Finalization of Accounts under GST Presentation By CA

Finalization of Accounts under GST Presentation By: CA. Rajat Dhanuka

Basis of Maintaining Books of Accounts Which Act Governs the maintenance of Books of Accounts? • Companies Act, 2013 • Income Tax Act, 1961 • CGST Act, 2017 Are the books maintained similar for all the governing statutes? Is there any importance for Accounting Standards? 2

Requirement for Maintaining Books of Accounts – Companies Act, 2013 Rule 4 A of Companies (Accounts) Rules, 2014 The financial statements shall be in the form specified in Schedule III to the Act and comply with Accounting Standards or Indian Accounting Standards as applicable; Provided that the items contained in the financial statements shall be prepared in accordance with the definitions and other requirements specified in the Accounting Standards or the Indian Accounting Standards, as the case may be. 3

Requirement for Maintaining Books of Accounts – Income Tax Act , 1961 44 AA: (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. (2) Every person carrying on business or profession [not being a profession referred to in sub-section (1)] shall, — (i) if his income from business or profession exceeds two lakh fifty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds twenty five lakh rupees in any one of the three years 4 immediately preceding the previousyear.

Requirement for Maintaining Books of Accounts - CGST Act, 2017 Every registered TP Keep & Maintain in Manual or Electronic Form True & Correct Accounts & Records At Each Place of Business in Certificate of Registration 5

Requirement for Maintaining Books of Accounts - CGST Act, 2017 Section 35, provides that every registered person shall keep and maintain at his principal place of business, as mentioned in the certificate of registration, a true and correct account of: � Production or manufacture of goods � Inward and outward supply of goods or services or both � Stock of goods � Input tax credit availed � Output tax payable and paid, � Goods or services imported or exported �Supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, refund vouchers , e-way bills and such other particulars as may be prescribed

In Case of Agent Every agent shall maintain accounts depicting the: �Particulars of authorization received by him from each principal to receive or supply goods or services on behalf of such principal separately; �Particulars including description, value and quantity (wherever applicable) of goods or services received on behalf of every principal; �Particulars including description, value and quantity (wherever applicable) of goods or services supplied on behalf of every principal; �Details of accounts furnished to every principal; and �Tax paid on receipts or on supply of goods or services effected on behalf of every principal.

In Case of Works Contract Every registered person executing works contract shall keep separate accounts for works contract showing: �The names and addresses of the persons on whose behalf the works contract is executed; �Description, value and quantity (wherever applicable) of goods or services received for the execution of works contract �Description, value and quantity (wherever applicable) of goods or services received for the utilization of works contract �Details of accounts furnished to every principal, and �The details of payment received in respect of each works contract; and the names and addresses of suppliers from whom he received goods or services.

Period of retaining books of accounts Accounts maintained by the registered person: �all invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for the period until the expiry of seventy-two months; �from the due date of furnishing of annual return for the year pertaining to such accounts and records (as provided in section 36) and shall, �where such accounts and documents are maintained manually, be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally.

Accounting Effects & Interplay w. r. t GST Revenue Recognition AS 9 ICDS III & IV and others Cash Vs Mercantile System of Accounting Time of Supply 10

GST Returns and Portal Books of Accounts

First: Reconciliation of sales / other income Turnover as per Books of Accounts Turnover as per GST returns What is the need of Reconciliation ? ? ?

To reconcile the value of outward supply shown in books of accounts with the value reported in GSTR-1 /GSTR-3 B �Inter-state stock transfer is treated as outward supply though it is not a sale transaction; �Recovery from employees is treated as outward supply though it is not a sale transaction; �Charging of GST on free samples / FOC supply which is not reported as sales;

To reconcile the value of outward supply shown in books of accounts with the value reported in GSTR-1 /GSTR-3 B � Any amount recovered from vendor on account of penalty is treated as outward supply though it is not a sale transaction; � Issues relating to Composite charges like freight, insurance, etc whether included in turnover � Turnover matching with 26 AS. � Differences in GSTR 1 & GSTR 3 B is observed; � Differences should be rectified in the returns of next month or quarter.

Turnover as per Books of Accounts Reconcilia -tion Statement Turnover as per GST Returns

Issues to be resolved…. Reverse Charge - 9(3) Separate Expense Account Reverse Charge - 9(4) Upto 13 th October, 2017 Time of Supply Advances Recd & Refunds Classification in Separate Refund Claim / Receivable Account 16

Second: Reconciliation of ITC credit ledgers & GST liability ledgers Books of accounts must tally with the ledgers maintained with GST on real time basis. Electronic Cash Ledger [GST PMT – 05] Electronic Credit Ledger [GST PMT – 02] Electronic Tax Liability Ledger [GST PMT – 01] 17

Accounting Modifications / Effects w. r. t GST Availing and Immediate Reversal Input Tax. Credit Separate Tax Expense Account for Reverse Charge Marking of Ineligible Input Tax Credit Separate Control Account for Unmatched Credit 18

GST Credit Ledger in Books of Accounts GST credit ledger maintained at GST Portal GSTR 2 A as appearing on portal

Creditors Ageing Creditors more than 6 months (180 days): As per the proviso to Section 16(2) of the CGST Act, 2017; �Registered person is required to make payment of basic value plus GST to the respective supplier within a period of 180 days from the date of tax invoice. �It may be noted that if such payment is not made within 180 days from the date of tax invoice, then in that case, input tax credit availed against such tax invoice is required to be reversed (by adding output tax liability) along with interest.

Transitional Returns – Credits and Accounting � Status of Excise Duty liability on manufactured inventory as on 30 th June, 2017 � CBEC has issued a notification (NO. 12/2017) which exempts all excisable goods (except petrol, natural gas, tobacco products, petroleum crude, high speed diesel, and aviation turbine fuel) from the whole of excise duty leviable thereon, if conditions are fulfilled: - Manufactured before 30. 6. 2017 and not cleared before 01. 07. 2017. - Appropriate CGST/SGST/IGST/UGST has been paid on the same.

Transitional Returns – Credits and Accounting � Credits of duty taken u/s 140(1) of GST Act, should be properly accounted for. i. e. the inputs credits which are carried forward in returns of Excise/VAT. � Carry forward of Unavailed credit Cenvat Credit on capital goods u/s 140(2) of GST Act. � Credits u/s 140(3) of GST Act, ◦ Credit based on documents ◦ Credits through TRAN – 2, if filed before 31 st March, 2018. (in case of Traders) � In case of manufactures or traders who have taken credit u/s 140(3) of GST Act, we will observe that there is reduction in the revenue due to the excise duty loaded in the opening stock.

Income Tax Returns and GST Income Tax Return Assessee Type ITR – 1 For individuals being aresident other than not ordinarily resident having Income from Salaries, one house property, other sources (Interest etc. ) and having total income upto Rs. 50 lakh ITR – 2 For Individuals and HUFs NOT having income from profits and gains of business or profession ITR – 3 For individuals and HUFs having income from profits and gains of business or profession ITR – 4 For presumptive income from business & profession ITR – 5 For persons other than, - (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7 ITR – 6 For Companies other than companies claiming exemption under section 11 ITR – 7 For persons including companies required to furnish return under sections 139(4 A) or 139(4 B) or 139(4 C) or 139(4 D) or 139(4 E) or 139(4 F) 23

Important Facts What is Sales or Turnover or Gross Receipts Not defined in the Income Tax Act Revised Guidance Note of 2014 for Tax Audit Commercial and business parlance Judicial Pronouncements 24

Major Issue Turnover V/s Aggregate Turnover: The term ‘turnover’ for the purposes of Income tax Act (refer guidance note) may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprise. If sales tax and excise duty are included in the sale price, no adjustment in respect thereof should be made for considering the quantum of turnover. Trade discounts can be deducted from sales but not the commission allowed to third parties. If, however, the Excise duty and / or sales tax recovered are credited separately to Excise duty or Sales tax Account (being separate accounts) and payments to the authority are debited in the same account, they would not be included in the turnover 25

Agreegate Turnover [Sec. 2(6)] “Aggregate turnover” means the aggregate value of all taxable supplies exempt supplies exports of goods/ services inter-State supplies of persons having the same PAN to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess. [Sec. 2(6)]

Changes in ITR- 3, 5, 6 Addition Due to introduction of GST – In Part A – P&L following have been added In Revenue from Operations – Row C – Duties, taxes received in respect goods / service sold following has been added o o Central goods and service tax State goods and service tax Integrated goods and service tax Union territory goods and service tax Similar addition has been made with respect o Duties and taxes paid with respect to purchase o Rate and taxes paid to government

Part A P/L in ITR 3, 5 and 6 – GST info 28

Part A P/L in ITR 3, 5 and 6 – GST info 29

Part A P/L in ITR 3, 5 and 6 – GST info 30

Part A – OI, 5 in ITR 3, 5 and 6 – GST info 31

Part A-OI, 12 in ITR 3, 5 and 6 – GST info 32

New Schedule Added in ITR 6 – GST info 24 33

Schedule BP of ITR 4 - GST info 34

Ultimate Issues 145 A of Income Tax Act : For the purpose of determining the income chargeable under the head "Profits and gains of business orprofession", — (i) the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; (ii)the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; Is sec 145 A followed even in case of exclusive accounting method? Will it affect unjust enrichment in Indirect Taxes 35 35

Deviation from the method of valuation prescribed under section 145 A Particulars Increase in Profit (Rs. ) Decrease in Profit (Rs. ) VAT on Op. Stock XXX VAT on Purchases XXX VAT on Sales VAT on Cl. Stock XXX XXX VAT Paid on Sales XXX VAT Credit availed on Cost of Goods Sold XXX * For First Quarter of FY 2017 -18 36

Deviation from the method of valuation prescribed under section 145 A Particulars Increase in Profit (Rs. ) Decrease in Profit (Rs. ) Excise Duty on Op. Stock XXX Excise Duty on Purchases XXX Excise Duty on Sales Excise Duty on Cl. Stock XXX XXX Excise Duty Paid on Sales XXX Excise Duty Credit availed on Cost of Goods Sold XXX * For First Quarter of FY 2017 -18 37

Deviation from the method of valuation prescribed under section 145 A Particulars Increase in Profit (Rs. ) Decrease in Profit (Rs. ) GST on Op. Stock XXX GST on Purchases XXX GST on Sales GST on Cl. Stock XXX XXX GST Paid on Sales XXX GST Credit availed on Cost of Goods Sold XXX * For Remaining 3 Quarters of FY 201718 38

Need to Move to Maximum Accounting and Minimum Reconciliations 39 39

Thank You CA. Rajat Dhanuka Partner Mehta Garg And Agrawal Chartered Accountants +91 -9425911336 Dhanuka_raj 17@yahoo. co. in 40