Understanding GST Network (Part I)…

The much awaited transition to GST has finally happened and appears to be getting settled. While the legislative changes with laws being passed separately by all the states, formation of GST council, formulation of rules etc were one aspect of GST, equally serious challenge is its implementation, a task being handled by GST Network (GSTN). While transition appears to be smooth, the acid test of IT infrastructure would be when the businesses file the return for the month of July. A look at how GSTN prepares to handle the task…

GSTN is actually a company tasked to create IT infrastructure to manage GST and act as the interface between businesses and tax authorities. It was formed in 2013, strategically owned by the central government but with almost complete operational freedom. GSTN would now manage all operational aspects of business registration, returns filing, reconciliation and generating tax demand note etc, which was so far handled by government bodies such as CBEC. However, the final approval for registration would come from CBEC which would keep a watch on all the operations.

The core of architecture is GSTR-1 (Outward supplies or sales return) where all B2B (business to business) sellers are required to report the details of all their sale individually (invoice details). Thus, if a business sells ten units of an item, it cannot just mention items sold in the return as ten and its value. He has to provide details of all the buyers along with their GSTIN (GST identification number). (The provision is only for B2B sales. In case of B2C, where the buyer would not be taking the input tax credit, this is not required).

This data would be used by the system to generate GSTR-2 (Inward supplies or purchase return) for the buyers. For instance, GSTR-1 of seller (Party 1) would help generate GSTR-2 of his buyer (Party 2). Party 2 would also be filing his own GSTR-1 which would indicate his tax liability on sales. The difference between taxes paid on inward supplies (generated from GSTR-2) and tax liability arsing on outward supplies, auto generated by the system reported as GSTR 3, would be the net tax to be paid by the business.

The new format requiring entry of all invoices individually is a departure from earlier practice  where business were only required to report their aggregate sales. This can be considered as the most far reaching change as it vastly reduces the scope to manipulate sales data. While this may appear tedious, the data is actually maintained by all the companies which they will now have to share with the GSTN. An off-line excel based tool has also been developed where companies can maintain their transactions on day to day basis and upload the file at the end of the month. As per Infosys, the software developer, system can accept data of up to 19,000 invoices in one go with file size of up to 5 MB.


(Image Source – CBEC Website)


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  1. Pingback: GST Network – Part II… | India Economy and Business - News, Trends & Analysis

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