Important Compliance obligations to be noted at the time of Financial Year end 2022-23 and commencement of Financial year 2023-24 under GST Laws
As the Financial Year 2022-23 comes to close the following important reconciliation requirements will help in absolute compliance of GST Legislations. Though this article attempts to give a coverage of extensive areas, sort of check list, it is cautioned that it is not exhaustive. Let’s get set and go.
1. The most important exercise is reconciliations & comparing the outward supplies recorded in books and the GST returns (Books, GSTR-1, and GSTR-3B) which can help identify if there are any changes that need to be made as an amendment to the GST returns to be filed prospectively. This will ensure voluntary compliance and avoid needless fines, penalties and disputes.
2. Another very essential process is Comparing GSTR-2B, the ITC register and the purchase register in the books, on an invoice-level basis, which can help track eligible and ineligible ITC and reconcile it to the ITC disclosed in GSTR-3B for the fiscal year. This analysis should also track spill-over transactions and avail all the eligible ITC left unveiled thus far. This will help that input tax credit (ITC) with respect to any credit notes issued would be considered and proportionately reversed.
3. Verify whether Input Tax Credit (ITC) has been reversed for entries related to inventory write-offs, asset write-offs, theft, samples, destruction, obsolete items, etc. which are not eligible in terms of Section 17(5) of CGST Act, 2017 as blocked credits.
4. Check if ITC reversal is required under Rule 37 for non-payment within 180 days or reclaim of any ITC for supplies for which payment has been made. (Recently clarified in table 4B)
5. Verify the timing of availing credit, including receipt of goods/services, as prescribed under Section 16, credits under Reverse Charge Mechanism (RCM), credit on advances eligible / ineligible, etc.
6. Identify expenses and ITC not accounted for through GSTR 2B. Also account for credit where details are not reflected in GSTR 2B and consider deferred input accounts and possible availment of ITC Credits missed.
7. Conducting a comparison between the inventory recorded in books and the physical inventory can help assess if ITC reversal is required and identify accounting lapses or missed out ITC. These analyses will come very handy while preparing Annual returns in Form GSTR 9 & 9C, which is due in December 2023 for the financial year 2022-23.
8. Verifying if the reverse charge mechanism (RCM) paid matches the RCM ITC claimed (excluding ineligible ITC). There are certain Supplies that requires payment of GST for Supplies of Goods and Services as recipient on Reverse Charge basis under Section 9(3), 9(4) & 9(5) of the CGST Act 2017.
9. Verify the timing of availing credit, including receipt of goods/services, Section 16, credits under Reverse Charge Mechanism (RCM), credit on advances ineligible, etc. Identify expenses and ITC not accounted for through GSTR 2B. Account for credit where details are not reflected in GSTR 2B and consider deferred input accounts.
10. Reconciling the e-way bills generated with GSTR-1 can confirm if the e-way bill was required for the supply or not, whether it is taxable supply or not, as e-way bill has to be generated for movement of Goods for reasons other than supply also.
11. The time limit for issuance of credit notes / debit notes for supplies made or agreed to be made and make adjustment for payment Tax is 30th November (through October monthly returns) for the preceding Financial Year. A verification on this aspect along with the respective agreement clauses especially on discounts, Price Variation clauses and the requirement to issue credit notes / Debit Notes will help to discharge the due Taxes and also claim refunds in time.
12. Review and make amendments to GSTR-1 if necessary, such as changing the outward supplies from B2C to B2B or the type of tax. If credit needs to be passed on to customers, ensure it is done before the time limit. Though payment of tax under wrong type will not attract interest liability, but refund of wrong type of tax could be long drawn. Hence this exercise is also quite important. One has to understand that Section 77 (CGST Act) or Section 19 (IGST Act) would be applicable, though no interest implication will be there as per the proviso to respective sections.
13. Ensure tax liability against receipt of advances for supply of services and adjust to derive unadjusted advances in future when the actual supply of services is effectuated.
14. Cross-charge payments towards supplies to distinct persons and related parties especially for the supply of common services is to be checked. Verify that CGST/SGST is paid instead of IGST, and vice versa again correct type of tax payment is mandatory.
15. Check whether any income from other sources is liable or not liable under GST. Ensure that the tax position is clear (e.g., Miscellaneous Incomes, employee recoveries; incentive vs. discounts; interest on delayed payment receipts, additional considerations etc.,).
16. Reconcile the e-invoices issued during the year with the tax invoices generated to avoid future disputes.
17. Re-evaluate and consider the impact of annualised ITC reversal under Rule 42 for exempted as well as taxable supplies, including re-computation, with the exception of duty scrips. Compute Rule 43 for capital goods as per the formula and analyse the impact if performed like Rule 42 for Inputs and Input Services.
18. Verify the correctness of accounting treatment of capital assets before closing the books to optimise input tax credits to check whether depreciation under Income Tax Provisions have been availed so as to avoid dual benefits, which is ineligible.
19. Verify compliance with Input Service Distributor (ISD) provisions, and examine whether Tax has been distributed in right proportion to the turnover as envisaged.
20. Periodically checking for import of goods / services is also important, with reference to (Goods) Bill of Entry (BOE) Vs ICEGATE Vs GSTR 2B to ensure no items are missed out for Tax compliance. Most of these transactions will create liability under Reverse Charge Mechanism – RCM. Also assessment of liabilities on transactions with foreign associated enterprises, based on provision of entries in the books of accounts should also be done as they are also chargeable to GST under RCM.
21. Analyse liabilities that are created on account of various expenses to ensure compliance with GST provisions, especially latest amendments, like payments for freight and transportation (recently FCM @ 5% allowed), Outward freight by Vessel, residential dwellings by commercial entities (not liable since 18.7.22, as per the 48th Council meet), legal expenses for advocates, security services (not applicable when the provider is a body corporate), renting of motor vehicles from non-body corporates (refer to sl. 15 in GST Circular 177/09/2022 for clarity), import of services (with or without consideration) and sponsorship /advertisement / marketing fees and licences to various governments (by CG/SG/LA only, with various exemptions available in NN 12/2017-CTR).
21. On procedural compliance side, submit an application for the issuance or renewal of the Letter of Undertaking (LUT) – GST-RFD-11 for the fiscal year 2023-24 and continue to avail export benefits, including supplies to SEZ.
22. To avail of the benefits of composition levy scheme for the financial year 2023-24, the Taxpayer must file Form CMP-02 on the common portal on or before March 31, 2023.
23. If a registered person has opted for the composition scheme for the fiscal year 2022-23, they should file Form GSTR-4 on or before April 30, 2023.
24. The deadline to opt-in or opt-out of the QRMP scheme is April 30, 2023.
25. With reference to receipt of Export proceeds e-BRC receipt should be verified within nine months a compliance linked to FEMA. Failure to do so raises questions about the eligibility of “zero-rated supply.” Accordingly refund applications should also be filed within the appropriate time limit, taking into account the recent Supreme Court’s decision on the extension of the time limit.
26. The taxpayer should keep track of the status of goods sent on job work or approval and ensure that they are received within the specified time period (1+1 year inputs/3+2 years for Capital Goods as the case may be). If not received on time, the Tax invoice must be raised accordingly.
27. It is mandatory to display the HSN 6 digit level in tax invoices from 01.04.2021 for turnovers exceeding Rs. 5 crore. Ensure that it is correct and upgraded in the accounting software.
28. Obtain GST registration in other states where supplies are made, complying with the concept of fixed establishment, supply, and other requirements. Interest at 18% p.a. must be paid on the utilisation of ITC, only for the applicable tax heads.
29. Commence a new billing series for the financial year 2023-24 effective from 1st April 2023. In addition it should also be noted that starting from 1st April 2023, companies that have had an annual combined turnover of over Rs.10 crore in any financial year between 2017-18 and 2022-23 are required to generate e-invoices.
Before bidding adieu…..
With the ensuing new financial year 2023-24, every registered person under GST should realize that compliance to legislative GST obligations demands a greater level of application, focus and diligence, now than ever before. Taxpayers must ensure that not only they themselves comply with regulations, but confirm that their vendors do it as well lest there could be unwarranted disputes. So, the fact of the matter is that meeting all these legislative expectations necessitates that the taxpayer must establish a robust internal control, the adopt the available technology more effectively, the develop of standard operating procedures for indirect taxation with adequate checks and balances and periodically educate their GST compliance team to ensure seamless acquiescence.