Goods and Service Tax (GST) in India

This document describes the origin of GST in India along with instructions on how to configure, levy, and report GST using M3 invoicing and reporting functionalities.

Overview

India Goods and Service Tax (GST) is a Value-Added Tax (VAT) introduced by India in 2017. It is applicable to all points in the supply chain, and is available at the subsequent stage of value added.

Given the federal structure of India, there are two components of GST: Central GST (CGST) and State GST (SGST). Both the Centre and States simultaneously levy GST across the value chain on every supply of goods and services.

The Centre levies and collects CGST and States levy and collect the SGST on all transactions within a State. Both are levied on the same price or value.

ln the case of interstate transactions, the Centre levies and collects IGST on all interstate supplies of goods and services. The IGST is approximately equal to CGST plus SGST. The IGST mechanism is intended to ensure the seamless flow of input tax credit from one state to another.

Limitations

Before you start

  • Enable the functionality by generating field group TXTXC in 'Field Group. Open' (CRS108).
  • Define replacement tax codes using control object M9CSNO in 'Sales Tax Exemption. Open' (TXS050).
  • Generate required accounting types by clicking F14=' Standard' in 'Accounting Type. Open' (CRS385). This will generate these accounting types:
    • I17 - Self assessment tax 1
    • I18 - Self assessment tax 2
    • I19 - Self assessment tax 3
    • I21 - VAT Receivable 1
    • I17 - VAT Receivable 2
    • I17 - VAT Receivable 3
    • I82 - Offset non-inventory charges.

Follow these steps

India GST can be applied, invoiced, and reported as follows:

  1. Customer invoices

    Specify tax type 9 - 'VAT' in 'Item. Open' (MMS001) to enable customer invoicing of GST.

    VAT registration numbers are printed on invoice documents, and:
    • Retrieved from the warehouse (for example: the internal supplier connected to the warehouse) or from the division in the scenarios where there is no warehouse. Note that the VAT registration number is retrieved from the division on the customer order proforma (OIS641PF).
    • Retrieved from the customer address or customer when there is no address.

    Accounting transactions for tax codes defined with tax type 9 - ‘VAT’ are created as follows:

    Jurisdiction level for which tax is calculated Accounting type on which tax is recorded
    1 111
    2 112
    3 113

    For all other tax types, the amounts calculated for each tax rate are accumulated into one accounting transaction on accounting type 111.

  2. Supplier invoices not connected to a PO

    Specify ‘Tax included’ on 'Supplier Invoice. Record' (APS100/F) or 'Supplier Invoice Batch. Open' (APS450/F) to indicate whether the supplier invoice is to be recorded as including or excluding GST.

    1. Supplier invoices including GST
      1. Specify the gross invoice amount and check the field 'Tax included' when recording the invoice.
      2. Specify the net line amount and a tax code on the coding panel 'Accounting. Open' (GLS120).
      3. The GST is automatically created according to the tax rate on the tax code.
      4. Accounting transactions for a tax code defined with tax type 9 - 'VAT' are created as follows:
        Jurisdiction level for which tax is calculated Accounting type on which tax is recorded
        1 211
        2 212
        3 213

      For all other tax types, the amount calculated for each tax rate are accumulated into one accounting transaction on accounting type 211.

    2. Supplier invoices excluding GST
      1. Specify the gross invoice amount and deselect the ‘Tax included' check box when recording the invoice.
      2. Specify the net line amount and a tax code on the coding panel (GLS120).
      3. The GST is automatically created according to the tax rate on the tax code.
      4. Accounting transactions for a tax code defined with tax type 9 - ‘VAT’ are created as follows:
        Jurisdiction level for which tax is calculated Accounting type on which tax is recorded Accounting type on which the calculated offsetting amount is recorded
        1 211 I17
        2 212 I18
        3 213 I19

      For all other tax types, the amounts calculated for each tax rate are accumulated into one accounting transaction on accounting type 211 and an offsetting amount is created on accounting type I17.

      See Manually Entering Supplier Invoices and

      Managing Batch Supplier Invoices.

  3. Supplier invoices connected to a PO

    Taxes are included as costing elements with operator 90 - 'Calculation base for tax’ in the costing model and added as tax surcharges on the purchase order.

    A purchase costing model should, at a minimum, have these elements:
    • CVIN01 - Net/Gross costing element (operator 01 or 02)
    • CVIN99 - Total for accounting/inventory cost (operator 99)
    • CVIN02 - GST element (operator 90). This element must be connected to a tax base model.
    For the costing model, these are the prerequisites:
    • The GST element must be defined after the element with operator 99.
    • The parameter 085 - ‘Create account entries for non-inventory cost elements’ must be enabled in ‘Settings - Cost Accounting’ (CAS900). This is necessary to create account entries for costing elements added after the total for inventory cost in the purchase costing model. When this parameter is activated, an account entry is created in 'Internal Account Entry. Open' (CAS300) per costing element after the total for inventory cost using accounting rule PP10-226/251, and a contra account entry is created per costing element using accounting rule PP10-982.
    • When the purchase order is matched against an invoice where tax is included, PP10-982 for the GST accrual is reversed against accounting rule PP20-I82. At this point, PP20-I21/I22/I23 is created for the invoiced GST amount. Any price difference on the GST tax surcharge is posted against PP20-228. This accounting rule, as well as PP25-228 and PP35-228 should have an exception defined in (CRS396) using INCEID - ‘Costing ID’ as object. This way, the price difference will be recorded on the same account as PP10-982/PP20-I82.
    • When the purchase order is matched against an invoice where tax is excluded, PP10-982 for the GST accrual is reversed against accounting rule PP20-I82. At this point, PP20-I21/I22/I23 is created for the invoiced GST amount and the reversed GST amount against accounting rule PP20-I17/I18/I19. Any price difference on the GST tax surcharge is posted against PP20-228. This accounting rule, as well as PP25-228 and PP35-228 should have an exception defined in 'Accounting Exception. Open' (CRS396) using the object INCEID - ‘Costing ID. This way, the price difference will be recorded on the same account as PP10-982/PP20-I82.
      Note: Invoice matching before goods receipt is not supported by the GST functionality.

      Supplier invoices can be recorded either including or excluding GST and the field ‘Tax included’ should be updated accordingly on (APS100/F) when invoice matching is performed.

    1. Supplier invoices including GST
      1. Specify the gross invoice amount and select the ‘Tax included' field when recording the invoice.
      2. Perform invoice matching in 'Supplier Invoice. Match GT Line' (APS360).
      3. The GST is automatically created according to the tax rate on the tax code defined on the tax surcharge.
      4. These accounting transactions are recorded only for a tax code defined with a tax type 9 - 'VAT':
        • PP10-982 for the GST accrual is reversed against accounting rule PP20-I82.
        • PP20-I21 GST amount calculated for Jurisdiction level 1.
        • PP20-I22 GST amount calculated for Jurisdiction level 2.
        • PP20-I23 GST amount calculated for Jurisdiction level 3.

        Any price difference on the GST tax surcharge is posted against PP20-228. This accounting rule should have an exception defined in (CRS396) using INCEID – ‘Costing ID’ as object so that the price difference is recorded on the same account as PP10-982/PP20-I82.

    2. Supplier invoices excluding GST:
      1. Specify the gross invoice amount and deselect the ‘Tax included’ check box when recording the invoice.
      2. Perform invoice matching in (APS360).
      3. The GST is automatically created according to the tax rate on the tax code defined on the tax surcharge.
      4. These accounting transactions are recorded only for a tax code defined with tax type 9 - ‘VAT’:
        • PP10-982 for the GST accrual is reversed against accounting rule PP20-I82.
        • PP20-I21 GST amount calculated for Jurisdiction level 1.
        • PP20-I22 GST amount calculated for Jurisdiction level 2.
        • PP20-GST amount calculated for Jurisdiction level 3.
        • PP20-I17 offsetting amount to the GST amount calculated for Jurisdiction level 1.
        • PP20-I18 offsetting amount to the GST amount calculated for Jurisdiction level 2.
        • PP20-I19 offsetting amount to the GST amount calculated for Jurisdiction level 3.

      Any price difference on the GST tax surcharge is posted against PP20-228. This accounting rule should have an exception defined in CRS396 using INCEID – ‘Costing ID’ as object so that the price difference is recorded on the same account as PP10-982/PP20-I82.

      See Manually Entering Supplier Invoices and

      Managing Batch Supplier Invoices.

  4. Internal invoices

    Internal invoices can be created for intra-division distribution orders. Internal invoices will be created when the states on the receiving and the delivering warehouse are different but the country is the same.

    A prerequisite is that both the country and state are defined on the receiving and the delivering warehouse. The customer and supplier connected to the warehouses must be different to trigger separate invoice documents.

    A tax summary box is printed on the internal customer invoice but not on the internal supplier invoice.

    Internal customer invoice

    Accounting transactions for tax codes defined with tax type 9 - 'VAT' are created as described below on the internal customer invoice. For all other tax types, the amounts calculated for each tax rate are accumulated into one accounting transaction on accounting type 111.

    The tax reporting table CTAXLN is updated with tax information for all tax types:

    Jurisdiction level for which tax is calculated Accounting type on which tax is recorded
    1 111
    2 112
    3 113

    Internal supplier invoice

    Accounting transactions for a tax code defined with tax type 9 - 'VAT' are created as described below on the internal supplier invoice. For all other tax types, the amount calculated for each tax rate are accumulated into one accounting transaction on accounting type 211.

    The tax reporting table STAXLN is only updated with tax information for tax type 9 - 'VAT':
    Jurisdiction level for which tax is calculated Accounting type on which tax is recorded
    1 211
    2 212
    3 213

    See Internal Invoicing.

  5. Ad hoc reports for tax reporting
    Ad Hoc report templates are available for GST reporting:
    • CVIN_SALESGST is based on the standard tax reporting table CTAXLN.
    • CVIN_PURCHGST is based on the standard tax reporting table STAXLN.

    These two reports can be imported and used as templates when creating the required GSTR forms. We recommend that the reports are sorted per tax code to facilitate the reporting. This can be achieved by creating new sorting options in 'M3 File. Create Sorting Options' (CRS021), where the tax code is included. This way, the sorting order in 'Sorting Order. Open' (CRS022) will be connected to the user-defined view in 'View. Open' (CRS020).

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