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15 Important Points of GST in Income Tax Audit to be Taken Care off!

CA Umesh Sharma 
on 01 December 2020

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Arjun(Fictional Character): Krishna, why taxpayers and professionals are very busy these days in Dec 2020?

Krishna(Fictional Character): Arjuna, After the relief of Corona now tax audit season is approaching. 31st December 2020 is the due date of the audit of Income-tax audit for AY 2020-21. Further assesses who are not under audit also need to file their Income tax returns before 31st Dec to avoid late fees.  Also, 31st December 2020 is the due date for filing of GST Audit and the annual return of FY 2018-19. Thus taxpayers should take care of GST as well as Income tax.

Arjun(Fictional Character): Krishna, What are the important points of GST which are to be remembered while doing Tax Audit under Income Tax Act, 1961?

15 Important Points of GST in Income Tax Audit to be Taken Care off

Krishna(Fictional Character): Arjuna, the following are few important points of GST which shall be checked while doing Income Tax Audit and filing form 3CD:

  1. Clause 4: The GST number of the assessee should be reported in clause 4 of the Tax Audit Report (TAR)
  2. Clause 10(b): Taxpayers should keep in mind that the nature of business as reported in this clause and as shown at the time of GST registration are in the same line. IF there is any change in the nature of business then GST registration shall be amended for the same.
  3. Clause 13(f): ICDS-II requires that the valuation of sales, purchase, stock, etc to be reported at the value including an input tax credit of GST. However, the overall impact is nil on the profit and loss account.
  4. Clause 16(d) & (e): In this clause, income which is not reported in the profit and loss account e.g. rent income credited to the capital account of the proprietor. Taxpayers should keep in mind that if GST is payable on such income or not.
  5. Clause 17: As per Income-tax Act, sale consideration for the transfer of land or building or both is considered as the transaction value or the value for stamp duty purpose, whichever is higher as per section 43CA. Taxpayers should keep in mind that GST if applicable in case of transfer of under constructed building in case of builders and developers is required to be paid on the transaction value.
  6. Clause 18: This clause requires the reporting of depreciation charged on fixed assets. Taxpayers should keep in mind that if depreciation is claimed then input tax credit of GST portion is not available and vice-versa.
  7. Clause 21(a): This clause requires reporting of expenditure of personal nature debited to profit and loss account. In such cases, taxpayers should check whether the input tax credit is blocked under section 17(5) of CGST Act, 2017. For example, expenses for personal purposes, membership fees of the club, etc.
  8. Clause 21(8): This clause requires reporting of tax deducted at source of foreign parties. Taxpayers should keep in mind that services imported from the foreign party are treated as supply under GST and IGST is liable to be paid under RCM.
  9. Clause 27: Details of Cenvat opening, closing, etc figures need to be given herewith. However, ITC as per the GST Act is to be given in Clause 44.
  10. Clause 23: Related party transactions are reported under this clause. Taxpayers should check that if ITC is not available to the related party (buyer) then the taxable value for charging GST needs to be derived from the valuation rules.
  11. Clause 26: This clause required reporting of the taxes and other government dues paid within the due date. Taxpayers should check that for the month of March GST is paid within the due date.
  12. Clause 41: This clause requires the reporting of taxes demanded and refunded. Taxpayers should report the amounts of GST refunds received or demands raised.
  13. Clause 44: Break up of total expenditure and ITC details as per GST is to be reported here. However, this clause is kept at abeyance till 31st March 2021.
 

Arjun(Fictional Character): Krishna, Krishna, what are the details of GST required to be reported in Income tax returns ITR 3,4,5, and 6?

Krishna(Fictional Character): Arjuna In income tax returns of business and profession following information is asked for:

  • Business-related information in the Income-tax return: The taxpayer should report here the outward supplies as per GST returns.
  • Form 26AS: Summary of sales reported in GST returns is being reflected in 26AS. However, there could be differences in GST sales and sales as per income tax due to reasons like branch transfers, etc. Taxpayers should make the reconciliation statement of the sales as per GST returns and sales as shown in the Income-tax return.
 

Arjun(Fictional Character): Krishna, Krishna, what should we learn from this?

Krishna(Fictional Character): Arjuna,  With the use of information technology, information can be used for various purposes. GST and income tax departments are using information technology to share data with each other on the basis of which notices could be issued. In the future integration of income tax and GST, data will go hand to hand hence taxpayers should avoid mishandling of information.


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