Over Simplified GST Annual Return & GST Audit

Apart from the monthly filing of returns by the taxpayers in GST, all taxpayers have to file GST Annual Return and taxpayer with turn over above Rs 2 Crores have to file GST Audit Report yearly.  Annual Return under GST has to be filed through GSTR – 9 by all the taxpayers who have registered in GST even for a single day during the period 1st April 2017 to 31st March 2017.  The data to be reported is very much in detail, and most of the taxpayers have failed to maintain the data in the required manner as they have not reviewed or been guided based on the draft return formats released by the Government before the rollout of GST. The formats for the GSTR – 9 and GSTR – 9C (audit) have been released during Sep 2018; by that time, the financial year has lapsed, and most of the taxpayer was not in a position to get the data. This has resulted in requests from the trade, industry, and professionals for the extension of the due dates and simplification of the formats.

The Government has extended on multiple occasions from 31st Dec 2018 to finally now to 31st Dec 2019. Filing of Annual Return has been made optional for taxpayers having up to Rs 2 Crores has been made optional wide Notification No. 47/2019 – Central Tax for the Financial Year 2017-18 and 2018-19. Now, apart from this, the Government has simplified the return filing process for other taxpayers. This is good news for the taxpayers as their pain in collating the data is no longer required as most of them have been made optional for the Financial Year 2017-18 and 2018-19.

Simplifications announced in GSTR – 9

  1. Outward supplies can be reported net of Debit / Credit Notes and Adjustments

The outward supplies being reported from Table 4A to 4G now can be reported net of Debit / Credit Noted and adjustments optionally if the taxpayer is having any difficulty in deriving the data. The outward supplies that can be reported are

  1. B2B Supplies
  2. B2C Supplies
  3. Deemed Exports
  4. Supplies to SEZ with payment of Duty
  5. Exports with payment of duty
  6. Advance received but supplies not made
  7. Inward supplies on which tax is payable on account of reverse charge

 

  1. Consolidated reporting for Exempted, Non-GST, and Nil Rated Supplies

All the supplies related to Exempted, Non-GST, and Nil Rate Supplies, which are to be reported in Table 5D to 5F, can now be reported in Table 5D, i.e., Exempted as a consolidated amount optionally if the taxpayer has any challenges in deriving these amounts individually. These can be reported net of Debit / Credit Notes & Amendments rather than reporting them separately.

  1. Outward Supplies Without Payment of Duties

The taxpayers can report the supplies made to SEZ or SEZ Developers, Exports, or Supplies on which the Recipient has to pay taxes can be reported net of Debit / Credit Notes & Amendments. These supplies are falling in table 5A to 5C.

  1. Input Tax Credit

Inward supplies from other than imports or from SEZ Units, imports and liable for reverse charge which are to be reported in Table 6B separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6B – “Inputs” if the taxpayer is not able to provide the breakup of the same.

Inward supplies received from unregistered suppliers liable for reverse charge are to be reported separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6C – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

Inward supplies received from registered suppliers liable for reverse charge are to be reported separately for Inputs, Capital Goods & Services can now be reported as a consolidated amount in Table 6D – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

Inward supplies from SEZ Units are to be reported separately for Inputs & Capital Goods can now be reported as a consolidated amount in Table 6E – “Inputs” if the taxpayer is not able to provide the breakup of the same. The amount to be reported her is only for the taxes paid and eligible amounts.

  1. Reversal of Input Tax Credit

Taxpayers are required to reverse the input tax credit if the supplier is not paid in 180 days as per provisions of Rule 37, Input Service Distributor as per provisions of Rule 39, reversal in cases where the goods or services or both used partially for taxable supplies and partially for non-business purpose or exempted supplies as per provisions of Rule 42 and for transfer or sale of capital goods as per provisions of Rule 43, Blocked input tax credit under Provisions of Section 17(5) of the CGST Act 2017  were supposed to be reported separately in Tables 7A to 7E can now be reported as a single amount in Table 7H.

  1. Refunds

The taxpayers are required to fill the amount for Refund Claimed, Refund Sectioned, Refund Rejected & Refund Pending are to be reported in Table 15A to 15D, now the taxpayers have the option of not reporting the same.

  1. Demands

Taxpayers are required to fill the amount of Demand raised, Amount of Demand Paid, and Pending amounts in Table 15E to 15G, now the taxpayers have the option of not reporting the same.

  1. Reporting of other Supplies

Taxpayers were required to report the supplies from Composition Tax Payers, Total amount  of material not received from job work, which is considered as deemed supplies and goods shipped on approval basis but received within specified period are not returned are required to report in Table 16A to 16C and now the taxpayers have an option of not reporting the same.

  1. HSN Summary for Inward & Outward Supplies

Taxpayers were required to provide the HSN Summary for the Inward Supplies and Outward Supplies in Table 17 & Table 18, and now the taxpayers have the option of not reporting the same.

  1. Applicability of the optional reporting

In almost all the sections where details are required to be reported, but now the same has been made optional. The flexibility applies only from 1st July 2017 to March 2018 and from 1st April 2018 to 2019. Thereby meaning that the taxpayers have to file the detailed amounts for the year 2019-20.

Simplifications announced in GSTR – 9C

GSTR – 9C is a reconciliation statement between the GST Returns and the Financial Statements. As part of the reconciliation statement, there is also a requirement to the return certified by a practicing Cost Accountant or Charted Accountant, the wording used in the same are also modified to shift the onus form the GST Auditor to the Taxpayer.

Simplifications announced in GSTR – 9C

  1. Revenue Reconciliation

Taxpayers have to reconcile the revenue between the GST Returns and the Financial Statements. The tax payment is based on the Time of Supply for the GST Returns, and for the Financial Statements, they are based on the Accounting Standards; as a result, there will be a difference between both the revenues and the same is required to be reconciled and reported in GSTR – 9C. The reconciliation is the GSTR – 9C is required to classify under the following sections

  1. Unbilled Revenue at the end of the Financial year
  2. Unbilled Revenue at the beginning of the Financial year
  3. Supplies treated as Deemed Supplies as per Schedule – 1
  4. Credit Notes issued for the supplies in the next financial year, not reflected in the GST Returns
  5. Trade Discounts accounted in the Financial Statements, but they are ineligible as per GST and not reflected in the GST Returns
  6. Turnover from 1st April to 30th June 2017
  7. Credit Notes accounted in the Financial Statements, but they are ineligible as per GST and not reflected in the GST Returns
  8. Adjustments on account of supply of goods by SEZ units to DTA Units
  9. Turnover for the period under composition scheme
  10. Adjustments in the turnover under section 15 and rules thereunder
  11. Adjustments in turnover due to foreign exchange fluctuations

All these are required to be reported in Table 5A to 5N of the GSTR – 9C, now the taxpayers have an option to report the same separately as a consolidated amount in Table 5O.

  1. Input Tax Credit Reconciliation

Input tax credit reconciliation is required to be provided in Table 12, and as a part of it in 12 B, ITC booked in earlier Financial Year claimed in current Financial Year is not mandatorily required to be reported. Taxpayers have the option of not reporting it also.

In table 12 C, ITC availed as per audited financial statements or books of accounts, taxpayers have an option of not reporting it also.

  1. Expense wise reporting of Input Tax Credit

In Table 14 of GSTR – 9C, taxpayers are required to report the input tax credit based on various accounting/expense heads mandatorily, now taxpayers have the option of reporting the same.

  1. Certification from GST Auditor

GST Audit has to be certified by GST, a practicing Cost Accountant or Charted Accountant, who is certifying the audit. The format and the content of the Certificate are the same except for the change of wordings from “true and correct” to “true and correct.” This gives a lot of breather for the practicing members as they are not coming forward to come and certify that the information provided by them is correct.

The simplification of the GSTR – 9 and GSTR – 9C is applicable only for the FY 2017-18 & 2018-19, and the extension of the due dates have been notified through the Removal of Difficulties Order No. 08/2019-Central Tax dated 14th Nov 2019.

From the above, it makes it clear that the Government wants all the eligible taxpayers to file the GST Annual and Audit returns. Once the filing is completed, the Government may be taking up the assessment of the same to ascertain the correctness of the data being furnished from time to time by the taxpayers and also detect any tax evasion which might have taken place. After the rollout of GST, to date, the taxpayers have not completed at least one audit or assessment.

 

Disclaimer

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

FAQ – 6

What is Form GSTR – 9C?

Form GSTR – 9C is a reconciliation certificate to be filed by the taxpayers whose aggregate turnover in a financial year crosses two crores have to get their books audited by a Certified Cost Accountant or Charted Accountant.

GST Tip – 408

As per Notification No 65/2017 – Central Tax,  an electronic commerce operator who is supplying services under section 9, sub-section 5 and having a turnover is not above Rs 25 Lacs in a financial year at all India basis is exempted from taking registration under GST.

Demystifying Employee Gifts under GST

The rollout of Goods and Service is being dubbed to be the mother of all indirect tax reforms in the country but in reality, it is a business process reform. It changes the way we do business in India after the rollout of GST. There is no room for the words purchase or sale of goods in the GST Laws, it replaces these words with Supply. The word supply includes all activities which are undertaken for consideration or in lieu of consideration i.e barter. This nails down all the disputes which are there in the current taxation.

Similar to this we also have another concept called the taxation of employee benefits, though employee benefits are taxed under the current taxation under Income Tax Act 1961, it is being proposed to tax the same under Goods and Service Tax also in India. The taxation of employee benefits has been taken from Malaysia, where GST is implemented from 1st of April 2015.

To understand the tax implication of employee benefits let’s see the definition of Supply and Related Parties.

Supply is defined clearly in section 3 and Schedule I &  II states what activities are to be treated as supply as per the Central Goods and Service Tax Bill introduced in the Parliament

Section – 3

  1. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
  2. import of services for a consideration whether or not in the course or furtherance of business;
  3. the activities specified in Schedule I, made or agreed to be made without a consideration; and
  4. the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Schedule I

  1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
  2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

  1. Supply of goods—
    1. by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
    2. by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
  2. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

In paragraph 2 we find the wordings “Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as the supply of goods or services or both”.

The basis of the above, here we do not have any consideration received but still, GST has to be paid.

Gifts are not normally given to employees for their exceptional performance or during the festivals and these are not part of the offer letter or the appointment letter. Now under GST, ll such gifts either in kind or in cash or in form of services provided by the company will be taxed and it means that the company has to pay GST on such transactions.  When gifts are issued there is no consideration received from the employee, as discussed it is token of appreciation or for their loyalty.

Now companies or establishments have to pay GST similar to the reimbursement costs collected from the employees like issue of duplicate ID card etc.,

Though the schedule talks about the threshold limit of Rs 50,000 one thing which is not clear is “is GST applicable one the gifts from the one rupee or only on the amount which crosses Rs 50,000. As of now, the law is not clear on this point, we need to wait for the final rules and law.

Another question is how to pay the GST, does the company has to issue a tax invoice? If yes will the buyer and seller will be the same? Under which section of the GSTR – 1 return this tax invoice has to be shown? Clarity is also required in this context also.

Value of gifts issues in a financial year means total values of gifts issued during the financial year from time to time, this means that there should be a provision in the accounting or any other software the taxpayer is using to keep track of the same in the system by employee and that should be able to generate a tax invoice once it crosses Rs 50,000 for an employee.

The next question, can the registered taxable person claim input tax on the gifts procured to be distributed to the employees?  Input tax credit is eligible only if used for the furtherance of business or used for the outward supply of goods or services, this is clear from the section 16 and 17 of the CGST Act.  Say for example A Ltd wants to give  Diwali gift to all its employees Halidram sweet boxes costing Rs 3000 each. A Ltd incurs Rs 1,75,000 for bringing the sweet boxes to it is office as transportation costs, is GST paid on the inward transport cost is eligible to be taken as input tax credit?

Section 16 as input tax credit is eligible only if it used for the furtherance of business but in the case of gifts, it will directly impact the furtherance of business. Say if A Ltd does not give Diwali gifts to its employees their morale will come down and resulting in it lower performance and thereby impacting the furtherance of business. The basis of this logic can A Ltd take input tax credit on GST paid on the transportation charges?

Clarity is required in this context also else it can lead to disputes between the trade and industry.

It is normal practice to provide tea or coffee or any other beverage to the employees, though it is not part of the appointment or offer letter, does the cost of coffee or tea cost should be included gifts value? This is not recommended by the government so technically it has to treated as a gift if we go by the clause A of subsection 5 of Section 17 of the CGST Act.

  • the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

Or we have to wait for the list to be notified by the government, if yes then it should spell out that providing of coffee or tea is not to be treated as gift.

In the meantime, the companies have to relook their practice of giving gifts to employees and also have proper systems in place to pay taxes if any such a need arises. For this, the systems being implemented in place should track the gifts by the employee. The offer letter/appointment letters issued should be revisited and if required the clauses need to be modified in line with the GST requirements. The early they do this activity the better for the organizations.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

These examples are based on the information available in the public domain and authors interpretation of the law and may change based on the actual law passed.