Since this is first year closing under new Indirect Taxation regime i.e. Goods & Services Tax. It is very important for all the registered person to examine the applicability of GST and liability to pay GST on the provisions/unbilled incomes/closing entries etc. in line with the Companies Act, Accounting Standards as well as ICDS under Income Tax. Hence, intent of this article is to provide clarity on the issue regarding the recognition of income (without raising invoice to the respective parties) at the end of the financial year say March 2018 and the appalicability of Goods and Service Tax on such income recognized. In other words, when the supplier has provided the supply of services before the end of the financial year say March 2018, but the invoice for the same has not been issued till 31st March 2018.
In view of providing the clarity on the above issue, we are hereby presenting the applicability of Goods and Services Tax as well as accounting treatment with relevant extracts of the respective Rules and Acts.
As we are discussing the booking of revenue at the end of the financial year, so the first requirement to start this article is to quote the relevant extracts of Accounting Standard – 9 for the purpose of recognition of revenue in case of service rendered.
|ACCOUNTING STANDARD – 9|
Relevant extracts from the Accounting Standard – 9 relating to the revenue recognition in case of rendering of services have been enumerated below: –
Revenue Recognition for service rendered;
Revenue from service transactions is usually recognized as the service is performed, either by the proportionate completion method or by the completed service contract method.
1. Proportionate completion method—Performance consists of the execution of more than one act. Revenue is recognized proportionately by reference to the performance of each act. The revenue recognized under this method would be determined on the basis of contract value, associated costs, number of acts or other suitable basis. For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue is recognized on a straight line basis over the specific period unless there is evidence that some other method better represents the pattern of performance.
2. Completed service contract method—Performance consists of the execution of a single act. Alternatively, services are performed in more than a single act, and the services yet to be performed are so significant in relation to the transaction taken as a whole that performance cannot be deemed to have been completed until the execution of those acts. The completed service contract method is relevant to these patterns of performance and accordingly revenue is recognized when the sole or final act takes place and the service becomes chargeable.
As it has been clear from the above extracts of Accounting Standard – 9, that once the service has been completed or partial completed (in case of partial completion method), the revenue should be recognized in the books of accounts in spite of the fact that the invoice for the service has been issued or not.
Now let us consider the Goods and Service Tax applicability on the above which has been booked as income in the books of accounts, but the invoices for the same has not been issued.
|SECTION 13 OF CGST ACT|
To check the point of time of supply and liability to pay tax under Goods and Service Tax on the above income we need to understand the provisions prescribed under Section 13 of CGST Act. The relevant extracts have been enumerated below: –
13. Time of supply of services. —
(1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.
(2) The time of supply of services shall be the earliest of the following dates, namely :—
(a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or
(b) the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or
(c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply :
Provided that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice relating to such excess amount.
Explanation. — For the purposes of clauses (a) and (b) —
(i) the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment;
(ii) “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely :—
(a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
(b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier :
Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply :
Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.
(4) In case of supply of vouchers by a supplier, the time of supply shall be —
(a) the date of issue of voucher, if the supply is identifiable at that point; or
(b) the date of redemption of voucher, in all other cases.
(5) Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall —
(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or
(b) in any other case, be the date on which the tax is paid.
(6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value.
Hence, the general rule for determination of time of supply of goods or services are as under;
Time of supply of services (Default Rule)
Earliest of the following dates:
a. Date of issue of invoice by the supplier (If the invoice is issued within the legally prescribed period under section 31(2) of the CGST Act) or the date of receipt of payment, whichever is earlier.
b. Date of provision of service (If the invoice is not issued within the legally prescribed period under section 31(2) of the CGST Act) or the date of receipt of payment, whichever is earlier.
c. Date on which the recipient shows the receipt of service in his books of account, in case the aforesaid two provisions do not apply.
|SECTION 31 OF CGST ACT|
Further as per Section 31 of CGST Act for issuance of Tax Invoice;
31(1) An invoice for supply of goods needs to be issued before or at the time of removal of goods for supply to the recipient, where the supply involves movement of goods. However, in other cases, an invoice needs to be issued before or at the time of delivery of goods or while making goods available to the recipient.
31(2) Similarly an invoice for supply of services needs to be issued before or after the provision of service but not later than thirty days from the date of provision of service.
|Now let us understand the accounting treatment of the above issue with the help of an example.|
Example: – We have provided the Taxable service in the month of say March 20, 2018, however the invoice for the same has been issued to the party in the month of April 05, 2018.
Accounting Treatment at the end of the Month of March 31, 2018: –
At the time of booking the Income for the service rendered as well as corresponding expenses we don’t need to book the Goods and Services Tax liability and accordingly following sets of entries will be made;
|On 31st March 2018|
1. For Expenses Booking
Unbilled contractor Expenses Dr. Rs.1000
By TDS Payable Rs. 20
By Unbilled Creditors Rs. 980
- For Income Booking
Unbilled Debtors Dr. Rs.1078
Advance Tax Dr. Rs. 22
By Unbilled Contract Income Rs.1100
|On 1st April 2018|
- Reversal of Expenses booking
Unbilled Creditors Dr. Rs. 980
Creditors (Actual) Dr. Rs. 20
By Unbilled contractors expenses Rs.1000
- Reversal of Income booking
Unbilled contract Income Dr. Rs.1100
By Unbilled Debtors Rs.1078
By Advance Tax Rs. 22
Now, the actual bills for the unbilled revenue accounted in March 2018 will have to be issued in April 2018 itself in the line of above provisions so as to avoid interest and litigation on non-compliance of time of supply. If the invoices for the unbilled revenue for completed work are not issued within 30 days of completion of work, time of supply would be date of making such supply and not date of invoice.
Now from the above example, it is very clear that the invoices for the work completed till 31.03.2018 has to be raised on or before 30.04.2018 and point of taxation would be date of invoice and tax would be required to be paid accordingly on 20th on next month that is 20.05.2018.