Discover essential compliance requirements when closing year-end financial statements. Ensure adherence to laws and regulations to maintain accuracy and reliability.
Supplements to year end financials
With the year ending around the corner i.e. March 31st comes cumbersome and technical process of closing books of accounts while ensuring systematic maintenance of the same and complying with applicable laws. The article briefs about the general compliances to adhere to while closing the financial statement and plan for the upcoming one.
Business transactions are recorded on accrual basis except for few on payment basis or cash basis to say. Outstanding liabilities and accrued incomes are recorded to derive at actual financial volume and assist in analytical assessment. Expenses or incomes pertaining to the previous year are to be considered in that previous year while calculating Net taxable profits. Unbilled revenue should also be considered in the year of the actual sale and receivables to be recorded corresponding the same. According to section 29 of the Income-tax Act, 1961 the profits and gains of any business are to be computed in accordance with the provisions contained in sections 30 to 43D.
Non-cash transactions such as depreciation are to be recorded at the year end and deferred tax assets/liabilities to be considered in Income statement. Refer https://taxguru.in/income-tax/depreciation-ay-2020-2021-income-tax-act-1961.html
Certain deductions are allowable on payment basis such as bonus or commission paid to employees while in employment, contribution to provident/superannuation/gratuity fund within specified dates, any sum paid by employer in lieu of earned leave of his employee. It has been clarified that sum payable as contribution to the employee’s account in the relevant fund when paid within specified date of the related Act shall be allowed as deduction whereas employer’s contribution shall be allowed if paid before due date of filing of income tax return as applicable. Any delay in payment of the employee’s contribution shall amount to disallowance. It is recommended to pay off delayed contribution before due date of filing returns to avoid disallowance of employer’s contribution. Rules for Professional taxes differs from state to state where in some cases beyond a certain amount only annual returns to be filed.
Interest on loans and advances from specified institutions/corporations/banking company/ banks standing payables as on March 31st paid before filing of returns shall be allowed as deduction. The deduction will be allowed in the previous year in which the converted interest is actually paid.
Penalties are not allowed as deductions. CSR expenditures are not in the nature of business expenditure hence to be disallowed. Personal expenditures cannot be claimed as deductions. Any expenditure beyond Rs. 10,000 in cash and not via prescribed mode of payment shall be disallowed except for transactions mentioned in Rule 6DD of the Act. Such disallowances are to be added and then derive at taxable profits. All other passive incomes shall also be taxable and some might be classified under different heads like Rental incomes might fall under Income from house property, Interest incomes under Income from other sources similarly profit or loss on sale of fixed assets under capital gains etc.
Expenses on which TDS was to be deducted in case of sum payable to resident but hasn’t been will be disallowed to the extent of 30% of such expenditure. Even if TDS has been deducted but is unpaid till due date of filing return shall be disallowed. Such proportionate amount of expense on which TDS was ought to be deducted when paid shall be allowed as deduction in subsequent year Filing of TDS itself is quite a management, besides monthly payments an assessee has to file quarterly returns. Some of the convenient way is to maintain the same on monthly basis reconciling with books of accounts so that the mistakes can be rectified in the quarter itself to reduce penalties and interest liabilities and correct payment to authority is made. Now should be the appropriate chance to rectify the mistake and clear off all the TDS liabilities to avoid any disallowances. There are quarterly returns filed i.e. 24Q, 26Q, 27Q for different categories failing which results in penalty on daily basis. If any return is missed to be filed then file the same after reconciling the numbers with books of accounts. Login to traces and check for any outstanding demands or any pending actions to process return without defaults. Download jurisdictional reports for better understanding and assurance of no defaults. Download the relevant untarnished forms 16/16A/TBR after all compliances.
Where an obligation to pay advance tax has arisen, the assessee shall compute the tax liability on his current income and deposit the same. Any tax payment before 31st March is defined as advance tax only. Though for the purpose of calculation of interests, due dates are to be considered. While acknowledging advance tax payment, TDS receivables will also be considered. For systematic and authentic basis, fetch Form 26AS from portal which summarises Tax deducted on the PAN of the assessee. If there is any deviation in the records then assessee can contact the deductor and get the same rectified before year end. AIS is the extension of Form 26AS. Form 26AS displays details of property purchases, high-value investments, and TDS/TCS transactions carried out during the financial year. Annual Information Statement (AIS) additionally includes savings account interest, dividend, rent received, purchase and sale transactions of securities/immovable properties, foreign remittances, interest on deposits, GST turnover etc.
With world turning into global village, it becomes easier to conduct business overseas and most overlooked liability is equalisation levy which is to be paid by resident on specified services availed from a non-resident subject to the conditions as mentioned in the Act. All the payables as at year end has to be cleared off in March itself or the due dates as specified. Though a statement in Form No. 1 has to be furnished electronically due date for which is June 30th immediately after previous year. Any delay in such deduction and payment shall result in interests and penalties as the case may be.
The assessee who are liable for audit of books of accounts shall for their record and ease, prepare a checklist and organise audit evidences supporting books of accounts while closing books. Balance confirmations are now a must to ask for at year end from third party to ensure correct and tallied balances in financial statements. With the Finance Act, 2023 MSME vendors have to record cycle of payment to get allowance of expenditures related thereto.
For the Company and LLP assessee there are annual returns to be filed mandatorily wherein financial information are submitted so it’s recommended to keep the registers for such compliances in place as at year end. Any delay in filing the forms or returns shall result in late fees. In scenarios where there can be predicted the possibility of delay then application must be submitted with ROC subject to cases arisen.
Annual returns are though due late in the next year to the previous year for GST but ITC availed and lapsed to be availed, supplies reported in monthly or quarterly returns, output liability paid mismatch or any other GST related error which impacts numbers in financial statements must also be verified and reconciled. It is recommended to close ITC register at the same time while closing financial for any previous year to avoid any erroneous recording and reporting. Liabilities for output supplies should be paid off meeting all compliances.
Only a true and genuine financial for previous year can be based for upcoming year’s financial planning. Financial planning is significant and core perspective for business operations. Hope this helps. Happy reading!
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