Annual Return & Audit in GST – Practical Issues

1. Annual Return & Audit in GST – Practical Issues CA. Palkesh Asawa

2. Objective for today’s session CA. Palkesh Asawa To understand the intricate issues in preparing for and filing of GST Annual Return and GST Audit To foresee practical difficulties that might arise at the time of filing, and to brace ourselves for impact To come up with solutions to specific issues that we might be facing or will likely face while preparing

3. Quick clarifications & FAQs CA. Palkesh Asawa

4. Who has to file Annual Return? CA. Palkesh Asawa • All registered persons except ISD, TDS/TCS, CTP, NRTP • GSTR-9 has to be filed even if registered for part of the year • Cancellation of provisional registration – GSTR-9 not required • GSTR-9 has to be filed in addition to GSTR-10 (final return) • In case registration not yet migrated, migration to be completed first • Composition to regular shifting – both GSTR-9 and GSTR-9A for applicable parts of the year

5. Applicability of GST Audit CA. Palkesh Asawa • GST Audit is applicable if aggregate turnover > ₹2 Crores • Taxable supplies • Exempt supplies • (includes nil rated, exempted and non-taxable supply) • Exports • Inter-state transactions of persons having same PAN • To be seen on all India basis • If the aggregate turnover exceeds ₹2 Crores, then all registrations require separate audit, even if nil turnover

6. What about other transactions/incomes? CA. Palkesh Asawa • Reconciliation of GSTR-9 and ITR must be done • Tricky issues: • Sale of land/building – commercial or residential purpose • Interest on fixed deposits • Trading in securities • Gifts received • Difference between ‘non-taxable supply’ and ‘no supply’

7. Basics of turnover and supply CA. Palkesh Asawa Audit is applicable if turnover exceeds ₹ 2 Crore Turnover = Taxable + Exempt supply Exempt supply = Nil-rated + Exempted + Non-taxable supply Non-taxable supply = Supply + Not chargeable to tax Supply = Goods/Service + Consideration + Businessandnot in Schedule-III Goods/Service excludes money and securities

8. Basics of turnover and supply CA. Palkesh Asawa • However, sale of land/building and securities shall be included while determining ‘exempt supply’ for Sec. 17 • Other entries in Schedule – III shall not be included so • Similarly, for the purpose of reporting in GSTR-9, they have amended the form and included ‘no supply’ in the column talking about ‘non-taxable supply’, i.e. Table 5F

9. Basics of turnover and supply CA. Palkesh Asawa

10. What information has to be filed in GSTR-9? CA. Palkesh Asawa • Should we refer to GSTR-1, GSTR-3B or books? • One should refer to the correctposition • How to reconcile data • Correct information to be filed in GSTR-9 and working to be kept to explain differences along with reasons thereof • Even the books might have to be changed in certain cases, for this we may have to treat it as ‘prior period item’

11. Form GSTR-9 and GSTR-9C CA. Palkesh Asawa • Difference between these formats is important • GSTR-9 is the annual return • To be filed by all registered persons (no turnover limit) • It aims to summarise the values declared in GSTR-1 and GSTR-3B • GSTR-9C is the reconciliation form • It is to be filed by those who are liable for GST audit • It aims to reconcile the annual return (see above) with books • Hence, understanding the books becomes important

12. Purpose of GSTR-9C CA. Palkesh Asawa • Reconciliation of books with the annual return • Hence, we need to understand the possible reasons as to why there might be a difference in the books of account with the annual return as per GST • Books of accounts are as per prevalent accounting standards • Annual return shows the “supplies” as per GST • Therefore, an intricate understanding of both is needed

13. What information is to be shared online? CA. Palkesh Asawa • For normal taxpayers – GSTR-9 only • For those who are liable for GST Audit: • GSTR-9 • GSTR-9C (reconciliation) • Audited annual accounts • Portal is allowing to file P&L Account, Balance Sheet and two other documents (Maximum 2 files and 5 MB each)

14. Meaning of books of account CA. Palkesh Asawa • Balance sheet • Profit & Loss account • Cash flow statement • Other records required by law (Section 35) • Production and manufacture • Inward and outward supply • Stock of goods • Input tax credit availed • Output tax payable and paid • Other prescribed documents (Rule 56)

15. Structure of GSTR-9 and GSTR-9C CA. Palkesh Asawa

16. Structure of GSTR-9 CA. Palkesh Asawa • Options to show outward supply • Table 4 (first part) – for original details • Table 4 (second part) – for amendments/DN/CN in the year • Table 10/11 – for amendments after the year • In B2C, Credit/Debit notes to be adjusted in the original detail itself, but amendments to be shown separately. • For inward supply, it has to be segregated between type of supply, and whether under forward/reverse charge

17. Structure of GSTR-9 – outward supplies • Important Notes • Debit/Credit notes to be taken into effect in the year they were issued • Amendments not resulting in change in tax/value may be ignored • Amendments in FY 17-18 and FY 18-19 need to correspond with tax adjustment CA. Palkesh Asawa

18. Examples – Errors/Amendments CA. Palkesh Asawa

19. Examples – Errors/Amendments CA. Palkesh Asawa

20. Examples – Errors/Amendments CA. Palkesh Asawa

21. Examples – Errors/Amendments CA. Palkesh Asawa

22. Examples – Errors/Amendments CA. Palkesh Asawa

23. Examples – Errors/Amendments CA. Palkesh Asawa

24. Examples – Errors/Amendments CA. Palkesh Asawa

25. Examples – Errors/Amendments CA. Palkesh Asawa

26. Examples – Errors/Amendments CA. Palkesh Asawa

27. Examples – Errors/Amendments CA. Palkesh Asawa

28. Examples – Errors/Amendments CA. Palkesh Asawa

29. Thumb rules for errors’ adjustment CA. Palkesh Asawa • Entries in Table 10/Table 11 to be made only if: • Actual adjustment of tax is done in FY 2018-19 (through 3B) • The next year’s tax payment will be reduced by this extent • Amendments to be separately reported if the tax effect corresponding to it also made in the same financial year • Reconciliation with both GSTR-1 and GSTR-3B to be made

30. How to reconcile GSTR-9 with other returns? CA. Palkesh Asawa • GSTR-1 B2B total should ideally match with total of: • Table 4B: Regular invoices • Table 4D: SEZ with payment • Table 5B: SEZ without payment • Table 5C: Outward supplies liable to RCM • GSTR-1 Exports total should match with total of: • Table 4C: Exports without payment • Table 5A: Exports without payment

31. How to reconcile GSTR-9 with other returns? CA. Palkesh Asawa • GSTR-3B zero rated supply should match with total of: • Table 4C: Exports with payment • Table 4D: SEZ with payment • Table 5A: Exports without payment • Table 5B: SEZ without payment • GSTR-9 Table 4F (unadjusted advance) must be equal to: • GSTR-1 – Advances Received • (minus) GSTR-1 – Advances Adjusted • (Plus/minus) GSTR-1 – Amendments in advances

32. How to reconcile GSTR-9 with other returns? CA. Palkesh Asawa • GSTR-9 B2C should be equal to total of: • GSTR-1 B2C (Small) • GSTR-1 B2C (Large) • (Minus) CDNR (URD) – if related to B2CL only • Inter-state B2C (i.e. IGST) should be equal to: • GSTR-3B Table 3.2 (inter-state unregistered supplies) • GSTR-1 B2C tables of all states except registration state (mostly MP)

33. Input Tax Credit CA. Palkesh Asawa

34. Segregation of inputs, capital goods, input services CA. Palkesh Asawa Inputs means goods other than capital goods Capital goods means goods which are capitalised in books Input services means services Special care to be taken for following Services which are capitalised in books Goods booked as expenses in P&L account Mixed and composite supplies

35. Reverse Charge – Registered & Unregistered CA. Palkesh Asawa • Reverse Charge has to be split in six parts: • Registered supplier • Inputs • Capital goods • Services • Unregistered supplier • Inputs • Capital goods • Services • This is not about 9(3) and 9(4) – it is applicable to any RCM tax depending on whether supplier is registered or not • One may refer to GSTR-2A for help in this segregation

36. ITC Reversals CA. Palkesh Asawa • Rule 37: non-payment of consideration to supplier • Legal sanctity may be challenged, but law is clear at 180 days • Reversal and reclaim to be shown even if not actually done • Rule 42/43: reversal for non-business and exempt supply • Exempt supply includes RCM, transactions in securities, sale of land and sale of building after completion • However, “exclusively related” to taxable supply may be taken

37. Rule 42 – explained in brief CA. Palkesh Asawa

38. GSTR-9C and GST Audit Formats CA. Palkesh Asawa

39. Bird’s eye view of GSTR-9C CA. Palkesh Asawa Basic details Reconciliation of turnover (GSTR-9 v/s books) Reconciliation of taxable turnover Reconciliation of tax paid Additional amounts payable due to differences above Reconciliation of input tax credit (GSTR-9 v/s books) Reconciliation of ITC (expense wise) Tax payable due to unreconciled ITC Auditor’s recommendation of additional liability

40. Reconciliation of turnover CA. Palkesh Asawa First, we have to compute the “turnover” as per audited financial statements (derive for respective GSTIN) After this, we have to make 14 adjustments to the turnover (either add/less) with an aim to reconcile the turnover with that reported in GSTR-9 If there is a difference left unreconciled, to give reasons

41. What are these 14 adjustments? CA. Palkesh Asawa Things to add Opening unbilled revenue Closing unadjusted advances Deemed supply Credit notes after year-end Trade discounts disallowed Things to reduce Turnover for April-June Closing unbilled revenue Opening unadjusted advances Credit notes impermissible Supply by SEZ to DTA Turnover u/s section 10

42. What are these 14 adjustments? CA. Palkesh Asawa • In addition, three adjustments can be reduced/added: • Valuation adjustments • Forex fluctuation adjustments • Any other (reason not listed) • After all these adjustments, the net figure should match with the turnover reported in the GST Annual Return filed in form GSTR-9, and differences to be explained

43. What does the certification include? CA. Palkesh Asawa If GSTR-9C is made by the CA who also audited the books • Examined the P&L, BS and CFS • Has maintained books of accounts as required by law • Report that: • Certain discrepancies observed… list • Report that: • Obtained all information necessary for audit • Whether proper books maintained or not • P&L, BS and CFS are in agreement with books of account

44. What does the certification include? CA. Palkesh Asawa If GSTR-9C is made by the CA who also audited the books Documents u/s 35(5) and GSTR-9C annexed herewith The information given in GSTR-9C is true and correct subject to the qualifications mentioned

45. What does the certification include? CA. Palkesh Asawa If GSTR-9C is made by some other CA Audit conducted by another CA (name of that CA) and we annex the report and financial statements Declare whether books of account maintained GSTR-9C and books u/s 35(5) annexed Information in form GSTR-9C is true and correct

46. Common Issues & Potential Solutions CA. Palkesh Asawa

47. ITC not reconciled with GSTR-2A CA. Palkesh Asawa • ROD mandates matching with GSTR-2A • One may claim ITC even if not matching: • Procedure for matching not yet activated (Section 42-43) • Corrections are allowed till filing of return u/s 39 • Conditions of Section 16 are not dependent on GSTR-2A • GST Rules mention that RP can add, amend, edit GSTR-2A • Writ petitions being filed against this mandate on the grounds that it violates the taxpayer’s right

48. Deferred ITC option not visible CA. Palkesh Asawa • Supplier issued invoice in March, goods received in April • This cannot be shown as ‘availed in FY 2018-19’ • This cannot be availed in FY 2017-18 • Practical solution – to leave both these rows empty: • Available but not availed • Available but ineligible • Balancing positive difference can stay in GSTR-9

49. Differential tax to be paid in cash CA. Palkesh Asawa • As per GSTR-9 and GSTR-9C, any additional liability reported at the time of filing these returns must be made through electronic cash ledger only • There is no basis to support this in law • So what can be done about this? • To consider whether adjustment can be shown in FY 18-19 • Can we file DRC-03 using “others” option directly?

50. Value of ‘GSTR-2A’ is not proper in the portal CA. Palkesh Asawa • GSTR-2A downloaded from portal and that appearing as auto populated in GSTR-9 are different • We can wait for the portal GSTR-9 to update itself • Grievance to be raised in case of such difference • Suggest to capture screenshot in order to save ourselves from any notices/enquiries in this relation in the future