The annual income tax audit for most of the taxpayers has just came to end and as we are heading towards the end of calendar year 2018, now it’s time for annual filing and audit under GST law.
GST Council in its 31st meeting held on 22nd December 2018 has extended the due date for filing of Annual return for FY 2017-18 in FORMs GSTR-9, annual return for composition taxpayer in Form GSTR-9A and due date for GST audit in Form GSTR-9C from 31st March, 2019 to further 30th June 2019. The due date earlier was extended from 31st December 2018 to 31st March 2019 to vide Press Release Dated 7th December, 2018.
FORM GSTR-9 and FORM GSTR-9A have been notified vide notification No. 39/2018-Central Tax, dated 04.09.2018 while FORM GSTR-9C has been notified vide notification no. 49/2018-Central Tax, dated 13.09.2018 as part of the CGST Rules.
Every registered dealer whose turnover during a financial year exceeds the Rs 2 crore has to get his accounts audited by a Chartered Accountant or a Cost Accountant. The term financial year has not defined under the Act and under normal parlance and as per general clauses act financial year runs from 1st April to 31st March, but, however, GST law has come into force from 1st July 2017, hence, the financial year for 2017-2018 for the purpose of this audit would mean from 1st July 2017 to 31st March 2018.
For entities who were liable for VAT provisions in first three months of FY 2017-2018 has to get their accounts audited even under the provisions of VAT for the period April 2017 to March 2017.
If the company or firm has branches in other states then as per the requirement of GST Act the audit is required to be carried out for FY 2017-18 for all such separate state wise registrations and to issue separate audit report / statement as prescribed under GST Act for each registration.
A plain reading of the relevant provisions of the GST law indicate that the annual return in GSTR 9 and reconciliation statement in GSTR 9C must be filed together. However, on going through the form GSTR 9C there are certain tables which refer to the details which are reported in GSTR 9 which indicates that GSTR 9C is followed after GSTR 9.
GST audit in Form 9C has two parts to it i.e., reconciliation and issuing a certificate by the auditor. Part A reconciliation will have to be done for annual gross turnover, annual taxable turnover, amount of taxes paid and input tax credit. We will discuss the most important aspects and practical approach to each of this reconciliation in brief.
Reconciliation of turnover declared in audited financial statements with turnover declared in annual return
The essential aspects to be looked into in each of the table have been discussed below:
|5||Reconciliation of Gross Turnover|
|A||Turnover (including exports) as per audited financial statements for the State / UT||A taxpayer having single GSTIN, the turnover amount can be fetched from audited financials. In cases where taxpayer has multiple registrations the auditor has to carve out trial balance for each GSTIN from the consolidated trial balance which is as per the audited financials.
The turnover will include direct income and indirect income like dividend, interest, forex fluctuation, profit on sale of asset etc. Any amount of return supplies credited to purchase or expenditure will not be included for arriving at turnover.
The inward supplies received by taxpayer on which tax has been paid on RCM should not be included while arriving at turnover. Like tax paid on RCM cannot become output tax, inward supplies on which RCM has been paid cannot become outward supplies i.e., turnover.
|B||Unbilled revenue at the beginning of Financial Year||Unbilled revenue will appear in the profit and loss of the previous year on which GST is payable. However, taxpayer should be careful to exclude invoices raised from such opening unbilled revenue during the period April to June 2017 since GST regime has come from July 2017.
Opening unbilled revenue to be reconciled with transition declaration in GSTR form TRAN 1.
|C||Unadjusted advances at the end of the Financial Year||Adjustment has to be made for following advances which has not been included in revenue:
Auditor has to examine whether taxpayers has discharged tax on advances till 15th Nov, 2017 (except composition taxpayers) for supply of goods. For supply of services GST has to be discharged on any advances received.
No adjustment is required is for advances received for exempted services, advances on goods received after 15th Nov, 2017, financial advances like loan and deposits received.
|D||Deemed Supply under Schedule I||Deemed supply which is not part of turnover in audited financials but on which GST is payable. Eg: permanent transfer/disposal of fixed asset where ITC has been availed, supply of goods or services between related persons, intra company transactions like stock transfer, supply of goods by principal to his agent and vice versa, import of services by a taxable person from a related person.
|E||Credit Notes issued after the end of the financial year
but reflected in the annual return
|The circumstance wherein credit notes issued after 31st March 2018 in respect of supply accounted in FY 2018-2019 but such credit notes were reflected in GSTR 9 for FY 2017-2018; is very uncommon. For most of the time, this s.no. may be nil.|
|F||Trade Discounts accounted for in the audited Annual
Financial Statement but are not permissible under GST
|Trade discounts can be in various ways and manners like special discounts, rebates, remissions, compensations, bonus, incentive/commission etc. The ITC attributable to such discounts to be checked if the same has been reversed by the recipient resulting in ITC being reflected in GSTR 2A of the supplier.
The taxpayers have to obtain confirmation from the customers that they have reversed ITC in relation to credit note w.r.t trade discounts.
|G||Turnover from April 2017 to June 2017||Match the turnover of April 2017 to June 2017 with that of excise returns, VAT returns, service tax returns for cross verification. Further, such reconciliation ought to tally with the declarations made in GSTR TRAN 1 form.|
|H||Unbilled revenue at the end of Financial Year||Similar to the discussion made in 5B, 5C and 5E above.|
|I||Unadjusted Advances at the beginning of the Financial
|J||Credit notes accounted for in the audited Annual
Financial Statement but are not permissible under GST
|K||Adjustments on account of supply of goods by SEZ
units to DTA Units
|Such outward supplies are not required to be reported by SEZs in their GST returns and hence the data cannot be retrieved from the returns filed by SEZ. Such details to be considered from the bill of entry filed for goods supplied by SEZ to DTA units.
|L||Turnover for the period under composition scheme||A taxpayer registered under the composition scheme who has opted out of the scheme should file both GSTR 9 and GSTR 9A.|
|M||Adjustments in turnover under section 15 and rules
|There may be cases where the taxable value and the invoice value differ due to valuation principles u/s. 15 of the Act and Rules thereunder, such valuation differences in turnover to be declared here.
A detailed background material issued by ICAI will help taxpayers to identify cases where such valuation rules will come into play.
|N||Adjustments in turnover due to foreign exchange
|Foreign exchange is purely an accounting concept and do not form part of the GST returns.|
|O||Adjustments in turnover due to reasons not listed above||The examples for adjustments would include transactions like physician sample distributed by the pharma companies to physician for free, notice pay recovered from employees, gifts given to customer vendors/distributors, stocks issues to discharge CSR obligations, incentives/rebates received from supplies and considered as supply under GST, sales promotion/advertisement reimbursement received and considered as supply.|
|P||Annual turnover after adjustments as above||Auto populated|
|Q||Turnover as declared in Annual Return (GSTR9)|
|R||Un-Reconciled turnover (Q –P)|
Reconciliation of taxable turnover
The table provides for reconciliation of taxable turnover from audited financials after adjustments from 5P above with the taxable turnover in annual return in GSTR 9
|7||Reconciliation of Taxable Turnover|
|A||Annual turnover after adjustments (from 5P above)||Auto populated|
|B||Value of Exempted, Nil Rated, Non-GST supplies, No-Supply
|7B essentially comprises supplies
· taxable at NIL rate of tax currently there are no goods/services under NIL rate category;
· supplies that are wholly or partially exempted from GST by way of notification like milk, water, education service, health care service etc.;
· non-taxable supplies like alcoholic liquor for human consumption;
· activities covered under schedule III which are not supple for goods or service like sale of land, betting, gambling etc.
|C||Zero rated supplies without payment of tax||Zero rated would include export of goods or services and supply of goods or services to SEZs either by payment of tax or without payment of tax upon filing letter of undertaking. Zero rates supplies without payment of tax should be declared in 7C. Zero rates supplies on payment of tax shall for part of turnover to be arrived at 7F.
Auditor has to exercise due caution if the LUT is not filed and the tax is also not remitted. In such scenario, exemption claimed should not be disallowed merely on ground that LUT is not filed. In this regard, Circular 37/11/2018 dated 15.03.2018 has clarified that substantial benefits of zero rates supplies should not be denied if it is established that the goods or services have been exported. Auditor is suggested to include a note in this regard.
|D||Supplies on which tax is to be paid by the recipient on reverse charge basis||This includes supplies made by the supplier, on which tax is to be paid by the recipient. The expenses on which tax is paid by registered person as recipient of service should not be inserted in this column.|
|E||Taxable turnover as per adjustments above (A-B-C-D)|
|F||Taxable turnover as per liability declared in Annual Return (GSTR9)|
|G||Unreconciled taxable turnover (F-E)|
Reconciliation of tax paid
Table 9 requires to provide details of taxes paid by the registered person taxable value segregated by rate wise, and inward supplies on which the given registered person has paid tax under RCM as per audited financials. Further, the total tax liability as per GSTR 9 is also required to be disclosed. The table also requires to disclose interest, late fees and penalty payable.
The purpose of the given table is to quantify unreconciled tax payable and other amounts like interest and penalty. Any difference will help the auditor to report additional tax liability which is to be paid in Part V of GSTR 9C.
The total taxable turnover reported in Table 7E to be dissected rate wise for outward supply. On similar manner inward supplies to be identified and reported on which GST is paid on RCM.
The details in this table to be reconciled and cross checked with the summation punched in table 9 under part IV and table 14 under part V of GSTR 9 i.e., details of amount paid through cash and through ITC during the said FY and also details of tax paid from GSTR 3B for differential/additional tax liability declared in GSTR 1 for period April 2018 to September 2018. Care to be taken that details of tax paid from all these places to be fetched and not tax payable.
Auditor has to report the amount of tax payable in Table 11 on account of reasons for unreconciled amounts specified under table 6, 8 and 10 of GSTR 9C. Table 11 requires disclosure of additional tax liability payable and not paid on non-reconciliations, it is evident that such details shall be reported in table 10 also.
Reconciliation of Input tax credit (ITC)
|12||Reconciliation of Net Input Tax Credit (ITC)|
|A||ITC availed as per audited Annual Financial Statement for the State/ UT (For multi-GSTIN units under same PAN this should
be derived from books of accounts)
|B||ITC booked in earlier Financial Years claimed in current
|Transitional credit which was booked in earlier years but availed during FY 2017-2018 should be declared here and cross verified with TRAN 1 form.
From FY 2018-2019 & onwards this column would be the same amount as reported in column 12C below
|C||ITC booked in current Financial Year to be claimed in subsequent Financial Years||The credits may not have been taken by registered person in following circumstances:
· Credit is not taken until the supplier filed GSTR
· Where the taxpayer has not satisfies the conditions to claim credit
· Where the policy is to claim credit on payment basis
· Where the policy is to claim credit when goods are received
|D||ITC availed as per audited financial statements or books of account|
|E||ITC claimed in Annual Return (GSTR9)|
Reconciliation of ITC declared in annual return with ITC availed on expenses as per audited financial statements or books of account
Table 14 as mentioned above is required for auditor to verify and examine the claim of input tax credit to determine the available ITC as booked in ledgers of various expenses is not ineligible or unavailable ITC as per the books of accounts, suitable disclosures are to be made. This table 14 is another way of representing the detail of clause 12 and clause 13 of the same form. In clause 14 instead of analyzing ITC on overall level like in clause 12 and 13; here the ITC provided expenses wise.
This article provides basic understanding to the readers and provides only an insight, however, there could be several issues in real time situations and business environment. Auditor is required to exercise his caution and due diligence based on facts and circumstances of each case.
(Ms. Dipika Shah is Partner with Mohan C Shah & Associates, Ahmedabad. The views expressed are strictly personal.)