The Goods and Services Tax (GST) introduced in India in 2017 has undergone multiple updates to improve ease of compliance for businesses. As India moves into 2024, the government has introduced several simplifications aimed at enhancing the tax system’s efficiency. Despite the progress made, businesses continue to face certain challenges as they navigate compliance regulations. This article elaborates on the 2024 updates, their effects on businesses, and the broader implications of these changes on corporate compliance.

Streamlined Filing Mechanisms

In 2024, the GST filing process continues to be simplified through automation and technological advancements, which have reduced manual errors and improved transparency. E-invoicing, introduced as a part of GST 2.0, is a game-changer for compliance as it enables real-time invoice tracking via the GST Network (GSTN). This system helps prevent tax evasion and ensures that every taxable transaction is captured digitally​.

For businesses, especially large corporations, this automation has reduced compliance costs. Digital reconciliation of invoices and returns, a feature of the new GST regime, minimizes the chances of mismatches between suppliers and buyers, reducing disputes related to input tax credits (ITC). However, smaller businesses and MSMEs continue to face challenges due to lack of access to advanced digital tools.

Additionally, the mandatory filing of GSTR-7 for taxpayers, even when no deductions are made, has increased the burden on businesses to remain compliant throughout the year. The filing obligations are designed to promote transparency and encourage more businesses to comply with GST regulations, which ultimately improves tax collections and reduces the scope of tax evasion​.

Furthermore, the implementation of AI-based analytics and automated alerts has significantly enhanced the monitoring of GST compliance. Tax authorities can now track anomalies and discrepancies in real time, enabling quicker action against non-compliance. These innovations not only streamline tax administration but also create a more robust system for detecting fraud and preventing tax leakages. The adoption of advanced technology in the GST framework has fostered a culture of accountability, while also providing taxpayers with a seamless and more efficient process for fulfilling their obligations. This ongoing digital transformation continues to pave the way for a more transparent and efficient tax ecosystem in India.

Enhancements to Input Tax Credit (ITC)

The 2024 updates have introduced significant changes to the availability of ITC, which is vital for managing cash flow and ensuring smooth business operations. Businesses can now claim ITC for taxes paid by suppliers even in cases where taxes have been paid under demand and recovery provisions​.

This is a substantial relief for businesses, especially those operating in capital-intensive sectors such as manufacturing and construction, where managing ITC is crucial for operational liquidity.

In the previous GST structure, businesses faced challenges due to the blockage of ITC, where companies could not claim credit for input taxes paid by their suppliers in cases of tax disputes. This caused working capital issues and delayed payments to suppliers. The new provision allows companies to claim their credits more easily, fostering smoother transactions across the supply chain​.

Moreover, the extended timelines for claiming ITC have offered businesses more flexibility in reconciling credits from their suppliers, reducing the administrative burden of ensuring timely filings​.

As ITC availability becomes more straightforward, companies can more easily offset their tax liabilities and manage their cash flow more efficiently.

Rate Rationalization and Sectoral Challenges

While rate rationalization is an ongoing process, sectors like manufacturing and textiles continue to face challenges related to the inverted duty structure, where the tax on inputs is higher than that on final products​.

This mismatch has led to blocked input credits, impacting companies’ working capital and creating cash flow issues. Addressing this issue through tax rate adjustments could reduce these pressures on businesses, promoting smoother financial operations.

The GST Council is actively reviewing tax rates and considering changes that could alleviate such issues, but the process is gradual. For now, businesses must continue to manage these challenges by optimizing their supply chain operations to minimize the impact of input-output tax mismatches.

Anti-Profiteering and Corporate Vigilance

To ensure that GST benefits consumers as intended, the government has strengthened anti-profiteering measures. These measures mandate that any reductions in tax rates are passed on to consumers. While this is a positive move for consumer protection, it adds to the compliance burden for businesses, which must now keep detailed pricing records to demonstrate that tax savings have been shared with customers.

Failure to comply with these anti-profiteering rules can result in significant penalties, increasing the need for businesses to maintain accurate and transparent accounting records. Large corporates, especially those with complex supply chains, are particularly affected by these rules, as they must ensure that price changes across various stages of the supply chain are documented correctly.

Technological Integration and Compliance Automation

GST’s technological framework has evolved significantly since its introduction, and the integration of technology into compliance processes is one of the standout improvements in 2024. Businesses now have access to GST compliance software, which automates many tasks related to filing returns, reconciling invoices, and tracking tax payments​.

These tools not only reduce manual errors but also allow businesses to scale their operations without increasing the compliance burden.

However, for MSMEs and smaller businesses, the lack of access to advanced digital tools and the high cost of implementing such technologies pose challenges. The government has recognized this gap and is working towards providing simplified tools for smaller businesses to ensure they can keep up with the digital shift​.

Future Trends and Corporate Preparedness

Looking ahead, GST collections are expected to play a crucial role in India’s fiscal strategy, as the government continues to prioritize compliance.

For corporates, this means that staying compliant with GST regulations will continue to be crucial, and investing in tax technology solutions will be essential for businesses to manage compliance in a cost-effective and efficient manner.

Corporates that have integrated automation tools and adapted to the evolving GST regulations are better positioned to manage compliance, reduce costs, and avoid penalties. Going forward, the need for ongoing training and system upgrades will be crucial for businesses, particularly as the government moves toward further digitization of the tax filing process.

Introduction of the Invoice Management System (IMS)

Starting from October 1, 2024, the Invoice Management System (IMS) is available on the GST Portal, with taxpayers able to take actions on available invoices from October 14, 2024. This system allows recipients to accept, reject, or keep pending invoices filed by their suppliers in GSTR-1/1A/IFF, significantly impacting how businesses manage their input tax credit (ITC) claims.

The IMS will streamline the reconciliation process by ensuring that every taxable transaction is tracked and verified. Accepted invoices will be automatically included in the ‘ITC Available’ section of the GSTR 2B and will auto-populate in GSTR 3B as eligible ITC. Rejected invoices, however, will not be considered for ITC claims. This automation is expected to reduce mismatches between suppliers and recipients, thus minimizing disputes and errors in claiming ITC.

For businesses, particularly large corporates, the IMS will simplify ITC management, reducing administrative burdens. However, smaller businesses may face challenges in adapting to this system without access to the necessary digital tools. Nonetheless, the introduction of IMS marks a significant step towards further digitizing GST compliance processes.

Additionally, the IMS introduces a new level of accountability, as recipients now have a window to review and act on invoices before finalizing their returns. This will encourage both suppliers and recipients to be more diligent in ensuring the accuracy of reported transactions, fostering better communication between business partners. By promoting real-time verification and addressing discrepancies early, the IMS reduces the risk of disputes over ITC claims at a later stage, ultimately improving the efficiency of the entire GST compliance ecosystem.

Conclusion

The 2024 updates to GST compliance reflect the government’s commitment to making the tax regime simpler, more transparent, and easier to navigate for businesses. With the introduction of the IMS and other changes such as streamlined filing systems, relaxed ITC rules, and reduced pre-deposit requirements, it is expected that some of the compliance burdens businesses face would be alleviated. However, challenges related to rate rationalization, anti-profiteering measures, and technological adoption remain, particularly for MSMEs.

For businesses, especially larger corporates, staying updated with these changes and integrating digital tools like IMS into their compliance strategies will be key to navigating the evolving tax landscape.