GST — Goods & Services Tax in ERP

The Goods and Services Tax (GST) replaced over a dozen indirect taxes in India when it came into effect on 1 July 2017. For a manufacturing SMB, GST touches every transaction — the steel you purchase, the machining service you outsource, the finished hydraulic cylinders you sell. Getting GST right in your ERP system is not optional; it is a legal requirement that affects your invoices, your returns, and your cash flow through Input Tax Credit.

This chapter explains how GST works from an ERP user's perspective, how Udyamo ERP Lite automates GST calculations, and how to configure your items and transactions so that every invoice and bill carries the correct tax breakup.

What You Will Learn

• The structure of GST — CGST, SGST, and IGST — and when each applies
• Standard GST rate slabs and how they map to goods
• What HSN codes are and why they are mandatory
• How Udyamo ERP Lite determines the correct GST split automatically
• The concept of Input Tax Credit (ITC) and how ERP data supports it
• Reverse Charge Mechanism (RCM) and composition scheme basics
• GSTIN format and validation
• Step-by-step: configuring GST on items and verifying tax calculation on an invoice

Prerequisites

• Udyamo ERP Lite is set up with your organization details, including state and GSTIN (Chapter 5)
• Items are created in the item master (Chapter 7)
• You have Owner or Admin role access

GST Structure — CGST, SGST, and IGST

GST in India is a dual tax. The central government and state governments both levy tax on the same transaction. Which combination applies depends on whether the buyer and seller are in the same state.

Intra-state supply (seller and buyer in the same state): The tax is split equally between Central GST (CGST) and State GST (SGST). If the GST rate on an item is 18%, the invoice shows 9% CGST and 9% SGST.

Inter-state supply (seller and buyer in different states): The entire tax is levied as Integrated GST (IGST). If the GST rate is 18%, the invoice shows 18% IGST.

This distinction is critical because CGST goes to the central government, SGST goes to the state government, and IGST is shared between them. Your ERP system must determine the correct split on every transaction.

Tip: Udyamo ERP Lite determines the GST split automatically by comparing the state in your organization settings with the state on the customer or vendor record. Ensure both are set correctly to avoid incorrect tax breakups.

GST Rate Slabs

The GST Council has established five rate slabs. Most manufactured goods fall in the 18% bracket, but it is important to verify the rate for each item you deal with.

Warning: GST rates are revised periodically by the GST Council. A rate change can take effect mid-year. Always verify rates against the latest CBIC (Central Board of Indirect Taxes and Customs) notifications or consult your tax advisor before updating your item master.

HSN Codes — Harmonized System of Nomenclature

The HSN code is an internationally standardized system of numerical codes used to classify traded products. India adopted HSN for GST purposes. Every item you sell or purchase must carry the correct HSN code because:

1. It determines the applicable GST rate. The GST rate is tied to the HSN code, not to the item name.
2. It is mandatory on tax invoices. Businesses with turnover above Rs 5 crore must mention 6-digit HSN codes. Those between Rs 1.5 crore and Rs 5 crore must mention 4-digit codes.
3. GST returns require HSN-wise summary. GSTR-1 includes an HSN summary table, and the data comes directly from your invoices.

Common HSN codes in manufacturing:

In Udyamo ERP Lite, the HSN code is stored on the item record in the hsn_code field, and the GST rate is stored in the gst_rate field. When you add an item to an invoice or bill, these values are pulled automatically.

How Udyamo ERP Lite Calculates GST

The GST calculation in Udyamo ERP Lite follows a straightforward sequence:

1. Item-level rate. Each item carries its own gst_rate (for example, 18% for HSN 8483 — transmission shafts and gears).
2. State comparison. The system compares the state from your organization settings with the state on the customer (for invoices) or vendor (for bills) record.
3. Tax split. If both states match, the system splits the GST equally into cgst_amount and sgst_amount. If they differ, the full amount goes into igst_amount.
4. Line-level and document-level totals. Tax is calculated per line item and then aggregated at the document level. The invoice or bill shows the total CGST, SGST, and IGST amounts.

For example, consider selling 10 gear shafts (HSN 8483) at Rs 2,500 each to a customer in the same state (Maharashtra):

If the same sale were to a customer in Gujarat (inter-state):

The total tax is identical. Only the split changes.

Input Tax Credit (ITC)

Input Tax Credit is the mechanism that makes GST a value-added tax rather than a cascading tax. The core principle: the GST you pay on purchases (inputs) can be set off against the GST you collect on sales (outputs).

Suppose your firm purchases steel plates (HSN 7208) worth Rs 1,00,000 and pays Rs 18,000 as GST. You then use that steel to manufacture gear housings (HSN 8483) that you sell for Rs 2,00,000, collecting Rs 36,000 as GST. Your net GST liability is:

For ITC to be valid, three conditions must be met:

1. You must have a valid tax invoice from your supplier.
2. The goods or services must be used for business purposes.
3. The supplier must have filed their GST return and deposited the tax.

Udyamo ERP Lite captures GST amounts on every bill you record, giving you a complete record of input tax available for credit. This data feeds directly into your GSTR-3B return (covered in Chapter 37).

Tip: Regularly reconcile your purchase records in Udyamo with the data available on the GST portal (GSTR-2A/2B) to ensure that the ITC you claim is actually reflected in your suppliers' filings.

Reverse Charge Mechanism (RCM)

Under the normal GST mechanism, the supplier charges GST and remits it to the government. Under the Reverse Charge Mechanism, the recipient (buyer) is liable to pay the GST directly to the government. RCM applies in specific scenarios:

• Purchases from unregistered dealers (for specified categories of goods/services)
• Certain notified services such as goods transport by road (GTA), legal services, and sponsorship services
• Import of services

When RCM applies, the buyer records the purchase with GST but pays the tax to the government instead of to the supplier. The buyer can then claim ITC on the RCM tax paid, subject to conditions.

Warning: RCM transactions require careful handling. The tax is not paid to the vendor — it is paid to the government through your GST return. Consult your accountant for RCM scenarios specific to your business.

Composition Scheme

The GST composition scheme is a simplified compliance option for small businesses with turnover up to Rs 1.5 crore (Rs 75 lakh for some states). Under this scheme:

• You pay GST at a flat rate (1% for manufacturers, 5% for restaurants, 6% for other service providers)
• You cannot charge GST on your invoices — your invoices must say "Composition taxable person, not eligible to collect tax on supplies"
• You cannot claim Input Tax Credit
• You file quarterly returns instead of monthly

Most manufacturing SMBs using Udyamo ERP Lite will be regular taxpayers rather than composition dealers, because the inability to claim ITC makes composition unattractive for businesses with significant raw material purchases.

GSTIN Format and Validation

The Goods and Services Tax Identification Number (GSTIN) is a 15-character alphanumeric code assigned to every registered taxpayer. The format is:

22AAAAA0000A1Z5
│  │         │││
│  │         ││└─ Check digit (calculated)
│  │         │└── Default "Z"
│  │         └─── Entity code (1-9, A-Z)
│  └───────────── PAN (10 characters)
└──────────────── State code (01-37)

• Characters 1-2: State code (e.g., 27 for Maharashtra, 24 for Gujarat, 33 for Tamil Nadu)
• Characters 3-12: PAN of the business
• Character 13: Entity number (for businesses with multiple registrations in the same state)
• Character 14: "Z" by default
• Character 15: Check digit

In Udyamo ERP Lite, the gstin field on customer and vendor records stores this number. The organization's own GSTIN is configured in organization settings. The state code embedded in the GSTIN is consistent with the state selection — a mismatch usually indicates a data entry error.

Required: Enter the GSTIN for every registered customer and vendor. This data appears on your tax invoices and is essential for accurate GST return filing.

Step by Step: Configuring GST on an Item

1. Navigate to Inventory > Items and open an existing item or create a new one.
2. In the item form, locate the HSN Code field. Enter the correct HSN code for the item. For example, enter 8483 for a transmission shaft.
3. In the GST Rate field, enter the applicable rate as a number. For 18% GST, enter 18.
4. Save the item.
5. Repeat for all items in your catalog.

Step by Step: Verifying GST Calculation on an Invoice

1. Navigate to Sales > Invoices and create a new invoice.
2. Select a customer. Ensure the customer record has the correct state and GSTIN set.
3. Add a line item — for example, "Transmission Shaft (HSN 8483)" at Rs 5,000 per unit, quantity 20.
4. Observe the tax breakup:
   • If the customer is in the same state as your organization, the invoice should show CGST Rs 9,000 and SGST Rs 9,000 (9% each on Rs 1,00,000).
   • If the customer is in a different state, the invoice should show IGST Rs 18,000 (18% on Rs 1,00,000).
5. Verify the grand total is Rs 1,18,000.
6. If the amounts are incorrect, check: (a) the GST rate on the item, (b) the state on the customer record, (c) the state in your organization settings.
7. Save or approve the invoice.

Tips & Best Practices

• Set HSN codes and GST rates when creating items, not later. Retrofitting tax data across hundreds of items is tedious and error-prone.
• Use 4-digit or 6-digit HSN codes depending on your turnover bracket. When in doubt, use 6-digit codes — they provide more specificity and are accepted at all turnover levels.
• Verify GSTIN before recording a customer or vendor. An invalid GSTIN will cause problems during return filing. You can verify GSTINs on the GST portal search tool.
• Review the GST breakup on every invoice before finalizing. A common mistake is an incorrect state on the customer record, which results in IGST being charged instead of CGST+SGST or vice versa.
• Keep your item master updated when the GST Council announces rate changes. A rate change affects all new transactions using that item.

Quick Reference