Use GST to your advantage for MSMEs

GST - use it to your Advantage

Almost all businesses are today under the purview of GST. It has become the most convenient way of compliance for taxes. While some businesses are regular in completing their compliances, there are many enterprises with delay filing of returns under GST.

Non compliance by businesses not only puts it to risk of interest and penalty, it also creates blockage of cash flow for the business which has purchased a product or service from this enterprise.

Let's take a look at an example. There are two companies: ABC and XYZ. ABC sells products to XYZ for Rs.10,00,000 with GST of 18% - that is Rs 1,80,000. XYZ makes payment along with GST and records it in its books of accounts as purchase.

XYZ makes sales of Rs 20,00,000 with 18% GST - that is Rs 3,60,000. For XYZ, at the time of filing GST returns the actual liability of tax is ₹3,60,000 minus payment of GST done to ABC - that is Rs 1,80,000. So the net liability of XYZ is only ₹1,80,000. However, this can happen only if ABC has filed its returns on time reflecting the sale made to XYZ.

However if ABC does not file its return, XYZ is not in a position to take credit and has to invest extra cash of ₹1,80,000 from its own funds or cash flow. So XYZ is in a double negative position since it has already paid the GST to ABC and has to again invest to file his return.

Many small businesses today are facing this problem which is creating a deep impact on their cash flows and working capital.

So what is the solution?

MSME business owners need to check the following at least on a monthly basis. Returns are mostly filed by your Chartered Accountant.

One needs to check with the CA the following:

• which of the vendors from the purchase register have not yet reflected invoices on the GST portal.
• to each of these vendors emails need to be sent asking them to complete the compliance immediately
• going forward while paying vendors confirmation should be taken that the necessary returns have been filed add only then the GST amount due should be paid for
• those vendors who have not filed their GST returns should not be paid the GST amount of the purchases or service taken from them the basic amount can however be paid.

This ensures that MSMEs do not suffer cash impact and can complete GST compliances without additional burden.

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Links for all Business Articles:

• Controlling Overtime for better Productivity and Profits
• Inventory Control for Better Cash Flow Management
• Integrating ERP for Growth
• How to Recover Your Money in Business
• Use GST to your Advantage
• Managing Cash Flows 03 - Types of Funding and Their Utilisation
• Managing Cash Flows 02 - Timing your Cash Flow
• Managing Cash Flows 01 - Importance of Cash Flow and its Management
• Pricing Your Products - Understanding How to Price Your Products
• Operational Efficiency and Profitability
• Understanding Business Operations in Financial Terms - Need and Importance
• Decoding Finance for Entrepreneurs
• Financial Atmanirbharta
• Learning Business from Lord Ganesha