GST is now in its 6th year since implementation in July 2017 in India. During these 6 years, there have been more than 1000 notifications, circulars and instructions for taxpayers and adjudicating authorities. The non-constitution of Appellate Tribunal has resulted in a significant rise in the number of petitions filed before the High Court and Supreme Court to grant intermittent or instant relief against arbitrary interpretation and application of provisions of GST laws by the adjudicating authorities.
To avoid this hustle and ensure timely and accurate compliance with the provisions of GST law, it is necessary that before the financial statements are finalized, the taxpayer should undertake various checks and reconciliations. The subsequent paragraphs enlist some of the important activities to be undertaken by taxpayers to ensure GST compliance and avoid scrutiny and litigation –
1. OUTWARD SUPPLIES:
- Reconcile the revenue from operations, other income as per financial statement and sale of fixed assets as per books of accounts with GSTR-1 and GSTR-3B. In case of any differences, do requisite change in the books of accounts or in the GST returns, as the case maybe.
- Reconcile the debit notes and credit notes as per books with GSTR-1 and GSTR-3B and differences, if any, shall be accounted for accordingly.
- In case of exempt supplies, ensure Bill of Supply is issued by the Company and reported in GST returns.
- In case of supply between related parties, verify whether provisions of Section 15 – Valuation of CGST Act, 2017 read with Rule No 28 of CGST Rules, 2017 is followed by the taxpayer.
- Reconcile the invoices / credit notes / debit notes as per books with e-invoice portal to ensure that IRN is generated for all B2B, exports and SEZ supplies.
- In case of export of goods, reconcile the shipping bills details with GSTR-1. This is necessary for claiming the refund of unutilized ITC / GST paid on export.
- In case of supply of services, reconciliation of advances received and adjusted as per financials with details in GST return and whether applicable tax has been discharged on same.
- Calculate the aggregate turnover of the Company as per GST law and reconcile the same with aggregate turnover generated by system on GSTN portal. Aggregate turnover is also crucial for various other GST provisions such as applicability of Composition Scheme, QRMP scheme, number of HSN / SAC codes applicability etc.
2. INWARD SUPPLIES:
- Reconcile the ITC available as per GSTR-2B with ITC availed as per financials and GSTR-3B. If any differences, appropriate action (availment or reversal) shall be undertaken.
- Communicate the vendors for supplies not reflecting in the GSTR-2B of the Company. ITC in respect of invoices not reflected in GSTR-2B is not allowed.
- If there is any exempt income undertaken during the financial year, ITC reversal shall be re-calculated and considered in accordance with Rules 42 and 43 of CGST Rules at the end of year. Any additional reversal required shall be accounted for in GSTR-3B of March 2023. Alternatively, if excess ITC has been reversed by the Company during the year, such excess ITC can be reclaimed in March 2023 GSTR-3B.
- Verification of creditors aging report to identify invoices wherein payment is due for more than 180 days and ITC claimed in respect of supplies from such vendors shall be reversed. The ITC reversed by the Company can be re-claimed upon making payment to the vendor.
- To identify the ineligible ITC recorded in books and ensure same is expenses off or capitalised (as the case maybe). If such ineligible ITC has been availed and utilized, same shall be reversed along with interest @ 18%.
3. REVERSE CHARGE MECHANISM SUPPLIES:
- To identify all expenses subject to RCM (director sitting fee and legal expenses etc.) and reconcile the same with RCM liability discharged in GSTR-3B. The differential liability if any shall be discharged along with interest as per time of supply provisions.
- Reconcile the foreign expenditure as per financials with import of services disclosed in the GST returns.
- To verify the self-invoices issued for supplies subject to RCM provisions.
- ITC availed in respect of RCM transactions shall be equal to or less than GST liability discharged under RCM.
4. ADDITIONAL POINTS FOR CONSIDERATION:
- In case of year end discounts given by the taxpayer to its agents, the GST impact of same is duly accounted for in the books and GST returns.
- To verify whether export proceeds are received in convertible foreign exchange accompanies by FIRCs or BRCs.
- In case of goods sent for job work, ensure job work challan and e-way bill was generated for movement of goods. In case the inputs are lying with job worker for more than 12 months, GST needs to be discharged on same.
- Reconcile the GST receivable or payable as per financials with the closing balance as per electronic credit ledger on the GSTN portal. Similarly, reconcile the GST cash ledger in the financials with electronic cash ledger on the GSTN portal.
- Identify the common expenses incurred for related or distinct persons on which ITC has been availed by the taxpayer. The taxpayer needs to cross-charge such expenses to the respective entities / GSTIN of the same entity on the basis of turnover (or such other reasonable method of allocation as applicable to the industry).
- To ensure that place of supply provision have been complied with in respect of supplies undertaken by Company.
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Disclaimer: The above article is based on the author’s understanding and view of the tax laws, tax rules, the relevant circulars, and notifications. Please refer to the latest law and consult the author before forming any opinion basis the information provided above as tax laws are subject to frequent changes. The author is not responsible for any issues arising because of opinion based on the above article without consultation. In any manner whatsoever, the views expressed in this article should not be construed as the views of the firm, the author is associated with. The author can be contacted at [email protected].
The article is co-authored by CA Parmee Mehta
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