Being an entrepreneur in India, understanding the Goods & Services Tax (GST) is often a challenging task. One area of misunderstanding regarding GST compliance is your accounts payable procedure. Managing accounts payable is vital for GST compliance where timely and accurate invoice processing can impact your ITC claim and business operations.
In this article, we’ll see the way you can handle GST compliance in your accounts payable process to stay away from issues and improve your financial resources. We’ll also help you know what GST compliance means for accounts payable, why suppliers must comply, and how automating your accounts payable process can help.
What Are Accounts Payable?
Let us understand what accounts payable are before we go into GST compliance. Accounts payable is cash your company owes to vendors for services or goods you got but still have not paid for yet. In other words, it’s the part of your business which processes invoices and also ensures payments are made promptly.
In a GST registered business, your accounts payable team not just pays bills but also helps you comply with GST regulations. Each time you get an invoice from a supplier, the details on that invoice should be reported to the government for tax filings and to claim your ITC.
GST Compliance and Its Importance in Accounts Payable
Every registered business should follow certain compliance rules under the GST regime. For instance, businesses must file timely GST returns, report all taxable supplies and claim the correct amount of ITC. These rules affect your accounts payable procedure because the invoices you receive out of your suppliers are the key documents to claim ITC.
You can claim ITC on taxes paid when you purchase from GST registered suppliers. This can be achieved only if your supplier is compliant with the GST rules, has filed their GST returns and also submitted the transaction to the authorities. In the event your supplier fails to accomplish this, you miss the chance to claim your ITC, increasing tax payments and decreasing cash flow.
How Supplier Compliance Impacts Your Business
A major problem in managing accounts payable under GST is ensuring your suppliers are compliant with GST regulations. To claim ITC, invoices you get from suppliers must match data the provider reported on the GST portal. This is carried out by way of invoice matching – wherein the invoices in your GST returns (GSTR 2B) match the invoices your suppliers file in their GSTR-1.
When there’s a mismatch or if your supplier hasn’t filed their GST returns promptly, your business might be at risk. This could reverse the ITC you already claimed or result in additional penalties. That is the reason it is essential to use compliant suppliers that submit their returns on time and correctly.
One way to monitor supplier compliance is checking GST filing status before making payments. In case a supplier has not filed their returns or the invoices have discrepancies, you may withhold payment until the problems are fixed. This prevents your business from unneeded losses.
The Role of Automation in GST Compliance
If tracking every invoice and ensuring compliance with your suppliers sounds overwhelming, you’re not the only one. A lot of companies in India think it is tough to deal with the strict requirements of GST compliance, particularly with accounts payable. This is where accounts payable services and automation come into play.
Automating your accounts payable lessens the manual labor associated with staying GST compliant. An automatic system can digitize your invoices, extract the data and match it with the GST portal. Additionally, it can also flag discrepancies automatically, notify you in case suppliers aren’t complying, and automate the entire process from invoice issuance to transaction.
Some benefits of automating your accounts payable under GST are:
1. Speedier & More Accurate Invoice Processing
With automation you no longer have to enter invoice data by hand or worry about human errors that may cause compliance problems. The system can get information from invoices and type it into your records. This expedites the invoice approval and removes the danger of making an error which causes lost ITC.
2. Real-Time Supplier Compliance Checks
Automation enables you to look at the compliance status of your suppliers in real time. The system can check in case the vendor has filed their GST returns prior to making any payments, ensuring you are using compliant vendors. This could save you money and obtain the full ITC amount owed.
3. Better Cash Flow Management
Automating your accounts payable process could make payments simpler and help you process invoices. This avoids late fees and fines and helps you claim ITC on time. Faster invoice processing also means you can receive early payment discounts from suppliers.
4. Risk of Non-Compliance is Reduced
Non-compliance with GST regulations might result in fines, interest & audits. Automating your accounts payable makes sure that all invoices are monitored, matched & processed according to GST rules. This eliminates the danger of mistakes and also keeps your business in accordance with current tax laws.
5. Better Reporting & Insights
An automated accounts payable system will give you live data on your company’s financial health. You can see invoice status, track payments and evaluate your cash flow. This helps you make more effective choices and keep your business on course financially.
Final Thoughts
Managing accounts payable under GST compliance is vital to your company in India. The accuracy of your invoice processing, supplier compliance and Input Tax Credit (ITC) claims can affect your cash flow and financial health. You can utilize automation or professional accounts payable services to automate these processes, reduce mistakes and remain compliant with changing GST regulations.
For a compliant, efficient business, consult StartupFino for your accounts payable and GST compliance needs.
Read more: What is Accounts Payable Management for Indian Businesses?
FAQs
1. Is GST included in accounts payable?
Yes, accounts payable includes GST. If a company gets an invoice originating from a supplier, the GST applied to that particular invoice is put into the due amount. Businesses must record GST amounts for ITC purposes.
2. What compliance requirements do businesses face under GST?
Businesses registered under GST must file returns regularly, pay the appropriate Tax amount and also claim Input tax Credit. Additionally, they have to guarantee that their vendors are GST compliant, because ITC may be claimed only in case vendors have sent in their GST returns properly.
3. How do you calculate GST on accounts payable?
To calculate GST on accounts payable, (Original price * GST Rate Percentage) / 100 = GST amount. This means you charge GST whenever you invoice.
4. What exactly is the new GST rule?
New GST filing rules from September 2024 consist of changes in high value transaction reporting, bank account validation and negative liability reporting. Negative liabilities may now be carried forward to the following month’s return, providing companies more freedom with their tax filings.
