GSTIN Validation in India: Everything you need to know

GSTIN Validation in India: Everything you need to know

Tax ID validation is a compliance issue that’s now front-and-center in many countries – especially India. In order to ensure they’re working with a legitimate party, Platform Operators and Marketplaces must validate tax IDs. This article lays out the importance of GSTIN, and explores how Fonoa Lookup validates GSTINs for online businesses with a single click. Let’s dive in!

What is Lookup?

Fonoa Lookup allows you to validate tax IDs directly with the Indian government. It also works throughout the 95+ countries in total, including all EU countries, Canada, Mexico, Italy, Uganda and the UAE. Our global coverage is unmatched - there isn’t a more complete or accurate validation tool available anywhere else.

We can also help you validate tax IDs in your checkout to make sure you’re applying the correct amount of tax to each purchase. Plus, Lookup offers you the ability to automatically check a large volume (as in, tens of thousands) of tax numbers. Forget spending dozens of hours to validate batches of IDs; now you may only need less than ten minutes.

Importance of GSTIN

The Goods and Services Tax (GST) is an indirect tax levied on goods and services manufactured, sold, and consumed throughout India. The GSTIN is a 15-digit unique tax identification number (TIN) allotted to every registered person under GST, hence the short form: “GSTIN”.

As a GST-registered taxpayer, managing compliance becomes easier if you perform a GST Number (GSTIN) verification before onboarding customers/vendors on your marketplace, or before performing GST compliance obligations.

It becomes compulsory to apply for a GSTIN when a person crosses the GST registration threshold (Aggregate turnover exceeding ₹20 lakhs in a financial year for services and ₹40 lakhs for goods.)

Why is GSTIN validation important?

  • Operating digital platforms marketplaces: An online seller is required to register for GST to be able to sell goods through platforms and marketplaces like Amazon, Flipkart, Meesho, Ola, Snapdeal, ShopClues, Uber, Udaan, and Zomato. Importantly, the GST registration threshold does not apply to selling online. Moreover, since the onus of GST compliance is on marketplaces, it becomes imperative for all such platforms to adopt a seamless GSTIN validation mechanism during the onboarding of platform sellers.
  • Filing GST Returns and reclaiming input taxes: Various GST Returns are required to be filed under the GST Act. In order to file these returns, it is crucial to possess the supplier’s GSTIN for accurate reporting and record-keeping - especially when claiming an Input Tax Credits (ITC) and refunds:
  • Claiming an ITC: In order to claim the ITC (the GST paid on the purchases of goods or service), it is necessary to have the supplier’s GSTIN.
  • Claiming a Refund: Refunds can be claimed under the GST Act under various provisions (in form GST RFD-01). Typically this occurs when exporting services, supplying to Special Economic Zone units or being left with unutilised input tax credits. For claiming a refund it is, once again, vital to have the supplier’s GSTIN.
  • Preventing Tax fraud: There could be cases where a supplier might use a fake GSTIN to collect the goods and service tax but will not pass it on to the government. To stand a chance of identifying and preventing such types of fraud, businesses must make use of more sophisticated GSTIN validation tools (e.g. that make use of techniques like fuzzy matching). Failing to do proper GSTIN validations can result in your business being burdened with the cost of fraud once it is discovered by the tax authorities.

GSTIN format

GSTIN is a 15-digit number that is constructed as follows:

India GSTIN Format

Validation requirements of GSTIN

There are two ways in which a GSTIN can be validated: a manual approach or an automated approach.

As the name implies, manual validation is a cumbersome, time-consuming process that is not feasible for bulk validations or real-time validations if you are dealing with thousands of customer/vendors.

In contrast, automated validation is a time-efficient, robust, seamless process for real-time and/or bulk validations.

Pro Tip: Use Fonoa Lookup to quickly validate and scan all information from a GSTIN.

A closer look at how Lookup works

Let’s take a closer look at how Fonoa’s tax ID validation tool, Lookup, works for GSTIN validation. Lookup enables businesses to validate any GSTIN with a single-click. In my experience, companies opt to do this at different stages of their business flow (depending on their model and risk appetite):

  • Onboarding: marketplaces often choose to perform the GSTIN check during onboarding of platform sellers (drivers, property owners, tutors) to their platform. This also enables their tax engine to apply the correct rules.
  • Checkout: businesses often rely on the checks when selling to customers or managing account payables.
  • Pre-filing: before filing GST returns, businesses typically do a bulk validation of GSTIN numbers to ensure nothing has changed since the onboarding or checkout stage.
  • Periodic: many companies opt to perform regular (monthly or quarterly) checks of their entire dataset.

In any case, the ideal timing to validate is before the actual transaction happens – not after.

Fonoa has simplified the Tax ID validation process by providing two methods through which you can validate your data:

  1. A user interface - here, you can process a large volume of numbers in a batch. This is often used for pre-filing and periodic checks by tax teams as well as other departments within the company (e.g. customer support). One bonus is that no engineering resources are required to access this browser-based interface.
  2. A low latency API - ideal for validations at checkout and onboarding (i.e. where the validation speed is critical). Our simple API documentation makes this solution eng-friendly. Tax and other teams will also have access to a dashboard where they can monitor validation results.

To perform a validation, you will only need to provide a Tax ID Number and the ISO2 Country code (IN for India). For more advanced checks, you have the option to include the name and address they have on record as attached to the GSTIN. Fonoa can then perform additional checks to verify that the GSTIN actually belongs to the person providing it.

For a more detailed explanation of the techniques adopted by Fonoa, feel free to refer to this guide [insert link to pearl earring article].

How Fonoa can help with your GSTIN validation needs

Fonoa built Lookup to fetch information from the government database related to Indian GSTINs. However, being able to connect to government databases and fetch the necessary data efficiently at scale is only half the job.

Fonoa Lookup also compares the data received to your records to ensure the information matches. Essentially, Lookup verifies the details available in the company’s database and then compares them to the data in your records. If anything unusual is identified, it flags the irregularities so that they can be handled in line with your company's policies.

If you’re a digital company doing business in India, talk to our sales team today to discuss how Fonoa can help.

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