Understanding Invoice Handling in the Updated GST Return System
The updated Goods and Services Tax (GST) return system introduces new procedures for invoice management, vital for businesses to efficiently handle transactions and claim Input Tax Credit (ITC). This article details the process, including how suppliers upload B2B invoices and how recipients act on them by accepting, rejecting, or marking them as pending. It also explains key terms like invoice locking, the viewing facility, and how to manage both pending and missing invoices within the new framework. Effective communication between suppliers and recipients is emphasized for accurate and timely ITC claims.
Effective invoice management has become increasingly crucial for Goods and Services Tax (GST) return filing. With upcoming changes in the GST return mechanism and the future introduction of e-invoicing, robust invoice handling will be essential for all GST-registered entities. This guide explores the new GST return system's invoice management procedures, including the processes, various invoice statuses like 'missing' or 'pending', and the steps recipients can take regarding these invoices.
As per past updates, the revised GST return framework was scheduled for implementation starting October 2020. Until September 2020, the existing GSTR-1, GSTR-2A, and GSTR-3B return filing methods remained active, pending further notification from the CBIC.
Invoice Management in the New GST Return System
Under the previous system, taxpayers were required to manually report details for taxable business-to-business (B2B) supplies, specific business-to-customer (B2C) transactions, and exports within their GSTR-1 returns by prescribed deadlines. In contrast, the updated GST return system streamlines this by updating B2B supply information in an annexure instead of the main return. Invoices can be continuously uploaded to the GST portal's online facility via ANX-1, leading to most details being automatically populated in RET-1, RET-2, or RET-3, similar to the GSTR-3B process.
Process for Invoice Management
Suppliers are mandated to upload B2B invoices to the Goods and Services Tax Network (GSTN) online platform, which can be done daily. Recipients (buyers) are then expected to act on these uploaded invoices within a specified timeframe, either by accepting, rejecting, or marking them as pending. While acceptance or marking as pending can occur at any time post-upload, rejection is only permitted after the 10th day of the subsequent month for the respective tax period. A specific cut-off date exists for each tax period (monthly or quarterly) by which invoices must be uploaded for buyers to be eligible for Input Tax Credit (ITC). The recipient's action directly determines their ability to claim ITC. If no action is taken, invoices are considered 'deemed accepted' for the tax period upon the filing of RET-1, RET-2, or RET-3.
Understanding the implications of recipient actions or inactions is vital. When a recipient 'accepts' an invoice or it undergoes 'deemed locking', they can claim the Input Tax Credit (ITC) in their respective RET-1, RET-2, or RET-3. An accepted invoice cannot be modified by the seller; any necessary corrections require the recipient to reject the invoice first, which then makes it available for amendment by the supplier in ANX-1 of the subsequent month. If a recipient 'rejects' an invoice, they cannot claim ITC due to errors or incorrect uploading. The seller receives notification of the rejection, necessitating communication between buyer and seller to resolve discrepancies and amend the invoice in ANX-1 for the following month. If an invoice is marked as 'pending', the recipient defers the ITC claim for reasons like non-receipt of supply or indecision. These pending invoices will appear in the buyer's ANX-2 until either September of the next financial year or the annual return filing due date, whichever comes first. In cases where no action is taken by the buyer, all invoices for that tax period are 'deemed locked' or accepted when the corresponding RET-1, RET-2, or RET-3 is filed, with details automatically pre-filled in the return.
Effective invoice management under the new GST return system is crucial for businesses to optimize their working capital by claiming the correct Input Tax Credit (ITC) promptly. Supplier communication, which was less emphasized in earlier GSTR-1 and GSTR-3B filings, now gains significant importance because ITC claims are no longer permissible on a provisional basis without valid supporting invoice documentation.
Definition of Invoice Locking
Invoice locking occurs when a recipient either accepts invoices provided by a supplier or designates them as pending. This action signifies mutual acknowledgment of the transaction documented in the invoice by both parties. Recipients can manually lock invoices before filing their tax returns. However, for a large volume of invoices, individual locking may be impractical. Consequently, a 'deemed locking' provision exists: invoices that are uploaded by a supplier and made visible to a recipient, but are neither rejected nor marked as pending, will automatically be considered locked once the recipient files their RET-1, RET-2, or RET-3 for the relevant tax period. After a return is filed, all invoices are treated as accepted, except those specifically rejected or kept pending.
The Viewing Facility for New GST Returns
Upon a supplier uploading an invoice by the 10th day of the subsequent month, its details are automatically populated in the supplier's primary return's liability table for that month. Recipients can then access these invoices via a 'viewing facility,' referred to as an 'inward annexure' within the return document (ANX-2). While rejections in ANX-2 are only possible after the 10th of the month, invoices can be accepted or marked as pending at any time, reflecting in the corresponding RET-1, RET-2, or RET-3.
Unlocking Previously Locked Invoices
Invoices for which a recipient has already claimed Input Tax Credit (ITC) cannot be directly amended. If an amendment becomes necessary, the supplier must issue either a credit or debit note, or they can modify the invoice after the recipient unlocks the incorrectly locked invoice online. However, the recipient is obligated to reverse any ITC previously claimed on that invoice and ensure online confirmation of this reversal.
Definition of a Pending Invoice
An invoice may be marked as 'pending' by a recipient if certain conditions are met after a supplier uploads it. These conditions include: the recipient has not yet received the goods or services, the recipient is undecided about claiming Input Tax Credit (ITC), or the recipient wishes to postpone the ITC claim. When an invoice is designated as pending, the recipient cannot claim ITC for it in the current tax period. Instead, such invoices are carried forward and remain visible in ANX-2 until the earlier of September of the subsequent financial year or the due date for filing the annual return for the relevant financial year.
Definition of a Missing Invoice
Under the updated GST return framework, Input Tax Credit (ITC) is only granted based on invoices or debit notes that suppliers upload within a specified timeframe, either before or after return submission. An invoice becomes 'missing' if a supplier fails to upload it within two tax periods for monthly filers (T+2), or within one quarter for quarterly filers (T+1), yet the recipient is eligible to claim ITC on it. If a supplier never uploads a missing invoice on which a recipient has already claimed credit, the ITC amount will be recovered from the recipient.
Reporting Missing Invoices
Recipients can provisionally report Input Tax Credit (ITC) for missing invoices in table 3A(10) of RET-1. If a supplier delays uploading an invoice (beyond T-2 for monthly filers or T-1 for quarterly filers), the recipient must individually report this missing invoice in table 3L of ANX-1. Once the supplier eventually uploads these invoices to their ANX-1, making them visible and actionable in the recipient's viewing facility, the recipient is required to reverse the previously claimed ITC. This reversal is accomplished by reporting the relevant invoices in table 3B(3) of RET-1 for the tax period in which the invoice became available for action.
Amending Missing Invoices
Amending a missing invoice involves making an adjustment to the annexure in ANX-1A for the specific tax period it pertains to. Concurrently, a corresponding adjustment must be made to the Input Tax Credit (ITC) amount in table 3A of RET-1. Therefore, it is advisable for taxpayers to report all invoices within the T+2 period for monthly filings (or T+1 for quarterly filings) and subsequently utilize the return amendment option. This approach allows for late-reported invoices to be corrected through an amendment return. Furthermore, it is recommended to consolidate and report all missing invoices simultaneously before the opportunity to amend a return expires.