With the introduction of GST from 1st July 2017, India has moved towards a single indirect tax regime for goods & services for the entire country with uniform law. In view of the majority of taxes getting subsumed, there are numerous impacts on various functional areas of a business. From accounting perspective, entities have to re-align their accounting systems in accordance with the provisions of the GST Law. The GST law which is considered as a progressive tax reform for the country is not limited to tax structure. It also encompasses the entire accounting and financial reporting structure. Few implications on accounting systems are discussed in this article. Read on to know more..
a. State-wise Registration and Accounting:Section 22 of CGST Act requires every supplier to be registered under GST in the state from where he makes a taxable supply of goods or services or both. Therefore, there is a requirement of taking registration in every state from where a taxpayer is making taxable supply. On the contrary, in the erstwhile service tax regime, a service provider had the option to take a centralised registration even if he was rendering services from multiple locations.
b. Supplies without Consideration:Schedule I of CGST Act states certain activities to be treated as supply even if made without consideration. Clause II of said schedule covers supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business. Further, Section 25(4) of the CGST Act provides that every registration of a person will be treated as a separate taxable person or distinct person for the purposes of the Act. Accordingly, all transactions involving supply of goods or services between inter-state branches of an organisation are considered as supply. Let us discuss implications on supply of goods & services separately.
Supply of Goods:The transaction of supply of goods from one state to another state within the same organisation will be considered as normal supply and implications like third party sales will follow. Say, Company A Limited has transferred its stock from factory to depot which are located in different states or from Depot A to Depot B located in different states. As per Schedule I, this activity shall be considered as supply even if without consideration and chargeable to GST. Now, company A has to raise tax invoice and show such stock transfer as its supply in the state where Factory is located. Further, Depot has to consider it as inward supply to avail Input tax credit and accordingly report it as its purchase in the books of accounts. Such transactions of supply will lead to multiplicity of revenue of company as a whole. However, these transactions have to be recorded in a manner that net impact at the time of preparing financials statements is nil.
Supply of Services:
c. Outward and Inward Supplies:
Under Ind AS, excise duty is included in revenue, since it is a production-based tax. Sales tax and VAT is not included in revenue, since it is levied at the time of sales. GST is a destination-based tax, which is levied at the point of supply. Hence, it appears that revenue will not be presented including GST however certain clarity in Ind-AS is expected in this regard.