TaxbaseLANPro, TaxbasePro and TDSPro version 184.108.40.206 released on www.sinewave.in
This version covers:
Changes relating to ITR 5 efiling for AY 2022-2023
Every business organization is engaged in finalizing books of accounts and preparation of Balance Sheet for each financial year.
It becomes important to understand the legal provisions under GST law while finalizing books of accounts and preparation of Balance Sheet. we have outlined the following significant GST points that must be kept in mind before finalizing a balance sheet.
- Reconciliation of sales as per books of accounts with GSTR-1 / GSTR-3B outward liabilityDuring any audit, auditor is going to rely on the value reported in certified books of accounts. It is, therefore, highly advisable to reconcile the value of outward supply shown in books of accounts with the value reported in GSTR-1 / GSTR-3B. It may be noted that value as per the books of accounts and value reported in GST returns cannot be matched due to some of the following GST legal provisions:
- Inter-state stock transfer is treated as outward supply though it is not a sales transaction;
- Recovery from employees is treated as outward supply though it is not a sales transaction;
- In many cases, companies are charging GST on free samples / FOC supply which is not reported as sale;
- Any amount recovered from the vendor on account of penalty is treated as outward supply though it is not a sale transaction.
- Reconciliation of GSTR-3B & GSTR-1 & subsequent adjustment / rectification of returnIt has been observed in a few cases that there is a difference between the value of outward supply reported in GSTR-3B and the value of outward supply reported in GSTR-1. This may happen due to changes in transaction at a later stage or for any other reason. Logically, the value of outward supply should match and therefore, if there is any difference, it would be advisable to rectify the differential value at the time of filing GSTR-1 / GSTR-3B for the subsequent month(s).
- Reconciliation of ITC credit ledgers & GST liability ledgersBy logic, the ITC closing balance as on March 31, 2018 should match with ITC balance reflected on the GST portal under the input tax credit ledger and cash ledger (like PLA balance).
- Classification of goods / services and their respective ratesVerification is advisable mainly in case of composite supply. In such a case, the company is required to classify such supply and GST rate pertaining to principal supply of goods or services.
- Matching of ITC on imported goods with ICEGATEThe Government system has started matching of IGST value of a particular month reported in GSTR3B (under IGST credit on imported goods) with IGST value reflected on ICEGATE portal. This value may not match due to various reasons, mainly in case of month end import consignments. In such a case, reconciliation with IGST value as reflected on ICEGATE portal is will play a vital role.
- Admissibility of input tax credit (ITC)While finalizing a taxpayer’s ITC, it is advisable to go through the ‘negative list’ given u/s 17(5) of CGST Act, 2017. In a nutshell, ITC is available on all such goods / services which are used in the course of business except list of goods / services given u/s 17(5) of the CGST Act, 2017.
- Verification of ’place of supply’ to check whether correct GST is chargedVerification is advisable mainly in cases where ‘Bill To’ person is different than ‘Ship To’ person. In such a case, ‘place of supply’ is the location of the ‘Bill To’ Person rather than the location of the ‘Ship To’ person.
- Reverse charge liability in case of goods / servicesIt is advisable to reconcile value reported in GSTR-3B with respective expense ledger. For example, transport expenses for GTA, legal expenses / professional fee for Legal service etc.
- Verification of ‘Other Income’ ledgerIt is advisable to go through every transaction reflected in ‘Other Income’ ledger to confirm as to whether GST is applicable on any such transaction for which tax invoice is not prepared. For example, penalty / damages recovered etc.
- Supply of services free of cost to branches located to other StatesAs per Section 25 of the CGST Act, 2017 read with clause 2 of Schedule – I to the CGST Act, 2017, any support given by head office to its branches / factory is to be treated as ‘outward supply’ and accordingly, IGST will be applicable. In such cases, companies are not preparing any commercial invoice; that being said, as per the above legal provisions, a tax invoice is required to be prepared and IGST liability needs to be paid.
- Creditors for more than 6 months (180 days)As per the proviso to Section 16(2) of the CGST Act, 2017, companies are required to make payment of basic value plus GST to the respective supplier within a period of 180 days from the date of tax invoice. It may be noted that if such a payment is not made within 180 days from the date of the tax invoice, the input tax credit availed against such a tax invoice will be required to be reversed (by adding output tax liability) along with interest.
- Adjustment of advance in earlier monthUntil November 14, 2017, GST was payable even on receipt of an advance against goods. In such a case, GST liability was required to be reduced at the time of raising tax invoice in the subsequent month(s). It is seen that in a few cases, companies have inadvertently not reduced GST liability and paid full GST amount as mentioned in tax invoice which has resulted in excess payment of GST. Such excess payment can be adjusted in financial year 2018-19 at the time of filing GSTR-3B of any month.
- Any foreign payment made (apart for import of goods) for which CA Certificate is obtainedAll foreign payments excluding payments against import of goods may attract IGST towards import of service under reverse charge.
- Reversal of ITC in case of exempted / non-GST supplyAs per Section 17(1) and 17(2) of CGST Act, 2017 read with Rule 42 of CGST Rules, 2017, companies are required to reverse input tax credit of common goods / services used for providing taxable as well as exempted supply. Such reversal is required to be made as per the formula given under Rule 42 of CGST Rules, 2017 on proportionate basis.
- ITC on prepaid expensesIt is seen that many companies have paid a certain amount in the financial year 2017-18 which is pertaining to services to be received during the financial year 2018-19. Such expenses are treated as ‘prepaid expenses’.
For example, lease line expenses, rent, insurance etc. It is seen that companies have claimed ITC on such services since tax invoices are booked and payment is made. However, one of the preconditions of availment of taking credit is that such service is received. In case of prepaid expenses, service is not actually received and therefore, this would amount to excess availment of credit.
Please note – The above list is certainly not exhaustive in nature. It is just an attempt to cover as many as GST related points to be considered while finalizing Balance Sheet and for GST audit preparation.