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Invoice management under GST has taken a renewed shape by becoming important while filing GST returns. Also, with the change in the system of filing GST returns and advent of the e-invoicing in the near future, invoice management will be of the utmost essence in any GST registered organisation. In this article, let’s understand how to manage invoices under new GST return system, the process involved, the different tags that an invoice gets such as ‘missing’ or ‘pending’, and the actions a recipient can take on such invoices under the new GST return filing.
14th March 2020*
The new GST return system will be implemented from October 2020.
The present return filing system (GSTR-1, 2A & 3B) will continue until September 2020.
*Subject to CBIC notification
Current Invoice management vs under the new GST return system:
These details must be manually reported in GSTR-1 return to be filed by the taxpayers before designated due dates. However, under the new GST returns system, instead of reporting the taxable B2B supplies in a return, it is updated in an annexure. Invoices can be uploaded on a continuous basis on the online facility provided GST portal in ANX-1. Ultimately, most of the details get auto-filled in RET-1/RET-2/RET-3 (similar to GSTR-3B).
Process of invoice management
The supplier (seller) must upload the B2B invoices on an online facility provided by GSTN. It can be done on a day-to-day basis. The recipient (buyer) should take an action on the uploaded invoice such as accept or reject, or mark it as pending within a time frame. The recipient can accept or mark an invoice as pending anytime after it’s uploaded by suppliers. Whereas, they can reject only after the 10th of the following month for a relevant tax period to which the invoice relates.
The cut-off date is stipulated for the tax period (a month or quarter) before which the invoices belonging to the relevant tax period must be uploaded for the buyer to claim ITC. The result of the buyer’s action will decide whether he wants to claim an input tax credit on such invoice or not. Sometimes, no action is taken by the buyer, which results in deemed acceptance of an entire lot of invoices for the tax period after the filing of RET-1/RET-2/RET-3.
Following is an illustration of the actions that buyers take and what it means –
Let us understand the implications of every action or no action cases from the above illustration. In the case of ‘accept’ or ‘deemed locking’, the buyer gets to claim the input tax credit in his corresponding RET-1/RET-2/RET-3. Once accepted, the seller cannot edit the invoice. Rather, if any correction needs to be done later, then the recipient should reject the invoice and then the same will be populated in ANX-1 of the next month where the supplier may amend the invoice. In the case of ‘reject’, the buyer does not get to claim the input tax credit (ITC) due to some error noticed in the invoice or it is wrongly uploaded in the buyer’s GSTIN.
Seller will be notified of the rejection on the online facility. This action will require the buyer to communicate with the vendor/supplier/seller continuously to make necessary corrections or amendments to the invoices and then amend the same in ANX-1 of the subsequent month.
In the third case of ‘marking it as pending’, the buyer decides to postpone the claim of input tax credit due to the reasons given in the above illustration. Those will be populated in the next month’s ANX-2 of the buyer, till such return period earlier of September of the next financial year or the due date of filing an annual return for the relevant financial year.
Where no action is taken by the buyer, all the invoices for a tax period will be ‘deemed to be locked’/accepted, at the time of filing the RET-1/RET-2/RET-3 corresponding to a tax period. These details would have been auto-filled in the respective return too.
Importance of invoice management
From the process of invoice management under new GST return system, we can understand that it becomes critical to claim the right amount of input tax credit at the right time for businesses to operate efficiently on its working capital. Along the process, vendor communication that may never have been emphasised for GST return filing (GSTR-1 and GSTR-3B) now becomes important as ITC can no longer be claimed on a provisional basis (without supporting invoice document).
Locking of invoices happens when the recipient has accepted the invoices uploaded by the supplier or marked them as pending. Locking of invoices translates to a handshake between a supplier and a recipient implying that both the parties involved are acknowledging the transaction which is outlined in the invoice. A recipient will be able to lock an invoice prior to tax return filing. But it might not be feasible to lock invoices individually when the number of invoices is high. Hence, there is a provision for deemed locking of invoices* (accept), which are uploaded but neither rejected nor kept as pending by the recipient.
After a recipient files the return, all invoices will be considered as accepted apart from invoices, which are rejected or kept pending.
Deemed locking of invoices: A supplier uploads invoices and makes them accessible to a recipient in the viewing facility; invoices which are not rejected or which are not kept as pending by a recipient will be considered as locked once the return (RET-1/RET-2/RET-3) for the concerned tax period is filed by a recipient.
When a supplier uploads an invoice within the 10th of the following month, the invoice details will be auto-populated in the supplier’s main return (in the liability table) for that month. The screen on which a recipient can view, thereafter, will be known as the ‘viewing facility’ (in the return document it will be shown as ‘inward annexure’), which is available for the recipient to reject after 10th of the month in ANX-2. However, the invoices can be accepted or marked as pending anytime and will reflect in RET-1/2/3 accordingly.
The invoices against which the recipient claims ITC will not be available for making amendments. In case such invoice needs an amendment, the supplier will either have to issue a credit or a debit note or can amend the invoice after recipient unlocks an incorrectly locked invoice online. But, the recipient must reverse ITC claimed by him/her and obtain an online confirmation of the same.
A supplier uploads an invoice but one of the following situations exist for the recipient to mark the invoice as pending:
When a recipient reports the invoice as pending, he/she will not be able to avail ITC on it for that tax period in which it was marked as pending. Instead, the pending invoices get populated in the ANX-2 till such time that is earlier of September of the next financial year or the due date of filing an annual return for the relevant financial year.
As per the new GST returns, ITC will be credited only on the basis of invoices or debit notes uploaded by a supplier before or post-return filing, within the specified time frame. When a supplier delays or fails to upload an invoice/debit note by more than two tax periods for monthly filers i.e T+2 (after one quarter for quarterly filers i.e T+1) and the recipient can avail ITC on the same, such an invoice will be termed as a ‘missing invoice’. Where the supplier never uploads such an invoice and recipient has claimed the credit on it, then such ITC will be recovered via the recipient.
The provisional ITC on missing invoices can be reported in the table 3A(10.) of RET-1 by the recipient. A recipient has to report a missing invoice individually in the table 3L of ANX-1 in case of delay by the supplier in T-2 tax period for monthly filers (T-1 tax period for quarterly filers). Whenever the supplier reports those invoices in his ANX-1 and accordingly make it available in the viewing facility of the recipient for action, the recipient must reverse the ITC. He can do so by reporting such invoices in the table 3B(3.) of RET-1 of such tax period in which such invoice was uploaded and made available to the recipient for action.
The amendment of a missing invoice will be carried out via an amendment to annexure in ANX-1A of the relevant tax period to which the invoice relates. Further, a corresponding adjustment must be made in RET-1 in table 3A to the ITC amount. Hence, it is recommended to report all the invoices in T+2 for monthly filing (or T+1 for quarterly filing) and later use the option of amending a return.
It will allow any invoice, which is reported late to be amended via an amendment return. Also, it is advised to report all of the missing invoices at once before exhausting a taxpayer’s chance to amend a return.