Handling Purchases and Expenses with Care under GST

by CA. Sandeep Choudhary

The following points need to be taken care of while purchasing goods or incurring any expenditure:

1. Reverse Charge

Whenever you receive any supply of goods or services from any Unregistered person, you need to pay tax on it by self-invoicing yourself.

Suppose you are getting some documents photocopied for Rs. 10/- and the person photocopying is not registered. So now you need to pay tax on reverse charge basis by raising an invoice on yourself.

Essentially, for every expenditure (other than employee benefits and purchase of real estate) in your books, you need to pay tax on reverse charge basis if the supplier is Unregistered.

The tax has to be paid in cash, you cannot utilize input credit for the same.

Details of Reverse Charge obligation needs to be provided monthly.

You can claim credit for tax on reverse charge, subject to payment. As such, this provision is cumbersome but does not have a high monetary impact for most businesses. (There will be some impact to the extent credit is denied.)

In a perverse way, it dramatically increases liability for registered persons dealing in exempted goods, as they will not be able to take credit. Similarly, composition dealers will find their tax liability shoot up.

2. Inwards from Registered supplier

Make sure that your GSTIN is quoted correctly by your supplier in the Tax Invoice. Print your GSTIN in your visiting card and share the same for every small purchase or service received from any registered person. If your supplier does not mention the supply against his GSTIN, you cannot claim credit.

3. E-way Bill

This is required for every movement of goods above Rs. 50,000/-. If your supplier is Unregistered, you should generate the e-way bill. Even for registered supplier, you can generate the e-way bill.

4. Timing of credit

Input Tax Credit on goods upon receipt of goods and invoice. Thus, where goods are in transit at the end of the month, credit will be be available in the month when goods are received.

Similarly, where you have given advance to the supplier and the advance has been taxed, you cannot claim credit to goods are received along with Tax Invoice.

For services, credit is available when service is completed. Thus, for AMCs, credit will be available at the end of annual cycle even though tax may have been paid in the beginning.

Credit is not available after filling of annual return. This provision will force AMC companies to review their business model.

Credit is fully available immediately. It is not staggered for capital goods in GST (except in some specified industries).

5. When Credit is not available

Credit is denied for certain items such as motor vehicles (except where you are in business of selling them or in transport business etc), etc.

Credit will also not be available if you have an intra- state bill of a state in which you are not registered. This will typically be the case when services are consumed outside the state.

6. Proportionate credit

If you deal in both exempt and taxable items, credit is allowed only for input tax relatable to taxable items. Input Tax paid in relation to exempted goods (such as tax on packing material for exempted goods) will not be eligible for credit.

There may be some expenses for business as a whole where it is not possible to say that this expense was only for taxable items or only for exempt items. In such cases, input tax will be allocated in the ratio of turnover of exempted and taxable, and credit will be denied on input tax allocable to exempt goods.

7. Non-payment

Credit is denied if you don't pay your supplier within 180 days.

8. Monthly GSTR-2A and GSTR-2

Based on GSTR-1 returns filed by your suppliers monthly by 10th of next month, the portal will auti-populate GSTR-2A on 11th. You have to compare this with your books and correct errors and omissions. The corrected return for inwards is called GSTR-2. It has to be filed by 15th.

Where the inward transaction is reflected correctly, you will not make any correction and the transaction will get matched.

Where the supplier has made any mistake, you can correct the same in GSTR-2. Your tax credit is PROVISIONALLY based on your claims in GSTR-2 and not as per filing by your suppliers. However, this is provisional. Final credit is allowed only if your supplier has recorded the transaction, paid taxes for the month and also filed monthly returns for that month.

If your supplier accepts corrections pointed out by you by 17th, the transaction gets matched in the same return cycle. Alternatively, supplier may accept error in the next monthly return (Each return has separate columns for correcting mistakes of preceding returns). However, if supplier does not accept your claim in next monthly return also, provisional credit given earlier will be added to output tax of next month.

GSTR-2 will also contain details of credit deferred where stock is in transit or service is not completed. In such cases, you should take care that credit is taken when it is eligible (upon receipt of goods or completion of service).