Automation to deal with demonetization and GST compliance

Automation to deal with demonetization and GST compliance

Technology is like oxygen to any disruptive change: it gives businesses the fuel to move forward, turning the future into an opportunity rather than a threat. Indian entrepreneurs are currently living in unpredictable times, where the fear of unknown is immense.  Demonetization, which brings us a step closer towards the celebrated Goods and Service Tax (GST) taxation reform, could also be termed as second ‘white revolution’ in India.

Before the GST is enacted (which is likely to be 1st April, 2017), it will be prudent for businesses and professionals to appropriately record their sale, purchase, supply and stock details for tax and accounts reporting purposes. This can be a difficult proposition: it is only possible for business owners to maintain these records easily and accurately if they wisely choose an automation solution for tax compliance.

In this article, we will help you understand why tax automation should be a priority given the demonetization and GST compliance needs.  We will also touch upon the check points that any business owner should ensure before opting for any GST compliance software.

Why automate?

There are several reasons that automation is preferable to attempting to record and maintain a range of tax data manually.  For example:


GST is intended to facilitate seamless movement of goods and services across the nation and will reduce overall tax costs. To take advantage of this standardization, taxpayers will require a robust IT infrastructure set up at the most basic levels, and this should be tested and developed well in advance of GST laws taking effect. This has created a burning need to standardise the entire invoice capturing process, for both sales and purchases, through appropriate GST automation software.

Record maintenance

Business owners should regularly monitor and reconcile the bank details with their sales records to timely identify mismatches, if any exist. The shift towards digital currency may lead to more revenue, or less, based on how each business embraces demonetization. If this occurs, the businesses could be required to substantiate their claims of a sudden decrease or increase in revenue in the turnover during the demonetization period. They should maintain appropriate documents to substantiate their claims to avoid possible penalties.


Compliance requirements are expected to increase significantly under the GST regime. Take example of a service tax filer, who currently files two returns on an annual basis. Once GST takes effect, this service tax filer could be required to file as many as 61 returns: five returns per month in different states, plus a single annual return. Similarly, increased compliance requirements will also put traders and manufacturers in a challenging situation of complying with destination-based sourcing rules and multi-state tax regulations.


Under GST, all documents — returns, refunds, registrations, payments, and even show cause notices and their replies — are expected to be in electronic/online format rather than in physical paper form. Therefore, as the Government will put more emphasis on electronic filing and tax compliance. Entrepreneurs will either have to become tech-savvy or opt for easy-to-use automation software to help them meet this challenge.

Assessing tax automation software

In order to capture all daily transactions, including sales and purchases, small businesses should assess the capability of any software based on following criteria:

  • Meets the current requirements to prepare and file return for current taxes (i.e. VAT/ CST, excise, service tax, etc.)
  • Meets future requirements to generate and track returns as per GSTN guidelines.
  • Capable of capturing nuanced details of sales, profitability, cash flows, pricing, purchases, supply, and stock appropriately.
  • Relatively easy, quick and reliable in meeting GST compliance requirements and also maintaining workflow management.

It’s important to simulate important business transactions to understand whether your IT system is capable of handling all such scenarios.

Though there are certain short term difficulties, India has a bright economic future to look forward to. Demonetization has already got the ball rolling on filling the coffers of center and state governments, leading to huge declarations and payments of indirect taxes. The government has begun to insist upon digital currency, including plastic cards and e-wallets, and now requests e-invoices. If it works as planned, GST reform will solidify into a regenerative force for the economy, making India a favored investment destination globally.

In days to come, being compliant may cost some money, but being non-compliant will cost far more, as tax compliance will become a new norm.  It’s time for small business owners to smell the coffee and rise to the occasion now — planning and automating for GST today can generate long-term gains in spite of the short-term pains of establishing compliance.

To learn more about how Avalara can help you with GST compliance automation, contact us through .

This blog is contributed by CA Pritam Mahure.

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