We have been hearing since time immemorial about Busy In Closing from many aspects be it the accounts department, be it the businesses, or any organisation with sales targets, stock targets, inventory valuation reports, stock taking and many other aspects.
Often, it has been seen that number of businesses tends to miss this important aspect of Financial Year Closing. It is very imperative to focus on the financial year ending tasks.
It is advisable to do the following tasks and keep the suitable documentary evidences ready for accounting purposes, audit purposes, any assessment purposes and last but not the least for transparency and sound accounting practices.
The article below has been divided into Important tasks being
A. Compliances Tasks
B. Input Tax Credits Tasks
C. Reconciliations Tasks
D. Law Related Tasks
Ensure creation of a new/unique invoice series of invoices to be raised from 01 April 2021.The underlying concept is that every invoice need to be unique. Now, unique means there should not be any duplication or repetition. When the invoice will be entered while filing Gstr 1, the GSTN portal should not catch it up as repetitive for the same financial year. The word is same financial year. That means the invoice serial number should not repeat within the same financial year.
2. E- Invoicing:
The Govt has ruled mandatory E invoicing for turnover above Rs.500 crores wef 01st October 2020 and for turnover above Rs.100 crores wef 01st January 2020. Now, the businesses with turnover above Rs. 5 crores may have to mandatorily issue E invoices wef 01st April 2021 (Such Proposal is under Consideration of Government). Now, the businesses have to check for their preparedness, have to finalise the accounting software and run the trial runs so that they are ready before 31st March.
3. ITC not available without E Invoicing
Businesses need to focus that ITC will not be available to the purchaser if E invoicing is not adopted in time. This can strain the relations and can crop up a dispute between the purchaser and the seller and can lead to loss of business also, if it is not adequately complied with.
4. QR Coding
QR code on B2C (URP- unregistered party) supply invoices by person above 500 crores turnover is required to be printed from 01st April 2021. If the same is not complied with from 01st April 2021, they will be liable for penalty on all B2C supply wef 01st December 2020.
5. HSN code requirements
As per notification no 78/2020, new HSN codes rules will apply wef 01st April 2021 as below:
Up to 1.5 crores turnover – 4 digits
1.5 crores to 5 crores turnover – 4 digits
Above 5 crores turnover – 6 digits
It is imperative to adopt the accounting software for implementation of HSN code new system.
6. Aggregate Turnover:
This is very important. Aggregate turnover –
“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.
Inclusion in calculating Aggregate Turnover :- Taxable supply, exempt supply, Nil Rated supply, Zero rated supply, Non GST supply and supply to distinct person ,need to be included in calculation of aggregate turnover.
There can be situations where GST aggregate turnover will be different from balance sheet turnover. Stock/ branch transfers/cross charges shall form part of Gst turnover but on analysing balance sheet turnover, such would not form part of financials since the effect is turnover neutral.
Now, the aggregate turnover is a determining factor for the following decisions:
a) Whether to file GSTR 1 in the year 2021-22 on quarterly QRMP scheme or on monthly basis
b) Whether to mention HSN codes or how many digits to be mentioned; turnover up to 5 crores need to mention 4 digits, turnover above 5 crores need to mention 6 digits compulsorily. Total 8 digits are there in HSN/SAC codes
c) Whether to opt for composition scheme dependent on turnover; (turnover threshold being 1.5 cores, 75 lacs and 50 lacs for different businesses)
7. Debit or Credit Notes
In case of any discrepancies between the sales or purchase returns, the required necessary Debit note or Credit notes have to be raised to keep our records for the purpose of department audit trial.
8. RCM – Reverse Charge Mechanisms
For any inputs and tax paid on Reverse Charge Mechanisms, the same should be supported by reverse charge Self Invoices. These invoices need to be generated for reverse charge paid and input taken on supplies received from unregistered suppliers. The invoice sequence and series to be maintained which would form part of Gst 1 filings. The tax authorities can also ask for the documentary evidence on the basis of which itc has been taken, the self invoices would come as handy here with.
9. Updations in GST RC
Top 5 commodities and/ or services need to be updated on Gst RC system to ensure to accommodate/ add any new line of business within the year. Similarly, any updation or amendment with respect to address or constitution of business need to be ensured to be matching with the actual scenarios.
10. ITC Reversal Second Proviso to Sec 16(2)
Where a recipient fails to pay to the supplier of goods or services or both (other than the supplies on which tax is payable on reverse charge basis), the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed – second proviso to section 16(2) of CGST Act. If partial payment is made, the reversal will be proportionate to the amount not paid to the supplier. If the recipient later makes payment to supplier, he can take credit of input tax – third proviso to section 16(2) of CGST Act.
Reverse ITC on instances where the Company has not paid the consideration to the Supplier within 180 days from the date of supplier’s invoice. Keep the Creditors reconciliation ready for the invoices above 180 days and take appropriate actions.
11. Restricted ITC as per 36(4):
Ensure availing credit as per the 36(4) of CGST Rule 2017, though you might have received goods or services along with Invoice copy but the 95% restricted credit, depends on the number of Invoices uploaded in portal. Eg. Your 100% credit is eligible only when your supplier has uploaded the invoices to the extent of 95% in portal for the particular month. From 09th October 2019 till 31st December 2019, the rule was for 20% availment. From 01st January 2020 till 31st January 2020, the rule is of 10% availment. For the successive months of Feb, Mar, Apr, May, June, July, Aug 2020, the cumulative impact of 10% rule need to be adjusted in Sep 2020 Gst 3B return as part of Covid 19 Relief measures.
Since the new return date extended till Sep’2020, restricted credit is applicable till new return is going to come. The same has been revised to 5% availment of the eligible credit available in GSt 2A wef 01st January 2021.
Keep monthly reconciliation between Purchase ledger Vs Portal to provide this information during department audit or query from Tax dept.
12. Blocked Credit:
Section 17(5) requires reversal of credit in the case of goods lost, stolen, destroyed, written off etc. The companies are likely to decide about the writing off any inventory, if any during the year end closing by March 31, 2021. In such cases, ITC attributable to such goods shall be reversed. Also, such blocked credit need to be identified and the itc need to be reversed, if ITC wrongly taken with interest @ 24%.
13. Job work:
Ensure that the inputs sent out for job work activity have been received back within one year from the date of being sent out and three years in case of capital goods sent for job work. If not received back, the same will be treated as supply for Gst payments and would entail interest outgo of 24%.
Material delivered directly to Job work premises, or Direct supply from Job work etc., needs to be looked into. Job work material delivered directly to Customer, after process, needs to be looked into.
Periodical reconciliation would help to ensure that the goods are received within the time lines or within the extended time period.
ITC-04 Return will be important one for the year 2020-21 towards job work transactions and the same need to be seen whether the goods sent for job work on 01st April 2020 need to be received back by 31st March 2021. (although there was lockdown in April 2020 and the dates got extended, hence the material sent on job work basis even before 01st april 2020 need to be checked from the jon work register to ensure its smooth receipt back in the factory premises.
14. Reconciliation of GSTR 1 with GSTR 3B
The outward supplies as per Gst 3B need to be reconciled with Gst 1; in case there is 3B turnover is less, identify it and pay tax with interest @18% as soon as possible. In case, 3B turnover is more, identify with the sale bills/ invoices and if extra tax paid, the same to be noted for future adjustments.
15. Reconciliation of Gst 3B with the ITC on purchases
In case, itc taken in 3B is more than the actual purchase invoices, the same need to be reversed and paid back with interest @24%. And in case, 3B itc is less than the eligible purchase invoices, the same need to be claimed immediately. The main step is to identify them.
16. GSTR 3B/GSTR 1 entries VS Accounting entries
There have been many occasions when the accounts team makes the corrections of the above reconciliations in Gst returns but the same is not reflected in the accounting entries. The book entry need to be done simultaneously with the Gst corrections so as to present a fair picture.
17. Reconciliation of E Way Bills with Gst 1 and further with Gst 3B
There can be instances where EWBs sales are more than Gst 1 sales. That need to be checked with sale invoices and tax need to be paid, if required and similarly, if EWB sales are less than Gst 1 sales, that need to be reconciled. There can be cases where there is no requirement of E way bill generation and the sale bills have been issued. The above need to be done firstly to reconcile our books with Gst returns
Secondly, it would be useful while conducting Financial audits and Gst audits and annual return
Thirdly, the same would be a ready substantive evidence, in case the notices come from the authorities for mismatch in EWB vs Gst 1 or 3B sales.
The corrective actions can be taken promptly right now.
18. Reconciliation of Gst 1/3B Sales with balance sheet sales
This is an important step assuming above steps have been done and would come handy while income tax and gst audits and annual returns.
19. Reconciliation of ITC ledgers:
It is advisable to reconcile the GSTR-1 & 3B, cash ledger and credit ledger as per GSTN portal with the books of accounts. Tax wise Credit, cash ledger need to be matched with the respective ledgers as per books of accounts.
20. Reco of GSTR 2A with the purchase invoices
It is highly recommended to the companies to download all GSTR 2A for F.Y. 2020-21 and record all the GST inputs excluding the ineligible ITC claims. If any of the input is not mentioned in GSTR 2A, then the accounts team is required to follow up with the vendors and inform the management so it can be rectified immediately.
21. B2B, B2C Reconciliations
B2B and B2C sales need to be reconciled with the Gst 3B/ 1 with the books of accounts. This need to be done for a fairer picture and to avoid an event in future where, B2B sales wrongly shown as B2C sales and the receiver is not able to get the credit as per his 2A and asking for the tax and interest liability thereon.
22. Expense Provisioning:
Expense provisions with respect to import / domestic services with associated entities would have possible GST implications under reverse charge mechanism (RCM). The accounting entries need to be analyzed in detail with supporting workings. If the provision is being made, RCM tax need to be paid as per the provisions.
23. Cross-check for income on which Zero or partial GST is paid –
For cases where GST on income is not paid or paid at lower rates, do take corrective action. And for export supplies, make sure you have proper LUT for the concerned financial year.
24. Letter Of Undertaking
The LUT need to be in place for the coming financial year 2021-22 before 01st April 2021 so that the exports don’t get stuck at the last moment.
25. Books Stock vs Physical Stock
Physical stock need to be reconciled with the stock as per books of accounts. This would be handy in both income tax and gst audit. In case of any discrepancies, the possibility of itc reversal should be taken into account.
26. GST on advanced payments
One must make sure that GST has been paid on advances received from customers as on 31.03.2021.
27. Refund for FY 2018-19
The last date to apply for a refund of GST related to FY 2018-19 is 31.03.2021. Ensure to timely make the compliances, if applicable.
28. Cross Charges
Cross charges are the supplies made by the Head office to branch offices or vice versa. The same supplies need to be identified and the provision need to be done and the respective invoice need to be raised for common services. The tax effect would be neutral since for one distinct person, it is an ouput liability and for the other, it would be an input tax. AAR, in a case pertaining to Columbia Asia Hospitals, had said such activities would qualify as a service provided by head office to other locations and hence companies are required to be cross charged and levy GST on the same
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