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Dear Readers,

I have made the attempt to present this article in FAQ format by curiously and incisively watching and analysing, threadbare, the insightful discussions pertaining to clause 44 reporting in Form 3CD for the benefits of all the readers of this article.

FAQs - Clause 44 in Form 3CD under Section 44AB of the IT Act 1961

Clause 44 in Form 3CD under Section 44AB of the Income Tax Act 1961 - FAQs

Sr. No

Question

Answers

1

Clause 44 reporting viz. GST Details reporting is applicable to whom?

It is applicable to all the taxpayers who are required to file tax audit reports in Form 3CA/3CB and 3CD u/s 44AB of the Income Tax Act 1961. It is mandatory to report such information.

2

So, if Tax Audit Report filing is not applicable, then I need not report such details in my ITR? Can you share any examples?

Clause 44 reporting shall not apply to the cases of Taxpayers who are covered under the provisions of presumptive system of taxation say Section 44AD, 44ADA and 44AE of the Income Tax Act 1961 as they are not filing specified Tax Audit Forms as applicable under the provisions of the Income Tax Act 1961.

3

Is it necessary to have expert knowledge of GST for reporting such information in clause 44?

It is preferable if one has expert knowledge of GST law but not necessary; one can possess reasonable knowledge of the Indirect Tax provisions which should enable the reporting of such details in an adequatelyinformative and objective manner.

4

Can I depend upon work of the expert in Indirect Tax, to compile and validate such information for reporting in such clause?

Yes, one can rely on the work of an Expert as per the guidelines provided by ICAI, but one should remember as a Tax Auditor what one certifies in Form 3CA/3CB - this matters a lot as you are expressing your views about the truth and correctness of the data disclosed in Form 3CD. It is suggested that utmost professional care be exercised before such information is reported in general.

5

As a Tax Auditor, do I need to compile such information on my own, or through a team or through my associates or such information needs to be compiled and disclosed by the client and as a Tax Auditor I simply need to verify the data compiled on a test check basis and express my views on them?

Normally, such data is compiled by the client.

As a Tax Auditor, you will verify, validate and express your opinion on such data reported.

As a Tax Auditor, if your clients need some kind of guidance to compile such information, then, you may guide them as the case may be.

6

Is such reporting compulsory for AY 2022/23 only?

If Tax Audit is applicable, then it is compulsory to report such information in clause 44 of Form 3CD.

7

If Taxpayer is filing his Tax Audit report for AY 18/19, AY 19/20, AY 20/21 & AY 21/22 on or after 01.04.22 as due to some genuine &compelling reasons, he was not able to file them on the respective due dates for each of respective assessment years. If so, does clause 44 information need to be reported for each of the Assessment years?

In my considered opinion, clause 44 details need to be furnished for each of the Assessment Years viz. AY 18/19, AY 19/20, AY 20/21 & AY 21/22 if they are filed electronically on or after 01.04.2022.

8

Do I need to generate separate UDIN for reporting the information under clause 44 of the Tax Audit Report?

No separate UDIN is required for reporting of such information in clause 44 of the Form 3CD.

UDIN generated for Tax Audit Reports would serve the purpose for the authentication of the data.

9

Whether compilation of such information would burdensome or humongous or stressful?

If Master Data maintained by the Taxpayer is accurate, then it may be possible to compile such data in a swift manner.

If such records are not maintained, then such compilation can be humongous or stressful.

10

Whether such information is required to be reported as per Income Tax Act, 1961 or GST Act,2017?

In my humble view, such information should be reported as per Income Tax Act,1961 as such requirement is derived from the provisions of the Income Tax Act directly.

Information and data maintained as per GST Act, 2017 can provide desired corroborative support.

Thoughthere is a divergent view prevailing in public domain that data should be compiled as per the provisions of GST Act, 2017.

Whatever modus one follows - should be disclosed in the Observation and Remarks fields of Form No 3CA/3CB as the case may be.

11

What information is sought to be reported in clause 44?

Information sought to be provided (Table 1) is as under:

  1. Total Amount of expenditure incurred during the year (Column 1) 
  2. Expenditure in respect of entities registered under the GST
  • Relating to the goods or services exempt from GST (Column 1.1a)
  • Relating to the entities falling under composition scheme (Column 1.1b)
  • Relating to the other registered entities (Column 1.1c)
  • Total Payment to Registered entities (Column 1.1d) = Total of (1.1a+1.1b+1.1c)
  1. Expenditure relating to entities not registered under GST =Column 1 minus Column (1.1d)

12

Whether all the above details to be reported is on mercantile basis or cash basis?

In my humble opinion, it is to be reported on mercantile basis in most situations, because only select assessee can follow cash system of accounting as per section 145 of the Income Tax Act 1961.

Thus, depending on the method of accounting as regularly followed on YOY basis consistently under the Income Tax Act 1961, one can report such information in clause 44 of the Tax Audit Report.

Further, literally, if we consider the provisions of GST law, compliance is based on mercantile basis and there are no provisions under GST law which provides for payment of GST on cash basis, which was permitted in the erstwhile service tax regime for certain class of service providers. Thus, again I would like to emphasize that for reporting, mercantile system should be followed to the extent possible except where Assessee is following cash system of accounting under Income Tax Act 1961.

Though, there is a divergent view prevailing in public domain that data/information should be compiled & reported on payment basis under the said clause.

If data is reported on payment basis, then, it would require additional reconciliation to be maintained which would need to be submitted during the Income Tax as well as GST assessments.

Whichever view one is following, should be disclosed in the Observation and Remarks fields of Form No 3CA/3CB as the case may be.

13

Whether expenditure to be reported should be inclusive or exclusive of ITC (Input Tax Credits) for reporting the information under clause 44?

In my humble understanding, information should be reported exclusive of ITC (Input Tax Credits) consisting of Inputs, Input Services and Capital goods as the case may be.

I derive my support from the provisions of Section 145A of the Income Tax Act 1961 which provides for making additions and/or deductions while determining total income u/s 28 of the Income Tax Act 1961 in respect of inventories, stocks and so on.

14

Considering the above, do I need to report Depreciation claimed as per the provisions of Companies Act and/or Income Tax Act, 1961 in value of total expenditure to be reported in clause 44?

In my humble view, Depreciation should not be considered while reporting the details of total expenditure as Depreciation is in the form of Depreciation allowance and it is not an expenditure in a true sense. (Column 1)

Tax Auditor should suitably disclose such view in the Observation and Remarks option of Tax Audit Report in Form 3CA/Form 3CB.

15

Considering the above, do I need to report expenditure incurred for the capital expenditure on purchase/acquisition and transfer of Fixed Assets as per the provisions of Companies Act and/or Income Tax Act, 1961 in value of total expenditure to be reported in clause 44?

In my humble view, expenditure incurred ofa capital nature on purchase/acquisition and transfer of Fixed Assets as per the provisions of Companies Act and/or Income Tax Act, 1961 should not be considered while reporting the details of total expenditure, as in my understanding expenditure which are debited to Profit and Loss account only should be considered barring few exceptions like Depreciation and Bad Debts written off etc. (Column 1).

Further, proportionate ownership of Capital Expenditure can't be reported as none of vendors shall issue proportionate tax invoice as per section 31 of CGST Act, 2017.

Thus, in my view Capital expenditure should be excluded for reporting as total expenditure in column 1 of Clause 44.

Guidance notes issued by ICAI states that capital expenditure should be considered for reporting in the total expenditure details. (Column 1).

Tax Auditor should suitably disclose such view in the Observation and Remarks option of Tax Audit Report in Form 3CA/Form 3CB.

16

What should be considered for reporting of Total Amount of expenditure incurred during the year (Column 1) 

All expenses as debited to Profit and loss account should be considered except the following:

  1. Depreciation as per companies act 2013 or Income Tax Act 1961.
  2. Bad Debts written off
  3. Provision for Income Tax
  4. Provisions for Gratuity
  5. Provision for Leave Encashment
  6. Deferred Tax if debited to profit and loss account etc.

17

Why do you recommend the reporting of Total expenditure in answer to Q.16? Please explain.

I am recommending the reportingof Total Expenditure as per Profit and Loss account except certain items in view of the following reasons:

  1. It would ease out the process of calculating, computing and validating details for such reporting in clause 44;
  2. Such details can be easily extracted from Audited Profit and Loss account as well as accounting reports maintained by the Taxpayer for their internal records.
  3. If compiled in the above manner, such reconciliation can be easily explained in Income Tax as well as GST Assessments.
  4. In case of assessee having multiple GSTIN Numbers spread across the country, would also draw only one set of financial statements based on PAN, and Tax Audit report is also issued for single PAN.

18

If we report total expenditure as explained in Q.16 & Q.17, then do we include provision for expenses as well as Prepaid expenditure etc.

In my view, all kinds of the provisions for expenses as well as prepaid expenses should be considered except what is stated in answer to Q.16. Such expenditure should be reported based on the documentary evidences available as per the records of the assessee for each of the previous years.

If Provision for expenses is made for FY 2122, TDS is also deducted but Tax Invoice/Invoice is received by the Assessee in next FY viz. FY 2223, then based on the documentary evidences it would be reported appropriately in clause 44 of the next financial year but such provisions for expenses would be reported as expenditure from Unregistered entities for FY 2122 for reporting in clause 44 for AY 2223.

There is a divergent view prevailing in the public domain but considering my justification in answer to Q.17 one can decide suitably.

19

Is such information to be reported in summary form or detailed form in each of the columns of clause 44?

Details should be provided in a summary form but working papers should be prepared in a detailed manner considering the size, nature and volume of the business activities of taxpayer in general and consolidated values should be considered for reporting in clause 44.

MIS reporting can be customized for each assessee as per the requirements and it would always be customized appropriately.

20

Is it necessary to reconcile the information of expenditure as per GSTR 9 & GSTR 9C for the respective financial year or previous year?

If possible, to reconcile, such information may be reconciled to the extent possible.

Reconciliation issues may arise due to multiple GSTIN Registrations as well as claim of ITC pertaining to previous financial year in the current year and current year's ITC claimed in the next financial year/s as per the limits provided u/s 16(4) of the CGST Act, 2017.

21

Whether books of accounts and records maintained as per Income Tax Act 1961 to be considered or whether books and records maintained as per GST Act, 2017?

In my personal view, books and records maintained as per the provisions of Income Tax Act 1961 to be considered primarily because such information is getting reported under the provisions of Income Tax Act 1961 and not GST Act, 2017.

Books and records maintained as per GST Act, 2017 can provide additional support.

Further, it is also clarified by Govt that Books of account and records maintained under the provisions of Income Tax law and/or Corporate Law would be termed as books and records maintained under GST law for reporting and compliance purposes also.

Practically for Clause 44 reporting, Books and records as per Income Tax Act 1961 should be considered.

Taxpayer as well as Tax Auditor can clarify the same in notes to accounts or Tax audit reports as per their professional judgement.

22

Under which sections books of accounts & records are required to be maintained under the provisions of Income Tax Act 1961?

Books of accounts and records that are required to be maintained are specified u/s 44AA of the Income Tax Act 1961 based on the Category A & Category Bclass ofAssessees excluding persons covered under presumptive sections viz. 44AD/44ADA and 44AE.

Notified Professions

legal, medical, engineering or architectural or accountancy or authorized representative or technical consultancy or interior decoration, film artist, Company Secretary, Information Technology or other notified + Authorised representative

Category A

  • Income exceeding Rs.120000 for others (for Individual and HUF Limit is Rs.250000/-
  • Sales/Turnover/Gross receipts exceeding Rs.10 Lakhs (for Individual and HUF Limit is Rs.2500000/-
  • Medical Professionals – 3C Patients Register and Stock register

Category B

  • Rule 6f - Gross Receipts exceed Rs.150000/- & similar amount for Newly set up profession
  • Cash Book, Journal and Ledgers, Carbon Copies of Bills issued in excess of 25 rupees, Original Bill where expenditure exceeds Rs.50

Notified Professions

legal, medical, engineering or architectural or accountancy or authorized representative or technical consultancy or interior decoration, film artist, Company Secretary, Information Technology or other notified + Authorised representative

23

Under which sections books of accounts & records are required to be maintained under the provisions of GST Act 2017?

Section 35 read with Rule 56- Accounts and other records – plus correlated with GSTR 3B/GSTR 9/ GSTR 9C/E Way Bills records in general

  • Production or Manufacturer
  • Inward supply of Goods or services or both (Including RCM Supplies)
  • Stock of goods
  • Input Tax Credit availed – Inputs/Input Services/ Capital Goods etc.
  • Output Tax payable and paid
  • Such other particulars as may be prescribed

Food for Thought: whether such requirement is not provided under any other law/s applicable to business enterprises which are subject to Tax Audit like Companies Act etc.

24

Is there any kind of Interplay between Income Tax/ Corporate Law and GST?

  • To my understanding there is a definite interplay in the Income Tax, Corporate Law and GST statutes with certain overlapping provisions.  In brief, these can be summarized below
  • Income Tax & Corporate Law
  • ITR, TAR Reporting & Financial Statements etc. – information reported
    • ITR -Break of Expenditure in Profit and Loss Account – Part A – Manufacturing, Trading and Profit and Loss Account
    • ITR – Inventory valuation & ICDS in Part A-OI & Computation schedule
    • ITR – Part A – Quantitative details – principalitems (mandatory if liable for TAR)
    • ITC availed, booked and Utilised in Clause 27(a) of TAR – Form 3CB
    • Inventory details in Clause 35 of TAR – Form 3CB
    • Inventory details in Corporate Financial statements – principalitems – Notes to accounts & CARO disclosures

GST law – Information reported

  • NIL, Exempted and Non-GST Supply
    • GSTR 3B – Table 5 – Inward Supplies
  • GSTR 9- Other Information
    • Part III - Table 6 -7 & 8- ITC,
    • Part VI
      • Table 15- if accumulated ITC refund is claimed u/s 54
      • Table 16 - Row A – Supplies received from Composition Taxpayers. 
      • Table 18 – HSN wise supplies of Inward supplies
  • GSTR 9C 
    • Table 14- Reconciliation of ITC declared in Annual Return (GSTR9) with ITC availed on expenses as per audited Annual Financial Statement or books of account

25

Please define Exempt, NIL rated and non-GST supply made by registered persons under GST Act 2017.

Exempt Supply

Section 2(47) of CGST Act defines Exempt supply - means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

Nil rated supply

means supply of any goods or services or both which attracts nil rate of tax as notified under section 11, or under section 6 of the Integrated Goods and Services Tax Act.

Non-Taxable Supply

Section 2(78) of CGST Act, 2017 "non-taxable supply" means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;

26

Please provide illustrative examples of summary information to reported under column 1.1a – Exempt, NIL rated and non-GST supply made by registered persons under GST Act 2017.

Illustrative Examples

  1. High Seas Sales
  2. Custom Bonded Warehouses
  3. Purchase of Land
  4. Purchase of Buildings
  5. Banks – Interest on monies borrowed

27

Please define Composition Supply under the provisions of GST Act 2017.

Registered Taxable person who is registered under section 10 of CGST Act, 2017 viz. Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees.

[Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.]

28

Please provide illustrative examples of summary information to reported under column 1.1b- Supply for Composition persons registered under GST Act 2017

Suppliers who are issuing Bill of Supply Invoices without levying any kind of levies viz. GST. In view of such invoices, Buyers cannot claim input tax credit because on their invoices no GST levies are charged by such composition dealers.

Typically, small vendors who are registered u/s 10 whose aggregate turnover is less than 1.50 crores. Viz.

  1. Printing and Stationery vendors
  2. Gift and Articles Vendors
  3. Certain Professionals earnings less than Rs.50 Lakhs
  4. AMC Vendors etc.

29

Please define Registered persons under GST Act, 2017.

Section 2 (94) of CGST Act, 2017 defines "registered person" means a person who is registered under section 25 but does not include a person having a Unique Identity Number;

30

Please provide illustrative examples of summary information to reported under column 1.1c – supply made by Registered persons under GST Act, 2017.

Illustrative examples- Suppliers Registered under GST Provisions

  1. B2B Supplies
  2. SEZ Suppliers for which BoE filed by the Buyers
  3. RCM supplies under B2B Supplies viz. GTA, Advocates Firms, Sponsorship Invoices etc.
  4. Printing and Stationery
  5. Telephone & Mobile Service Providers
  6. Electricity Vendors
  7. Postage, Telegram and Courier services
  8. Airlines
  9. Travelling Agents
  10. Bankers – Bank Charges & Loan Processing charges
  11. Labour Charges
  12. Office Rent and Compensation
  13. Transporters
  14. Professionals
  15. Interest on Credit Card Dues etc.
  16. E commerce operators
  17. Radio Taxi Operators
  18. Job work service Providers

31

Please define Unregistered persons under GST Act, 2017.

Not defined but a person who is not registered under the provisions of GST Act, 2017 would be termed as Unregistered Persons.

32

Please provide illustrative examples of summary information pertaining to Unregistered supplies for reporting under GST Act, 2017.

Illustrative examples- Supplies from unregistered persons under GST Provisions

  1. Purchases - Unregistered Suppliers 
  2. Salaries
  3. Director Remuneration
  4. Imports of Goods – information can be derived from ICEGATE details
  5. Import of Services for which self-invoices are made.
  6. RCM supplies
  7. Printing and Stationery
  8. Electricity Vendors
  9. Postage, Telegram and Courier services
  10. Travel Agents
  11. Labour Charges
  12. Office Rent and Compensation
  13. Transporters
  14. Professionals
  15. Job work service Providers
  16. Conveyance

33

If Tax Audit Report is revised for AY 2122 today, then whether clause 44 information needs to be reported in such revised tax audit report?

In my humble opinion, clause 44 needs to be reported in such Revised Tax Audit Report to be filed as on today.

34

Is there any possibility whereby clause 44 reporting would be deferred again for AY 22/23?

In my understanding, clause 44 is not likely to be deferred again.

35

If details can't be compiled for reporting as per the information desired in clause 44, what should be done?

In my humble view, Tax Auditor should be extremely studied and cautious while reporting on such aspects in the observations and remarks, as such narrative needs to be drafted in a meticulous manner - so that such remark prima facie doesn'ttrigger any undesirable issues during the Income Tax as well as GST Assessments of the Taxpayers.

36

Last but least can you kindly suggest any suitable thumb rule to be followed for reporting under this clause in general?

As a thumb rule, source document in the form of Suppliers Invoice/Bills/Vouchers etc. and its data configuration and data mapping in the accounting systems would determine the classification of value to be reported for the purpose of GST Reporting under clause 44. 

 

Table 1- Clause 44 - GST Reporting Information

Clause 44 – GST Reporting Information

Table 2- Clause 44 - GST Reporting Information - Detailed

Clause 44 – GST Reporting Information – Detailed

 

(Note: Views expressed are my personal views and they may not be accepted by the Government. All readers are requested to take their considered views based on their own study and research to reach any suitable conclusions. There can be many other situations under the law/s but I have tried to establish the seed of thought by way of this article in the minds of readers. Suggestions to improve the article is always welcome with folded hands).


 

Published by

Nitin Bhuta
(Chartered Accountants)
Category Income Tax   Report

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