Finalising Accounts in GST Era -III


Now since the Annual Return of GST is out and the date of Tax audit under Income tax is approaching we will present our final post regarding finalisation of accounts in GST Era.We had already explained in detail the intricacies of finalisation of books in Post GST era that would be the first 9 months Balance Sheet in the year ended 31/03/2018. For earlier posts on the topic please read here and here

This post will deal with the Audit part in GST which is more important for those who are to be tax audited under Income tax Act 1961 apart from mandatory audit under GST.

For Audit provisions please refer to our earlier posts here

In this post we will cover the Tax Audit part that your Chartered Accountants or Cost Accountants would be asking while conducting the Audit.It would be handy to keep all the details readily made so as to get the Audit done within a short time without any hassle.

GST Registration details:

This is the basic details that would be available readily.No efforts required.

Turnover Details:

The details will be available in GSTR 3B and further should match with GSTR1 .The difference if any should be prepared as a reconciliation statement and it should be noted that the differences should also be reported in the returns starting from April 18 to maximum by Sep 18 as any amendment pertaining to the F.Y. 2017-18 is not allowable beyond the date.So there are two parts

a) if there is any difference in GSTR 3B and GSTR1 and the same if not been amended by 31/03/2018 then it will be reported by your Auditor still but it will have no impact on the business as a whole if it has been reported in first half of F.Y. 2018-19

b) if there is any difference as explained above but the same has not been amended in first half of F.Y. 2018-19 then the difference will be reported by the Auditor and that will impact the business also since these differences will reflect in books in next year

What is the meaning of difference?

To understand the meaning of difference please refer to our post on annual Return here

Part V of the GSTR 9 requires following to be reported

a) Any Amendment /Increase in supplies /tax which has been reported before Sep’18

b) Any Amendment /Decrease in supplies/tax which has been reported before Sep’18

c) Any reversal of ITC

Say it requires whether due to the issuance of Debit or Credit note whether there is any Increase/Decrease in supplies or Tax incidence then it should be reported here.Now what happens if the same is not reported in the first half of F.Y. 2018-19 then

a)If there is increase in Supplies/tax then the tax along with interest will have to be paid with no credit

b)if there is decrease in supplies/tax then that tax credit excess paid shall lapse

ITC Reversal :Part III point 7 of Annual Return of GST Form GSTR 9

This part requires the details of ITC to be reversed under provisions of Rule 37,39,42,43 and Sec 17(5)

Rule 37 is meant for reversal of ITC when the payment is not being made to supplier within 180 days of supply being made

Rule 39 is meant for reversal of credit distributed by ISD under certain circumstances as explained in the clause (d) of the rule

Rule 42 is meant for reversal of ITC on goods which were used partly for business.In this case proportionate credit is reversed

Rule 43 is for reversal in case of credit of ITC on capital goods

Sec 17(5) contains an exhaustive list where Input credit is not allowed which are as follows

(a) motor vehicles and other conveyances except when they are used–– (i) for making the following taxable supplies, namely:—

(A) further supply of such vehicles or conveyances ; or

(B) transportation of passengers; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;

 (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre;

(iii) rent-a-cab, life insurance and health insurance except where––

(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and

(iv) travel benefits extended to employees on vacation such as leave or home travel concession;

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

(e) goods or services or both on which tax has been paid under section 10;

(f) goods or services or both received by a non-resident taxable person except

on goods imported by him;

(g) goods or services or both used for personal consumption;

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

(i) any tax paid in accordance with the provisions of sections 74, 129 and 130. (6) The Government may prescribe the manner in which the credit referred to in

sub-sections (1) and (2) may be attributed.

Explanation.––For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures; (ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

It can be seen from above that this is an important point of Audit which will definitely be checked and reported so just see that proper treatment has been given in books of accounts

Payments made to GST registered and unregistered entities:

From this year a new clause has been added in the tax audit report which asks for the bifurcation of expenditure into the GST registered and unregistered entities.Though this was meant to extract the details for reverse charge method which as of now is applicable to a very limited extent but still it will help the taxation authorities to classify the expenditures and to cross check the veracity to a greater extent.

since major expenditures are being incurred in cash so this clause will bring in great trouble in form of additions to income during scrutiny assessments.

NOTE: This clause has been deferred till 30/03/2019 but still it would be advisable to prepare the books on same line so that one will be prepared by next year.

Details Required as per GST Reconciliation form GSTR 9C issued vide notification no 49/2018 dtd 13/09/2018 reproduced below

Though the clause 44 has been kept in abeyance by the CBDT for reporting purposes till 31/03/2019 but the GST department has issued the Form GSTR 9C that requires almost all information described in this post which essentially means the details of all expenses (major) will have to be provided to the GST department and also the veracity can always be verifiable.

Most important is the reconciliation statement thus prepared will have to be certified by the Auditor hence it tantamount to Audit itself.

Basically the reconciliation asks for difference in

Turnover in return declared from that shown in books

Tax as declared in returns from that in books

ITC as declared in return from that in books

Difference if any in ITC claimed on expenses from that in books

The statement also cast upon the Auditor a liability to calculate and report any additional liability if any.

All the above have to be substantiated with reasons.




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