencies • Priorities for resolving • Compute ITC eligible • Mark provisional; • Communicate with vendor 16 https:irisgst.com https:irisgst.com https:irisgst.com https:irisgst.com

  17. The Rich Recon data Some reports and insights which Some reports and insights which are a must are a must- -have for Indirect have for Indirect Taxation team are Taxation team are Analysis of GSTR 2A invoices from ITC perspective ITC on invoices which are booked earlier ITC on invoices uploading in different FYs Consolidated view on missing invoices at the group level, • Provisionally claimed invoices Group level reconciliation results Comparative analysis of ITC as per 2A and claimed in 3B Non compliant vendors by fetching their filing status • • • • • • • which can help to identify wrong which can help to identify wrong booking of invoices booking of invoices 17 https:irisgst.com https:irisgst.com

  18. Reporting ITC After recon After recon other tasks other tasks remain remain Subsequent Subsequent month month Check if provisional ITC appears now ITC reversal calculation • Compute ITC File 3B • • • 18 https:irisgst.com https:irisgst.com https:irisgst.com https:irisgst.com

  19. The New Normal World Effective cash Effective cash flow management management - Availably of more ITC or not letting go of ITC that can be claimed flow Automation Technology Matters Large Volumes Alerts Reports Cloud Solution Custome r Support Secured Solution Reliable Services Lending /other funding Lending /other funding options options – based on GST data and hence compliances cannot be ignored Safeguarding against vendor compliance risks 19 https:irisgst.com https:irisgst.com

  20. THANK YOU support@irisgst.com https:irisgst.com 2 0 https:irisgst.com https:irisgst.com

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