A survey conducted by Cleartax, including 200 large enterprises shows that 8% of a business’s working capital is impacted due to non-compliant vendors and inefficient data reconciliations.
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The introduction of a limit on input tax credit (ITC) availed to the extent vendors upload their invoices, has disrupted an erstwhile trend of the former tax regime where the input tax credit of any assessee was not related to the vendor’s payment of tax. While previously, there were no legislative provisions enforcing such a limit, instances where assessing officers turned to recipients when the supplier was absconding to reverse their ITC are not unheard of.
The introduction of GST has heralded a sea of changes in the ITC provisions and one of the major modifications has been the availability of ITC being made dependent on the vendor’s compliances – i.e. filing of return and payment of taxes – under Section 16 of the CGST Act 2017. Multiple amendments have been made to Section 16 to get the ball rolling on this restriction in the ITC provision.
In February 2021, during the Union Budget, Section 16 was amended with the addition of a new sub-clause that laid down that ITC on invoice or debit note may be availed only when the details of the same have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of the invoice or debit note.
However, non-compliant vendors and inefficient data reconciliations have caused ITC leakages which have in turn impacted cashflows. When GST was flagged, many businesses added indemnity clauses in their vendor contracts which mandated that any default on the vendors’ side which could lead to a liability for the business, would have to be borne by the vendor. Despite these measures, vendor compliance and ITC availability continue to be a pain point for businesses.
A recent survey conducted by ClearTax revealed that nearly 83 percent of more than 1200 companies surveyed were unable to optimise ITC claims in 2020-21 and many of them have had to stall payments of non-compliant vendors owing to this. That this is turning out to be a major headache for businesses can be inferred from the fact nearly a third of the respondents reported small vendors not filing invoices was a major reason for the inefficiency in the ITC optimisation process while 10% of total eligible ITC claims got stuck due to delay in the filing by vendors. Sub-optimal input tax credit management can impact profitability by up to 8%, the survey stated.
To put things into context - the survey found that a multinational company had incurred a total loss of ₹850 crore due to poor management of claiming ITC while a lifestyle company incurred losses of about ₹200 crore due to ITC mismanagement, ₹30 crore of ITC not filed and ₹170 crore of interest loss on delayed filing by vendors.
The issue of non-compliance can be addressed by tapping into the power of technological advancements and Clear Tax has come up with India’s first end-to-end solution to maximize ITC for businesses.
Clear Max ITC from Clear is the first of its kind in India, and it is created to maximise ITC while also improving working capital and profitability of enterprises. The software includes unique capabilities that fully automate the ITC claim procedure. Automation provides 100 percent accurate ITC claims, a feat that practically every Indian tax team struggle with.
The system allows a two-way connection to a company's accounting system. This facilitates the scheduling of GST data auto-reconciliations and the synchronisation of vendor payment decisions.
It is 100 % accurate in matching data
The solution ensures that auto-reconciliations run in the background at all times. If any missing data or invoices are discovered, an automated communication is sent to the concerned vendor right away.
It helps save on taxes and unblocks working capital
The AI-powered technology delivers firms a double advantage of tax savings and helps unblock working capital with intelligent data matching, vendor communication, and intelligent reports.
The Clear MAX ITC platform leverages vendor gamification to improve vendor behaviour. One-click filings and reconciliations are now a reality thanks to its unique characteristics.
- Vendor payment management
Clear MAX ITC auto-manages vendor payments using the smart vendor risk categorisation. Get the payment terms set for vendors based on their ITC behaviour and have the tool dynamically sync this decision with your ERP.
- Vendor communication
The vendor communication features simplify interactions between vendors through one-click communication. Send reminders to multiple vendors at one go through email or messaging platforms like WhatsApp.
- Real-time ERP sync
The 2-way flow with ERP helps in scheduling auto-reconciliations to run in the background, which as mentioned above, helps in sending an automated message to the vendor in the case of a missing data/invoice.
- Cross-team collaboration
The automated solution also has the provision for seamless collaborations across indirect taxes, procurement, and accounts payable teams.
- AI-based matching
AI-based configurable PAN-level matching helps businesses easily track ITC claimed and not yet claimed. Match 60,000 invoices in a minute across GSTINs or PAN.
- Intelligent reports
Intelligent reports provide smart suggestions that will help decision-makers avoid notices, interest, and penalties.
The Clear advanced reconciliation tool and ITC optimisation calculator helped businesses save ₹9,000 crores last year. With Clear Max ITC, improving cashflows and thereby enhancing working capital and profitability is an easily achievable goal. Clear’s AI-powered tools and one-click solutions have been lauded by industry giants and clients like Marico, Wildcraft, and Epson.
Click here to know more about Clear MAX ITC and how to incorporate it for your business.
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