GST Accounting and Compliance GST rollout will not be just a simple introduction of a new tax. GST implementation will have deep and far reaching consequences on the operations of a business – requiring a total overhaul of the business, finance, financial reporting and accounting systems. As management teams start evaluating these changes, they will also require factoring in changes in financial reporting as well as indirect tax accounting. In this article, we look at some of the major GST accounting and compliance changes expected on GST rollout in India. Annual Revenue There might be changes to the methodology for computing annual on implementation of GST. revenue. Under IND AS, excise duty is incorporated in revenue, since it is a production-based tax. Sales tax and VAT is not incorporated in revenue, since it is levied at the time of sales. GST is considered a destination-based tax, which is levied at the point of supply. Hence, GST would not be presented as a part of revenue. As currently excise duty is incorporated in revenue, there might be some volatility in the reported revenue number – even though from an economic viewpoint no important change in operations has happened. Tax Credit GST could bring significant benefits to organizations by way of tax credit. Currently, organizations do not get tax credit for indirect taxes like luxury tax, Octroi, Entry tax or CST. On transition to GST, since these taxes will be subsumed into GST, organizations maybe eligible for tax credit. Hence, transition to GST will necessitate companies to reconfigure their inventory valuation or asset capitalization or expense recording rules in their accounting system to guarantee tax credits are accounted and utilized. GST Registration and Filing Transition to GST will require migrating existing service tax, VAT and central excise registrations to GST registration. The process for migration of existing tax registrations to GST has already begun. Hence, accounting professionals and personnel need to be aware of the GST implementation timeline in each of the state and ensure they are GST ready. Further, GST payments and return filings are expected to be state wise. Hence, organizations must devise an appropriate system in place, make necessary changes to the accounting system and plan for well-timed state-wise reconciliations of periodic GST filings in various states, with the amount recorded in the books of accounts. Companies, which comprise excise as a part of sales for their internal reporting or MIS, may have to redesign the MIS post-GST transition and reflect on the consequent impact. Maintaining Account A key area that would require major changes on implementation of GST is the Chart of Accounts (COA) used for maintaining book of accounts. Currently, there are quite a few indirect taxes and many tax-related general ledger (GL) codes in the the chart of Accounts utilized for financial reporting. In a GST regime, the new COA will depend on the category of business, rules related to availing of credit and place of supply etc. Nevertheless, under GST, the necessary tax codes would reduce and make accounting simpler, going forward. Transitioning to GST Organizations both big and small must plan well in advance for GST implementation. GST implementation by the Government will have major impact on various areas like accounting process, financial statement preparation, GST compliance filing and more. Further, GST implementation could also result in potential write off of tax credits accumulated in particular states and not probable to be set off. Hence, its best to engage an expert for understanding the impact on GST implementation on the business and being taking steps to make the change process easier.
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