India poised to transform indirect taxation on July 1st with GST

India is on the brink of the biggest change in taxation and revenue law since the country attained independence in 1947.     This colossal effort has required four separate federal tax legislations (IGST, CGST, compensation CESS, and UTGST for the seven union territories), individual tax legislation for all 29 Indian states (SGST), and a constitutional amendment.    It also required the creation of the Goods and Services Tax Network (GSTN), which is an information utility that has built one of the largest and most ambitious electronic tax reporting and filing systems in the world, partnering with dozens of authorized GST Suvidha Providers (GSPs) to serve as intermediaries to every single business in the country.

GST fundamentally changes indirect taxation in India in every possible way.  Most businesses will go from filing one VAT return every three months to continuous invoice data transmission and multiple form filings every month.  The shift from source to destination based taxation requires companies to file in every state in which they have a presence, rather than filing in their home state.  This means that for some the returns requirements will literally change from four returns a year to over 500 across every state and territory in the country!

GST can have a profound effect on the working capital that a company has tied up in taxes.  By shifting from a VAT structure to an input tax credit (ITC) structure, everyone pays the full GST at every step of the supply chain for both goods and services, then claims input credit on previous goods and services purchased from other companies.  This means that without a good system to track taxes paid on purchases and services, report on sales and taxes collected in a timely fashion, and reconcile your ledger against what your suppliers have reported to the GSTN, companies could easily have significant cash tied up in taxes for months at a time.

GST changes extend to businesses outside of India in multiple ways.  Any foreign company temporarily sending personnel into India may be required to secure a foreign taxpayer registration, collect taxes, and file returns.    Destination based taxation means that imports into the country are now taxable under Interstate GST (IGST) rules, and collected upon entry into the country. This tax subsumes some of the existing duties but not all of them. And because GST will fundamentally change how supply chains function within India, any company outside of India participating in those chains will be impacted by those changes.

Avalara has had a presence in India for over 10 years.  We have a team with a deep understanding of the new GST laws that has been working directly with the GSTN and GSPs to build Avalara India GST. Avalara India GST is a cloud-based solution, which is layered on top of the same Avalara Platform that drives our other solutions, providing the real-time tax reporting and full end to end reconciliation, tax preparation, and pan India return filings capabilities required to streamline India GST compliance.

To learn more, please see this blog on the import/export implications of GST. More details on Avalara India GST can be found here.