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Invoice Matching Under Goods and Services Tax

Updated on: Jul 6th, 2021


5 min read

The Government of India is leaving no stone unturned to meet the deadline for GST rollout in India viz. July 1, 2017.  For many businesses, this will also mean a complete overhaul of IT systems and major re-engineering work. Many small and medium businesses will, for the first time, use technological tools for bookkeeping and tax compliance purpose. We can easily call this as one of the biggest change that businesses are going to witness. It also calls for patience and change management from the business community for smooth transition.

Why do We Need an IT System under GST?

The government is on a spree of economic reforms and we have witnessed in recent times how various initiatives have been carried out; demonetization being one such reform. Continuing the reforms agenda, they have now come up with the concept of invoice matching under Goods and Services. This invoice matching is possible only when both the buyer and the supplier are tightly integrated through an information system, which will enable a seamless flow of information and fool-proof validations. Thus it becomes highly critical for businesses to be highly compliant on a real-time basis and thus needs to have a proper system in place to support it.

What is Invoice Matching?

Invoice matching is a mechanism under which all the taxable supplies made under GST will be matched against all the taxable supplies received by the buyer. GSTN which has been conferred to set up the IT infrastructure for GST rollout in India is already burning the midnight oil to build the algorithm and put all the logic into the GST web application hosted on the common portal.

Why is it Important?

Invoice matching is relevant because, under the Goods and Services Tax law, input tax credit of purchase of goods and/or services will only be available if the details of inward supply filed under GSTR-2 return of buyer matches with the details of outward supplies filed in GSTR-1 of the supplier. This interlinking has been done by way of auto-population of data filed in GSTR-1 of supplier into GSTR-2 of the buyer. Refer the following example below to understand.

Invoice Matching Under GST
Invoice Matching Under GST

Unless this matching reconciles the buyer will not be able to claim the input tax credit of taxes paid on purchase of input goods and/or services or both. Thus it becomes highly critical for businesses to be highly compliant under the GST regime. Compliance rating has been devised to tempt all the businesses for timely return filing and related compliance.

What Next?

Now that you know the relevance of invoice matching under GST, you must be wondering what next? As next steps, businesses must have the sensitivity of importance of information systems and timely compliance. This is high time to start examining GST compliant ERP systems and GST software and start mapping business processes with these systems. Implementation of these systems may be time-consuming and eventually non-compliant businesses may lose on business opportunities during the initial phase of GST rollout.

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Quick Summary

The Government of India is preparing for the GST rollout on July 1, 2017. It is a major change, requiring businesses to overhaul IT systems and embrace technological tools. Invoice matching is crucial in GST for input credit availability and compliance. Businesses must adapt to the new system for smooth transition. Implementation may affect business opportunities. Businesses need compliant ERP systems and software to align with GST requirements.

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