Arjun (Fictional Character): Krishna, what precautions Taxpayers and Businessmen are required to take while finalising books of account as on 31st March, 2020 considering the impacts of COVID-19 pandemic?

Krishna (Fictional Character): Arjuna, To deal with the ever changing COVID-19 situation in India, Government is issuing notifications, orders, regulations, guidelines on regular basis. In the light of COVID-19 pandemic, the Finance Minister announced various changes and reliefs in Income Tax, GST, Company Law requirements etc. RBI also has allowed deferment of 3 months on payment of installment in case of term loan and interest in case of CC/OD. Also ICAI has issued various guidelines to help chartered accountants across the country. It is very important for Taxpayers to study these changes and know the reliefs given for better Tax planning.

Books of Accounts

Arjun (Fictional Character): Krishna, How should Taxpayers and Businessmen plan in this COVID-19 scenario to reduce the effect of this pandemic on their businesses?

Krishna (Fictional Character): Arjuna, The government has allowed few businesses to run their business during the period of lockdown. Regular planning will be required for those businesses which are operating normally during the lockdown period. But those businesses which are not allowed to operate will require some special planning. The following is the list of businesses which are permitted to operate in lockdown-

1. Hospital and other medical establishments.

2. Shops, including ration shops, dealing with food, groceries, fruits and vegetables, dairy and milk booths.

3. Banks, insurance offices and ATMs.

4. Print and electronic media.

5. Delivery of all essential goods including food, medicines etc. through e-commerce.

6. Petrol pumps, LPG, petroleum and gas retail and storage outlets.

7. Manufacturing units of essential commodities

8. Fire, law and order and emergency services

9. Capital and debt market services as notified by the Securities and Exchange Board of India

10. Cold storage and warehousing services.

11. Private security services

12. IT and IT enabled services only for essential

13. Power generation, transmission and distribution units and services.

14. Production units, which require continuous process after obtaining required permission from the state government

Arjun (Fictional Character): Krishna, What care should be taken while valuing Stock as on 31.03.2020?

Krishna (Fictional Character): Arjuna, Closing Stock is valued at Cost or Net realisable value (NRV) whichever is lower. Now, Net realisable value means the net amount an entity expects from sale of inventory in ordinary course of business. In this current scenario, the Taxpayers may consider writing down of inventories to net realisable value item by item. But care should be taken while estimating net realisable value in such volatile market conditions, on account of the uncertainties presented by the pandemic.

Arjun (Fictional Character): Krishna, How will this pandemic affect the revenue of an entity?

Krishna (Fictional Character): Arjuna, The Government has issued a list of businesses that can remain open during the lockdown. It is to be noted that only those businesses that are allowed to operate in the period of lockdown can show sales in the month of March, 2020. Due to COVID-19, there could be likely increase in sales returns, decrease in volume discounts, higher price discounts etc. Also there may be goods that may be transit due to lockdown, the same should be properly accounted for in the books.

Arjun (Fictional Character): Krishna, after explaining the income perspective, how should one deal with the expense part?

Krishna (Fictional Character): Arjuna, There are two types of expenses- Fixed and Variable. It is be noted that fixed expenses like rent, salary, depreciation etc. cannot be avoided and should be compulsorily recorded in the books. Utmost care should be taken while recording variable expenses as there are chances of reduction in these expenses. There may be expenses or payments which were required to be made but due to closure of business in the period of lockdown could not be made, Taxpayers are required to be careful and must ensure provisioning of such expenses in the books of account.

Arjun (Fictional Character): Krishna, what lesson should the taxpayer take from this?

Krishna (Fictional Character): Arjuna, the very important thing that COVID-19 has taught all of us is that there is nothing permanent except the change. Only the one who will adapt to changes will be called the real “Yoddha”. 31st March being year ending was very crucial time but due to lockdown accountants and Taxpayers faced lot of difficulties as every work could not be done from home. But they tried to adapt to this unexpected change and worked in the best manner possible. Taxpayers should carefully analyse the books of account with previous year and consider all the deviations occurring due to impact of COVID-19 and plan accordingly to stay safe from any crisis.

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June 2021