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How Do Changes in Indian Taxation Law Impact Accounting Practices?

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Taxation laws and accounting are two sides of the same coin. With changing taxation laws in India, the accounting practices are being transformed vehemently. The introduction of GST (Goods and Services Tax) is perhaps the landmark change in Indian tax laws. Everyone, by now, knows what a GST is. It is the tax you have to pay on goods and services. This tax changed the ballgame of accounting practices in India. Besides GST, the surge in digital payments has also transformed accounting practices in the country. 

Interested in learning more about Indian taxation laws? Consider enrolling in taxation courses. You will learn the significant law in Indian tax, i.e. GST. Additionally, you will learn how it impacts accounting practices. Let’s understand how Indian taxation has changed the accounting practices. 

Understanding GST 

Before analysing the impact of GST on accounting practices in India, let’s first understand what GST is. GST, also known as Goods & Services Tax, is a tax that is applied on products and services. From manufacturing to consumer use, the tax is implemented at all stages. To easily manage finance, you must know the types of GST. 

There are typically three GST types:

  • One type of tax is on intrastate goods and services. Levied by the central government. Paying this tax can contribute to the central revenue pool. 
  • The second type of GST is issued by state governments on state goods and services. This tax varies from one state to another within the borders. This tax supports state revenue. 
  • There’s a third kind of GST: the integrated GST. The central government levies this tax. However, the revenue pool is shared between the central and state governments. 

The Impact of Indian Tax (GST) on Accounting Practices in India

There has been a major addition to Indian tax law. This is the GST. Because of the introduction of GST, accounting practices have changed a lot. In this section, you will learn how GST impacts Indian accounting practices. The practices will highlight the significance of financial reporting, compliance and book-keeping. 

1. Financial Reporting

With this game-changer tax, you see accurate tax amounts in financial statements. The GST amounts highlight GST purchases, sales and input credits. When the reporting is accurate, you can understand tax liabilities. It allows individuals to assess cash flow. Thus, making an informed decision. 

2. Reliable Record-Keeping

Whatever transactions are made under GST, businesses shall keep detailed records. This includes purchases, sales, expenses and input credits. With proper records, you can calculate GST and claims accurately. If the records are not maintained properly, it can lead to financial setbacks. Moreover, businesses will then have to pay penalties. 

3. Compliance Rules and Reporting

Strict compliance is reflected with the arrival of GST. It also ensures businesses are compliant with reporting rules. Business owners should file GST returns regularly. GST filing highlights reliable information on input tax credits, purchases and sales. Accounting practices also witness on-time return submission. This way, individuals can maintain compliance and avoid penalties.

4. GST and Accounting Systems

Calculating GST and filing the returns is an ongoing process. Manual calculation can be difficult and time-consuming. To keep operations running smoothly, businesses should integrate GST into accounting systems. The software will manage GST reports and calculations. The accounting teams will be trained on using these systems. This makes tax calculation easy in accounting. 

Common Challenges Faced by Accounting Practices During the GST Rollout

A shift in taxation will bring challenges to businesses, especially when they have to integrate the tax into their accounting operations. The accounting teams should ensure compliance. Also, it is essential to update the new systems. The significant obstacles that accounting teams witness with the changes in taxation include:

  • The tax allows companies to receive tax credits. However, reconciling and monitoring the credits can be challenging. Firms with complex supply chains can especially find the process difficult. 
  • Updating current accounting systems to integrate GST is a major obstacle. To integrate GST, the software updates previous tax codes, account charts, etc. This update is necessary to highlight the new tax laws. 
  • Accounting processes should align with new tax laws. Before integrating GST, businesses should review accounting procedures and make changes accordingly. 
  • Compliance with GST is another obstacle that comes with accounting. Since it is a new tax, businesses must first understand it properly. After understanding the rules, the next part is to file the tax returns on time. 
  • The GST rollout accounts for staff training. It can be a complex process. Hence, accounting teams need to be attentive. The teams should also know the tax rules.

Additionally, accounting teams should maintain proper records. This can save them from penalties. 

Clear Paths Ahead

The hurdles with GST cannot be overlooked. Various challenges come along the way, from adjusting to new rules to adopting new systems. However, GST provides opportunities like smart tax planning, improved cash flow and more. This tax also brings changes in Indian accounting practices. This will ensure accounting teams file timely returns, helping businesses manage their finances better. 

Conclusion

Taxation and accounting go hand in hand. With the introduction of GST, accounting practices have also drastically changed. It now focuses on accurate record-keeping. The financial statements will also highlight the GST amount, clearly stating the tax liabilities. This tax also ensured that accounting systems are updated and compliant with new tax codes and rules. 
Understanding accounting practices for new tax laws can be tricky. But worry not! George Telegraph Institute of Accounts, or GTIA, can help you better understand accounts. The training centre provides an accounting course where you can learn about the new-age concepts. The course trains you to use advanced accounting systems necessary in finance. Contact the team today to get started!