Entire world is impacted by the coronavirus issue in one way or other. India is not an exception. From mid of March, many of the entities are closed partly or completely. The financial year 2019-20 has to end on 31st March 2020. However, due to present situation, there are talks to extend the end of financial year to 30th April 2020 as against 31st March 2020. This change could be given effect for the purpose of GST compliance as well. There could be few other relaxations in GST as well depending on intensity of coronavirus. Many of the professionals and tax officers of the entities may find enough time now to update themselves with the law and procedures in GST. Considering this, a note has been prepared on year end action points from GST perspective which could add some value in these difficult times.
It is important for tax payers to ensure that the GST transactions are reported appropriately in financial statements and periodical GST returns. This would be important considering the fact that the disclosures made in periodical GST returns would need to be collated into the annual return under GSTR-9 and further compared with financial statements at the time of certification in form GSTR-9C by the auditor. Differences in disclosures made in periodical returns as compared to financial statements would increase the reconciliation items needing more explanation. This could also invite department’s audit, DGGSTI attention. Due care needs to be taken to reconcile the differences and take corrective actions. This slowdown time may be utilised by the tax payers to reconcile the records and fix the reconciliation differences taking appropriate actions. The action points needed would vary depending on the nature of business. Few of them could be common for most tax payers which are discussed in subsequent paragraphs.
Cross charge to related/distinct persons
Supply of goods or services to own branches/units/employees without consideration would also be treated as supply liable for GST in terms of schedule I to CGST Act 2017. There could be many support services or other supplies undertaken by the tax payer which need to be identified on periodical basis to cross charge with GST. Time of supply concept to be adopted on nature of supply. Before finalization of annual accounts, it is important to identify the cost to be allocated to other locations of the same entity. Tax invoice could be issued after adopting appropriate valuation mechanism to discharge GST. If the receiving entity can claim full ITC benefit, then the value on invoice would be accepted market value for GST payment. The details of such cross charge should be reflected in GST return with appropriate treatment in financial statements for GST as well.
The difference between cross charge and Input Service Distributor (ISD) needs to be understood. Many tax payers have been using the concept interchangeably which may not be correct legally . This may lead to disputes and demands by tax department. ISD option could be used for distribution of credits on only input services which are commonly used for multiple locations or any dedicated units. Distribution should be done based on the ratio of turnover. Cross charge mechanism could be opted for services supplied to other distinct persons for which various expenses including inputs, input services or capital goods are incurred.
In ISD mechanism, the tax payer takes the total credit and distributes them to the locations. In cross charge mechanism, he avails the credit if eligible and then charges the GST on taxable supplies of goods or services made within the entity to the different GSTIN. In service industry, movement of goods such as computers/ laptops/ stationary goods would be very common on which payment of GST generally being missed out. A tax invoice for non-returnable goods is suggested for compliance with GST.
24.1 Review of ITC ledger and vendor invoices
Review of ITC ledgers along with vendor invoices would ensure that proper credits have been claimed including appropriate accounting. Further certain credits could have been availed in the wrong State or wrong GSTIN within the same State. This would be common in case of entities having presence in multiple locations. All conditions under section 16 are to be met for availing credit. Any wrong claim of credit could result in reversal at subsequent stage along with interest. As there is a time limit for taking the credit, there would be no option to take back the credit after lapse of time limit. For example, the ITC of March 2020 invoice pertaining to Tamilnadu is availed in Karnataka wrongly which is identified only after September 2020 after lapse of time limit. This may require reversal of credit in Karnataka with no option to claim missed out credit in Tamilnadu due to lapse of time limit. Therefore, ITC ledgers could be thoroughly verified for correctness of type of credit claimed and correctness of registration in which it is claimed.
There could also be defective invoices issued by the vendors which could result in dispute of input tax credits. Those invoices could be identified to instruct the vendors to take necessary actions before close of the financial statements. This would also be helpful in reconciliation of credits for GST annual return and audit report purpose. In terms of Rule 36 of CGST Rules 2017, tax invoice should contain details of tax amount charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier & recipient and place of supply, in case of inter-State supply. Such invoices could be identified for necessary correction from the vendors. Ignorance or delay in this could result in loss of credit with interest which may or may not be recovered from vendors.
24.2 E-way bill compliance and reconciliation
E-way bill compliance is made mandatory for all transactions involving movement of goods with few exceptions such as GST exempted goods. E-way bills are mandatory even for movement of goods which may not be as a result of supply such as removal for job work, sale on approval etc. As a yearend process, a reconciliation could be made by comparing the E-way bills with the tax invoices or bill of supplies as the case maybe to ascertain if issuance of tax invoice or bill of supply missed out. If there are any supplies found with E-way bill but without tax invoice, invoices could be issued with GST for payment with interest. This would enable the recipient also to take the ITC. Interest would still be a cost as recipient may not pay for it. Chances of missing out on issue of invoices are more in case of interunit transfers within same entity.
Such reconciliation is also required in case of supplies made on sale of approval basis. This would enable issue of tax invoices in terms of time of supply which is 6 months from date of removal or before/at the time of supply.
24.3 ITC distribution under ISD
In case of multiple registered units under GST, there could be common expenses with ITC availed at one unit including credits which relate to some other unit but payment made by the HO or branch. Such ITC needs to be distributed to other units specifically as well as for the common expenses based on the proportionate turnover on monthly basis under input service distributor concept. Tax payers could make it a point to check if all common or specific expenses are identified including distribution of credits for the financial year. Considering the fact there is a time limit for taking ITC, importance to be given for such distribution. Any ITC which is found to be claimed in wrong unit after the time limit and not distributed, could lapse. Due care needs to be taken to distribute correct type of tax. Necessary accounting entries are to be passed to avoid reconciliation issues. ISD returns and monthly GST returns filed could be reconciled with workings. Where the tax invoices are issued by the vendors mentioning regular GSTIN instead of ISD registration of tax payer, then tax payer can issue tax invoice internally from regular GSTIN to ISD in terms of Rule 54 (1A) (a) of CGST Rules 2017. These invoices to be verified for correctness and completeness.
24.4 ITC reversal and year-end adjustments
In case of taxpayers having both taxable and exempt supplies, the ITC could be claimed on those inputs, capital goods and input services which are used for taxable supplies. Where they are common, the proportionate credit needs to be reversed/paid based on monthly turnovers in terms of Rule 42 and Rule 43 of CGST Rules 2017. After the end of financial year, by end of September, the credit reversal needs to be re-computed based on actual turnover. Tax payers should ensure that such re-computation is made taking actual turnover which could result in excess claim or short claim of credit when there is a change in turnover considered for monthly computations made. Any short claim of credit could be re-claimed by end of September after end of financial year. Delay could result in loss of credit. Excess claimed credit, if any to be paid back along with interest. There could be ineligible credits accounted in books of account but not claimed in GST returns or vice versa. Necessary adjustment entries are to be passed, to match them including ITC utilisation entries. This process would ensure smooth filing of annual return including audit report in GSTR-9C. Though there is a time limit to payback the excess claimed ITC till September, the interest payable at 18% per annum on excess claim needs to be computed from April. Therefore, early the reversal, lesser the interest payable. Present slowdown can be used to recompute the credits and save on interest cost.
Taxpayers should reconcile the electronic cash ledgers, electronic credit ledgers and electronic liability ledgers with books of accounts. Further, the reconciliation of the GSTR 3B returns must also be performed with that of GSTR 1 and any discrepancies needs to be reported/rectified. The reconciliation could result in identifying excess or short claim of credit, excess or short payment of taxes including differences in turnover disclosed. Key reconciliations that needs be done would be between the monthly GSTR-3B and GSTR-1 statements. ITC reconciliation with books of account and GSTR-2A could be another important reconciliation. All these would ensure that there are minimum differences between returns leading to correct filing of annual returns which in turn reduces the reconciliation items in the GST audit certification in form GSTR-9C. Wrong credits or short payments could be cleared at the earliest to reduce on the interest cost as well.
24.6 GST payment under reverse charge
In terms of Section 7 read with Schedule I to the CGST Act 2017, import of services by any person from related persons or establishments outside India would be deemed to be supply even if there is no consideration paid by importing person. Valuation should be undertaken in terms valuation principles in the CGST Rules 2017. In case of multinational entities, receiving support from related entities or establishment outside India could be common. Such services, if missed to be considered for payment of GST, need to be identified by the registered person at the end of the year to ensure that necessary compliances taken care such as payment of tax, issue of payment voucher and raising of self-invoice to claim ITC.
24.7 Issue of debit/credit note
At the year end, the taxable person could assess the need of issue of debit note in case of purchase returns, short collection of taxable amount or GST amount. In case of sale return, excess collection of taxable amount or GST amount, there would be a need to issue credit note. If required, debit notes /credit notes to be issued at the earliest so that additional cost in form of loss of ITC, risk of non-payment by customers, interest, if any could be avoided. Presently, the customers would be able to claim the ITC on debit note related to previous financial year by return filing due date of September of subsequent year (linking of debit note to original invoice date for taking credit is proposed to be removed in recent budget. Yet to be notified). Even deductions claimed towards credit notes obtained from suppliers to be reconciled for disclosure made in returns filed and books of account.
24.8 Return filing for the month of September
GST return for the month of September after the end of financial year would be key as it provides the last opportunity to the tax payers to rectify mistakes/make good the omissions in the returns filed in previous financial year. Therefore, tax payers have to do a review of all GST related accounts and the ledgers to ensure that they do not miss this last opportunity. The annual return to be filed in GSTR-9 for the previous financial year would also cover a few adjustments made in present financial year for the period April to September. This annual return becomes basis for GSTR-9c as well. Following are important points to be considered while filing the returns for September month:
? Ensure that the turnover as reported in the GSTR-3B for previous financial year matches with the turnover as reported in the GSTR-1. If there is any error in GSTR-1, same is required to be corrected. If there is any error in GSTR-3B, the correct details should be shown in GSTR-1. Liability arising could be discharged with interest by disclosing the details in GSTR-3B of September or earlier. Items such as taxable/non-taxable supplies, exempt supplies, non-GST supplies, RCM, Zero rate supplies could be considered for the reconciliation.
? Ensure that the turnover as reported in the audited financial statement for the concerned GSTIN matches with the turnover declared in the GSTR-1 and the difference, if any, is due to the difference between statutory provisions and not due to mistakes/omissions in maintenance of accounts and records.
? Any amendment in the invoices pertaining to the last year’s transaction has to be done in the GSTR-1. The amendment may be in the GSTIN, value, nature of tax, place of supply etc. The need could arise on account of communication received from the customer where he may have noticed the error in the GSTR-2A due to which he may not be in position to avail the ITC or it may have been noticed in the course of internal verification. Any credit note for the previous financial year should be issued by end of September of present financial year. Otherwise, deduction of tax paid would not be possible.
? Any supplies in respect of which a mistake has been made in identification of place of supply, time of supply or in its classification or with regard to claim for exemption, rectification has to be made. It is necessary to check whether any supply which is export has been shown as domestic supply and vice versa and rectify.
? All the advances received in previous year where time of supply has arisen in the previous year have to be included in the GSTR-1 and ensure that the same matches with the details furnished in the books of account. Attention is required to be paid to continuous supply contracts to ascertain if time of supply concept has been followed or not.
? Exports to distinct person is not considered as export. This may have to be kept in mind.
? Disposal of business assets for consideration/for no consideration to related persons or other persons wherein ITC had been claimed have to be reflected in the returns with payment of GST, if applicable.
? Payments to employees/from employees for waiver of notice periods, payments to employees for services rendered in non-employee category, if any, have to be examined in terms of GST liability
? Necessary corrections, if required, in the disclosures made between B2B supply and B2C supply has to be made.
? Ensure that where services provided are liable to RCM, same have been disclosed in the GSTR-1 with specific indication about the liability under RCM so that the same is auto populated in the GSTR-2A of recipient and he pays RCM thereon.
? The due date of filing the GST return for September month is also last date for claiming the credit pertaining to previous financial year. Tax payers need to find out missed out credits if any which could be based on reconciliation of credit registers with physical invoices, GSTR-2A generated based on GSTR-1 filed by the vendors. Appropriate disclosure to be made in GST return and accounting in the month of September which otherwise could result in loss of credit. If there are export of GST exempted goods, then also ITC eligible. This may be ensured within time limit to claim benefit.
24.9 Track of goods sent for job work
Inputs and capital goods can be sent for job work by the registered person without payment of GST subject to condition that the inputs are received back within a period of one year and capital goods are received back within three years. If not received, the same needs to be treated as supply for payment of GST as on the date of supply. This would entail payment of interest @18%. The time limit may be extended by one year in case of inputs and two years in case of capital goods on request to commissioner.
Periodical reconciliation and tracking of goods would be important to ensure that goods received within due date or within the extended timelines as approved by the commissioner. This would also enable the registered person to apply for extension of time limit or debiting the job workers, in case of any damages. Any delay could cost GST and interest. There is no provision to take back such GST amount as credit similar to erstwhile CENVAT credit provisions.
24.10 Other aspects
Following are various other aspects which could be considered by the tax payers which are important to ensure better compliance:
· According to GST provisions, invoice numbers should be unique for a financial year. There is no need to start invoice series from first number every year. Previous year’s series could be continued or fresh number series could be started at the option of tax payer.
· There are specified returns for compliance of ISD provisions, job work provisions, TDS/TCS provisions etc., which need to be filed on periodical basis. Status of such returns filed could be ascertained at the year end.
· If needed, the HSN classification including number of digits disclosed on the invoices/ delivery challans could be re-examined.
· Tracking of goods sent on approval basis to ascertain the time of supply for payment of GST.
· Tracking of refund applications filed along with status for submission of the details in the annual return.
· Renewal of LUT for next financial year online on GST portal.
· Updating the details of top five goods or services in the registration certificate including adding of additional place of supplies.