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GST Simplification through ERP

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It started last year with the introduction of GST, which has changed the concept of indirect taxes under a single establishment. GST is a destination based tax consumption of goods and services which is levied at all stages of movement, right from manufacturer, up to final consumption wherein credit of taxes already paid at supply chain is available for set off.

 

ERP players such as SAP, ORACLE, MS DYNAMICS etc. have made their product incorporated with GST compliance requirements and have proved their importance in day to day transactions. New players such as ZOHO applications have also emerged with its online application and GSTR filing facility. This change in ECO-Business Environment has also boosted the demand of ERPs.

Now with rules and rates kept same after 26th GST Annual General Meet held on 10th March 2018, GST will make businesses to revisit structure configuration in ERP for procurement, sales and financial modules. The structure has made the compliance reforms extensive with its management made online. Thus, ERP has made the submission of tax to government easy and more accurate.

There are some steps to simplify the GST compliance:

 

Location Setup

Under GST regime, the GSTIN registration is based on the location under states. Ideally, each location under single state have same GST Identification number unless multiple registration by parties. As GST is destination based tax consumption, the location will be tagged primarily to determine the taxes (CGST, SGST or IGST).

 

Branches and Stockyard Mapping

As every enterprise, big or small, has one or more stockyards for easy operation, the following step is to link all the stockyard with locations. Based on this linkage, the ship from warehouses can be controlled and thereby tax code can be determined.

 

Master Data Information

All the master data information needs to be placed rightly according to the model GST laws. The master data includes:

  1. Information related to Customers and Suppliers – The master data in terms of addresses and GSTIN information for all kind of customers and suppliers is required to define the charge of tax, place of supply of goods and services and time of supply. All the transactions with customers and suppliers will attract different tax rates based on different scenarios. All the scenarios comprised to the determination of ‘Ship to’ and ‘Bill to’ address. The place of supply concerned can also be tagged where the original biller is a deemed receiver where the receiver is not the direct customer. The ERP applications draws facility in listing down:

a. Registration number of the organization

b. Flag for registered and unregistered customers and suppliers separately

  1. Item Master Details – GST rates are defined based on the item type. Each item type has been thoroughly categorized into specific HSN codes (for goods) and SAC codes (for Services). Thus, indicating the details of item and classifying item with GST relevancy is utmost important. This can be further categorized to material group to specifically select tax rates and related tax codes. The categorization of codes is primarily on:

HSN Code – The facility enabled to seizure and differentiate all the goods and the respective type details in the system.

  1. Tax Codes and Tax Rates – Master information also includes data related to tax engine configuration. Each ERP has a separate Tax Rule Engine which is a master origin of all rationality for each transaction. There are options to capture the tax code for

a. CGST, SGST, UGST, IGST.

b. Tax code for Tax deducted at source for CGST, SGST, UGST, IGST

c. Tax code for Tax collected at source for CGST, SGST, UGST, IGST

ERP picks the associated tax rate according to the criteria provided. This includes tax rates, tax jurisdictions and tax compliance. Attention is required in classifying various tax determination criteria.

The determination criteria in ERPs can be set as per:

a. Material group – Specific tax rate for specific item

b. Ship from – Tax rate based on the basis of distribution point

c. Ship to – Tax rate based on place of supply

d. Customer or Vendor based tax rate

e. Specific item based

In addition to this, ERP have options to flag the items and services exempted for controls and reporting purposes. Along with this, ERP has competence to capture CESS applications on SIN goods and luxury goods as per respective state rules and guidelines.

 

Accounting Structure

Due to the change in account codes after GST introduction, separate account codes (General Ledgers) are to be generated to specifically track and allocate the tax payable and tax receivables at each point of transactions. This will streamline the tax determination and reporting in the ERP.

 

Migration of Documents/Transactions

  1. Migrating of Open Transaction –  All the open documents related to sales booking, purchase order, sales quotation and sales order are taken care under GST regime which are clearly covered by ERP applications at migrating activities.
  2. Migration of Partially Open Transaction – All the partially open transactions like Goods in Transit to customer or vendor, Partial Goods Receipts are captured while migrating to ERP. Here, the stock in transit are now taxable under GST regime which are now available with ERP application.

 

Document Numbering and Series and Format Structure

As per GST regulations, the numbering series and numbers for all the invoices, advance payments and receipts, incoming and outgoing payments, credit and debit notes need to have separate numbers/series which are covered in GST enabled ERP applications. Also, the formats for predefined documents i.e. Quotation, Order or Invoice are to be as per GST compliance.

 

Tax Invoice

As per the new GST regime, the sales invoices are the major source to decide the revenue and the turnover. Also, under GST, there is no provision of deleting any tax invoice which are taken care by ERP.

 

Reference Number for Tax Invoice and for Advance Receipts

  1. ERP has the facility to track and cross verify the authenticity of the documents and transactions for which there is predefined fields to record the reference number in generating the tax invoices.
  2. As advance receipts are the major transaction in GST enabled business processes, ERP applications are efficient in tracking invoices against the advance payments and their receipts. The receipts are thus required to be uploaded at GSTN on the same date of receipt of advance payments and the same as to be given link to the generation of invoices to reconcile the amounts/ transactions.

 

Working with Tax Credit

  1. Input Tax Credit – Another benefit on ERP is that the input tax credit can be availed on provisional basis on the payment of taxes by the vendors. The application has their own track on generating the input credits.
  2. Reversal of Input Tax Credit – The ERP applications have facility to derive the reversal of ITC (Input tax credit) on availing the services and internal supplies.

 

Testing Scenarios for all kind of Tax Liable Transactions

Once all the basic inputs have been provided at initialization, the next phase is to test all the setups. Listed are the basic transactions which are to be verified for testing the GST scenarios to confirm the appropriate and desired reports:

  • Sales Scenario for Goods and Services
  • Nil Rated & Regular
  • Composition Levy, Exempt, Non GST
  • Export
  • Advance Payment
  • Reverse Charges
  • Debit Memos
  • Credit Memos
  • Sales Returns
  • Revised Invoice
  • Inter-Branch Inventory Scenario
  • Inventory Transfer
  • Job work
  • Purchase Scenario
  • Invoice with Normal Tax charge
  • Outgoing Payment
  • Invoice with Reverse Charge
  • Credit Note
  • Purchase Returns
  • Revised Invoice
  • Invoice for import of goods
  • Invoice with TDS

 

Reporting Structure

ERP applications are capable of generating the required reports automatically with one click. Since all the transactions are tracked through account codes, the filing can be generated on monthly, quarterly and yearly basis as per different filing standards. Listed are some important reports for filing GST return:

 

ERP applications manages eco-business scenarios as one stop solutions and with GST ready, the application transforms taxation into simple scalable accounts for the business.

3 Responses to “GST Simplification through ERP”

  1. burberry says:

    I really wanted to type a quick note in order to appreciate you for all the great concepts you are showing on this website.

  2. krishna says:

    Nice article. useful for companies for knowledge of gst integrated with erp applications.

  3. Shahid Vora says:

    Worth reading the article which briefly explained the ERP software and its ability to deal with new era of Taxation.

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