pimpri-chinchwad-akurdi chapter & western maharashtra tax practitioners’ association JOINTLY ORGANISING half day seminar RECONCILIATIONS UNDER GST ADV. AMOL T MANE SANGLI

RECONCILIATIONS UNDER GST MEANING Term has not been explained in the CGST or SGST Act In accounting, reconciliation is the process of ensuring that two sets of records (usually the balances of two accounts) are in agreement. Reconciliation is used to ensure that the money leaving an account matches the actual money spent. This is done by making sure the balances match at the end of a particular accounting period Adv Amol T Mane

Difference between “Consolidation” and “Reconciliation” Yesterday and Today (under Earlier Act and GST Act) REFERENCE SECTIONS 35(5), 44 Form GSTR 9 - Regular taxpayers Form GSTR 9A - Composition dealers Form GSTR 9B – E-Commerce operator Form GSTR 9C – Whose turnover exceeds Rs.2 crores in the financial year Adv Amol T Mane

Example of yesterday and today Adv Amol T Mane

Need for reconciliation The first and most obvious reason is to that the “ACT” asks us to reconcile to file the return in Form GSTR-9……etc. Most important for dealers to claim and avail the unavailed input tax credit before 20th October 2018 before filing the Annual Return. Differences between the amount of credit shown in GSTR-3B and the GSTR 2A Discrepancies between GSTR -3B and GSTR-1 Differences in the provisional credit claimed and actual credit that is claimable. This situation arises usually during transition Adv Amol T Mane

Annual gst audit Section 35(5) of CGST Act – Every registered person whose turnover during a financial year exceeds the prescribed limit (presently two crore rupees) shall get his accounts audited by a Chartered Accountant or a Cost Accountant and shall submit a copy of the audited annual accounts along with a reconciliation statement (reconciling the value of supplies declared in returns with audited annual financial statements) contents of the audit report and other particulars to be prescribed Audited report and audited annual accounts to be submitted along with annual return on or before 31st December following the end of financial year Adv Amol T Mane

Annual gst returns Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty first day of December following the end of such financial year. Adv Amol T Mane

Reconciliation of gst returns As per section 35(5) of GST Act read with rule 80(3) of GST Rules, every registered person whose aggregate turnover exceeds Rs.2 crore is required to get his accounts audited and shall furnish copy of audited account and reconciliation statement duly certified in form GSTR-9C. As per section 44(2) every person who is required to get his accounts audited shall furnish electronically annual return with copy of annual accounts and reconciliation statement reconciling the value of supply declared in the return for the financial year with audited annual financial statement and such other particulars as may be prescribed. Thus, it is not only reconciliation between the value of output supply declared in Return 3B and shown in the audited financial statement is required to be furnished but such other particulars as may be prescribed is required to be furnished. Adv Amol T Mane

The aggregate turnover has been defined in section 2(6) of GST Act and it means turnover of all the registration and not of the individual registration. Thus, turnover of all States will be considered for computing the amount of Rs.2 crores. Aggregate turnover will also include interest received on loan and like such many other receipts on account of other income. The objective of the audit will be to ensure that the assessee has paid GST properly and has not contravened provisions of the Act or the Rules made there-under. Considering this objective, it appears that the verification will involve many areas. They are discussed below. Adv Amol T Mane

Before starting reconciliation, one must ensure that…… (a)Reconciliation of returns with financial account While finalising the books of accounts and conducting the statutory audit, it is observed that in most of the dealers balances as per books of accounts and that of the electronic ledgers as per GST portal are not tallying. The reasons can be numerous and needs to be identified. A proper reconciliation statement needs to be prepared for reconciling the balances of Electronic Liability Ledger, Electronic Credit Ledger, Electronic Cash Ledger etc. Further, Transitional Credit availed needs to be accounted properly in books of accounts. The reason once identified needs to be corrected by passing appropriate adjustment entries in the books of accounts or in subsequent GSTR 3B as the case may be. Adv Amol T Mane

(b) Credit note/Debit note issued under section 34 is required to be reviewed. The manner of ensuring that other party has not availed credit of full amount or reversed proportionate amount of credit shall be determined to ascertain the accuracy of adjustment. (c) Many companies make promotional scheme to promote their product. For example, one free for purchase of ten. Review the circular to determine the information to the customers and the manner of passing on the discount. Adv Amol T Mane

(d) Supply without consideration between related persons -In case if the company has registration in more than one States, it is necessary to study the manner of computing the value for the services provided by Corporate Office to Branches and vice versa. In one of AAR, administrative head office is at Delhi and factory is at Harayana. Though the matters are handled by Delhi office, it is treated as supply and taxable as both are related persons and are in different States. (e) Distribution of Credit by ISD -It is also necessary to Verify whether the company has obtained registration as ISD. If yes, verify the manner of distribution of credit. (f) Verification of Place of Supply -Most important to determine the place of supply to decide charging of CGST, SGST or IGST. Also verify manner of determination of place for some of the transactions. E.g. say if one person comes to a dealer in Pune and purchased some goods and gives his GSTIN, which tax is to be levied, SG and CG or IG. Adv Amol T Mane

(g) Time of supply is required to be determined as per section 12 and 13 of IGST Act. Some of the invoices are required to be verified to determine the time of supply. (h) Classification of goods/services Rate of tax- Classification of various items is required to be reviewed to determine the correct rate of tax. It should also be ensured that conditions stipulated in exemption notification has been complied with in order to ensure that exemption has been properly availed. E.g. If gold watch is sold by a watch dealer. Which tax is levied, either of gold or of watch. Adv Amol T Mane

(i) Verification of Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,- (a) railways, excluding monorail and metro; (b) a single residential unit otherwise than as a part of a residential complex (c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation. etc as it affects the tax liability of the dealer. Adv Amol T Mane

(j) Compliance of reverse charge mechanism - While reconciling payment of GST on reverse charge some care has to be taken for supply from unregistered suppliers upto 12th October 2017, import of services, GTA, sponsorship etc. Even if we are not registered as an advocate, our fees are liable to RCM. RCM paid under SG and CG instead of IGST…. (k) Verification of zero rated supply -Export of goods and services are zero-rated supply as per section 16 of IGST Act. Execution of LUT shall be verified. If LUT is not executed, basis on which conclusion of export of goods or service is drawn. Adv Amol T Mane

(l) Provisions of transitional credit is contained in section 140 (l) Provisions of transitional credit is contained in section 140. The assessee is required to file TRAN-1. TRAN-1 may be verified to arrive at the proper availment of credit. (m) Admisibility of Input Tax Credit - Details of input tax credit taken shall be reviewed in order to ensure that conditions stipulated in section 16 have been complied with like Credit has not been taken on items which are listed in section 17(5)(blocked credit), Registered person has received the goods and services or both, Return has been furnished, Proportionate amount of credit has been reversed under rule 42 & 43 of CGST Rules. Adv Amol T Mane

(n) Unavailed Input Tax Credit – On review of financial statements, it can be observed that there is possibility that certain credits are missed out especially in cases where the vendor would not have issued invoices immediately. Act limits a dealer to claim unavailed credit upto the last date of filing return for September following the financial year. (o) Compliance of SEZ - In case of supply to SEZ, it must be ensure that the specified officer has endorsed the documents (p)Deemed supply - Recovery of amount from employees and its consequence on availment of credit or payment of tax. (q) Anti-profiteering - Verify whether the provisions related to anti-profiteering has been complied with. It is in the news that in some of the cases, the Departmental authorities has levied heavy penalties for not passing the profit. (r) Filing of returns - Verify return to ensure that they have been filed in time and all information has been properly disclosed Adv Amol T Mane

(s) Verification of other income – It is necessary to go through every transactions reflected under the head “other income” to confirm whether GST liability if any has been paid on it or not. Penalty, interest, damages received needs to be properly accounted for and GST need to be discharged on the same. (t) Creditors more than 180 days – Provision to Sec 16(2) required to make payment of value to the supplier within a period of 180 days from the date of invoice. If not made, ITC availed against such tax invoice is required to be reversed by adding output tax liability along with interest. Adv Amol T Mane

Some more points to consider….. Adv Amol T Mane

Base for reconciliation is returns in Form GSTR- 3B and GSTR1 Stage 2 is to reconciliation of downloaded GSTR- 2A The vendor has declared liability but credit is not availed in GST returns –Such credits should be availed before due date of Sept 2018 The vendor has not declared liability on supplies made but businesses have availed credit on such procurements in the GST returns – Businesses should follow up the vendors to ensure that the liability is declared. Else, risk of such credits being disallowed may arise. Adv Amol T Mane

The invoice number that the purchaser has recorded does not match with seller’s invoice received in 2A. The purchaser may work in multiple States and the seller has raised invoice with another GSTIN/HQ GSTIN instead of the actual purchaser GSTIN. The invoice date by purchaser doesn’t match with seller. Difference because of date of recording the invoices is different at both places. Mostly purchaser is at fault here as they should have entered the same date as in Sales Invoice The purchaser and seller recorded the invoices in different return period. Adv Amol T Mane

Invoice value of purchaser and seller differs by a minor value because of different rounding methods adopted by both. The invoice value is different due to debit note or credit note issued and it fails to match and record the same. Different process of storing the invoice numbers, while the implementation has a hard match around invoice number. Adv Amol T Mane

Most common errors in mismatch- Invoice / tax value Invoice date Place of supply GSTR 2A invoices missing from purchaser side in accounts Invoices from the purchaser’s side not reflected in GSTR 2A Credit note errors Non-modifiable errors Wrongly entered invoice can not be deleted Adv Amol T Mane

Outward supplies – Invoices pertaining to Financial year 2017-18 along with invoices of September 2018 in Table 4 with original date. If the tax pertaining to invoice is also not paid, the same may be added to taxable value and tax of the month of September 2018 and pay the tax along with interest from the due date of payment of tax till date of actual payment. The Annual Return format does not have the facility to add these type of invoices Adv Amol T Mane

Business 2 Business invoices details wrongly entered in GSTR-1 – In case of some mistakes while uploading the invoices details like Error in GSTIN i.e. wrong GSTIN is punched of one person instead of another, rate of tax, taxable value etc Business to Customer details wrongly entered in GSTR-1 In case if an invoice is entered in B2C instead of B2b, it may be corrected by adding this B2B supply with original date in Sept 2018 GSTR-1 and by amending B2C supply.(Table 10 of Sept 18 GSTR-1 return-if selected the proper month, the amount will appear, the amount can be corrected by reducing the same. B2C intra-state supplies as interstate, then in that case also it can be rectified through Table 10 of GSTR-1. But for GSTR-3B, the liability has to pay under CGST and SGST and IGST to claim refund. Adv Amol T Mane

Liability reported LESS in GSTR 3B- 3B – Liability may be added in subsequent 3B and pay tax along with interest R1 – Add the missing entries in subsequent GSTR-1 with Original dates Liability reported EXCESS in GSTR 3B- 3B – liability may be reduced from subsequent 3B R1- Correct the incorrect entries in subsequent R1 in Table no.9 Liability wrongly reported in GSTR 3B- 3B – Correction of nature of liability to be done in subsequent 3B along with interest R1- Correct the incorrect entries in subsequent R1 in Table 9 ITC claimed LESS/EXCESS – Increase/decrease the ITC in subsequent 3B and pay interest if decreased Wrong payment of tax – pay the correct tax and claim refund of wrong tax paid Adv Amol T Mane

With this small exercise, we can proceed to file Annual Return in GSTR-9. After this, if the turnover exceeds rupees 2 crores then we can proceed further to file GSTR-9C with proper certification. But in both the returns, we cannot claim, add or modify the figures. Hence the claims may be lapsed. So the precaution is must before 20th October 2018 to verify the claim properly. Adv Amol T Mane

Thank you Adv Amol T Mane