GST reconciliation and Input Tax Credit (ITC) guide – How to save more in corporate travel

GST reconciliation for travel has been a complex topic to discuss and even more convoluted to execute. Let’s dive in and decode the puzzle step by step.

ITC Savings = Profits

With ITC, companies can save up to 5% of corporate travel expenses. One of our customers, a large conglomerate, ended up saving INR 1.5 crores ($ 200k) in a year on a volume of 100,000+ trips. Travel expense (T&E) is a major chunk of the company’s G&A expenditure so the impact of these savings on the balance sheet is quite substantial.

Over the years, we have been helping numerous CFOs with ITC to maximizing savings. In the end, we discuss how Zoliday enables one-click reports for reconciliation and a smart strategy called GST routing.

Some basics about GST and ITC

Govt considers business travel as an input for your business like what machinery is for a factory. Business travel leads to sales and better operations which leads to increased turnover. Therefore the company can claim ITC at the time of paying taxes.

Consider this over-simplified example, the company had to pay a GST of Rs 90,000 on its revenue through sales of goods/services. To generate this revenue it paid Rs 20,000 as GST to hotels, flights, and trains. This GST on travel can be considered as a discount on the original tax on the revenues. So, the net tax to be paid is Rs 70,000.

GST for Hotels

Hotels and hospitality are the most taxed segment in business travel. This implies high ITC and hence maximum savings for your company.

As the Place of Supply (hotel) and the Place of Service (hotel-stay) are in the same state, CGST+SGST of the hotel’s state is applied to the invoice. Consider this example — Sonia, a business-traveler from New Delhi-based company visits Mumbai to close an important sales deal. She chooses to stay at Taj in Bandra. Now since the hotel is in Mumbai and she used the hotel services in the same city, CGST + SGST of the state Maharashtra will be applied. Remember, IGST is never applicable to hotel invoices.

Now that we are clear about the GST for hotels, let’s move ahead to discuss ITC. Four cases emerge on the basis of Hotel registration, and the locality of the hotel and the company.

Case 1: Hotel and company registered in the same state

1. The hotel raises an invoice with an Invoice ID for the hotel-stay
2. The Company pays the invoice raised along with the GST charges
3. Hotel files CGST and SGST with the State Govt of Maharashtra
4. The company claims ITC credit based on the Invoice ID, Hotel’s GST ID, and the paid GST amount

Case 2: Hotel and company registered in a different state

1. Hotel raises an invoice with an Invoice ID for the hotel-stay
2. The Company pays the invoice raised along with the GST charges
3. Hotel files CGST and SGST with the State Govt of Maharashtra
4. The company can NOT claim ITC

Case 3: Unregistered hotel and company in the same state

1. Hotel raises an invoice with an Invoice ID for the hotel-stay
2. The Company pays the invoice raised along WITHOUT the GST charges
3. The company files GST using Reverse Charge and claims ITC

Case 4: Hotel and company registered in different states

1. The hotel raises an invoice with an Invoice ID for the hotel-stay
2. The Company pays the invoice raised along WITHOUT the GST charges
3. The company files GST using the Reverse Charge Mechanism but can NOT claim ITC

GST and ITC for Flights/Trains

GST for flights and trains is pretty straight-forward. As the place of service (the journey) and place of supply (airports/train-stations) are generally in different states. IGST is always applied and can be availed for any destination.

Note – The company should give its GST number at the time of the booking. Automated systems like Zoliday’s have an in-built feature so the employees do not have to enter this every time.

Tax slabs for flights

Tax slabs for trains

GST reconciliation —powered by Zoliday

Zoliday has automated many steps involved in GST reconciliation. To get started, add your GST details to the invoice-profiles section in the Admin role.

Details Required on Your GST Invoice-Profile:

• Registered Name of the Company
• Registered Address of the Company
• Company GSTIN
• PAN Number

Flow for invoices before the trip

Whenever the employee makes booking through Zoliday, a pre-generated invoice is sent by the vendor (hotel/flight) via API. This invoice contains all the details needed for GST and ITC filing: invoice number, tax amount, and vendor’s GST number.

Flow for invoices after the trip

Some hotels might create an invoice only at the time of checkout. In this case, the employee can collect the invoice from the reception of the hotel. The invoice details can be added to Zoliday platform against the corresponding Trip ID.

GST reports

The GST reports can be downloaded from the Reports tab. The important columns that are needed for filing taxes are Invoice ID, Vendor GST ID, and GST name.

In the reconciliation report, you can also check if ITC is allowed for the corresponding travel booking. As we discussed before, the GST reconciliation is only possible when the company and the vendor are from the same state.

Smart GST routing

Zoliday allows you to add multiple GST IDs of all your entities/subsidiaries on the platform. These invoice-profiles can be added to the Settings section of the company.

How it works

1. Add all your entities/subsidiaries to Zoliday Platform
2. Zoliday intelligently chooses the company with the same ‘GST State Code’ so that you can avail the ITC
3. Add GST and invoice details to the government to get instant ITC

In the above example, Zoliday has smartly selected Delhi company’s GST ID as the hotel was in the state Delhi. Now the company can avail ITC on the government’s tax portal.

Conclusion

To summarize, we discussed the basics of GST in corporate travel and ITC. We also reviewed applicable GST on hotels, flights, and trains. Further, we delved into how Zoliday automates GST reconciliation and enables extra savings with GST routing.

To help SMBs in today’s unprecedented times, we have made the platform free for companies that manage around 100 trips per month.

If you have any questions for us, feel free to comment below or contact me directly on [email protected]