Things to be kept in mind before finalization of Books of Account: Income Tax & GST

Finalization of accounts means checking and reconciling books of accounts whether they are as per Companies Act, GST and Income Tax provisions. Generally, books of accounts are finalised at the end of the year but it is always better to check periodically i.e. monthly or quarterly. If they are not made as per Companies Act, GST and Income Tax requirements then it becomes the duty of the responsible person to reconcile books of accounts.

Followings are the points that have to be kept in mind before finalizing books of accounts

Goods & Service Tax (GST)

• Ensure all the GST Return are filed within due date and if there is a mistake in any GST return filed during previous year then it should be rectified in an annual return of GST i.e. GSTR-9.
• Reconcile the sales, purchase, output tax and input tax with GST Returns.
• Ensure ITC is not claimed on the commodities specified in section 17(5) of CGST Act. If claimed then it should be reversed with interest @18% PA.
• Make sure if ITC is claimed on any asset then its actual cost should be reduce equal to ITC value for computing depreciation. For e.g. if asset is purchased for Rs 1,00,000 (including GST of Rs 18,000) then if ITC is to be claimed on this asset then its  actual cost for the purpose of depreciation would be Rs 82,000 in Income tax and depreciation shall be calculated on this value.
• Ensure the supplier from whom we have made purchase, filed his GSTR-1 upto due date so that our inward supply reflect in our GSTR-2B and we can claim ITC.However, it also important to remember that input that we claimed should be matched as per our GSTR-3B.
• Collect confirmation regarding the ledger balance of the Creditor/Debtors. It will help to reconcile your books of accounts and required at the time of Audit too.
• Ensure whether on GST portal any notice is send by GST Department; if yes then make sure reply is submitted on or before the due date of filing of reply.
• If turnover exceed Rs 2 crore then person is required to file GSTR-9 and if it exceeds Rs 5 crores then required to file GSTR-9C Therefore  person should be more careful regarding his sales turnover whether it is exceeding  as per above  limit or not.
• As per section 16(2) where buyer fails to make payment within 180 days from the date of invoice and claim input as per GSTR-2B then ITC, which is earlier claimed, shall be reversed along with an interest of 18% p.a. in the GSTR-3B for the tax period immediately following the period of 180 days from the date of invoice. Therefore make sure payment is done to supplier within 180 days.
• If any Supplier export goods or services to the country outside India then make sure letter of undertaking (LUT) which allow exporter to export goods or services without payment of GST is filed upto due date i.e. on or before 31st march of starting of financial year.
• If any capital assets is sold during the year and ITC taken on such capital assets at the time of purchase then GST should charge at the time of sale.
• In case of Reverse Charge Mechanism (RCM) applicability then ITC can only take based upon payment of RCM.

Income Tax

• Make sure that we prepare comparative books of accounts For e.g. if we prepare books of account for P.Y 2023-24 then we should prepare books of accounts for this year along with P.Y 2022-23, it is mandatory in case your books of accounts is required any audit and also it will help outsiders like customers, shareholders or banks to evaluate the financial performance of company or firm.
• If personal expenses are considered in preparing P&L a/c then it should be added back to net profit for calculation of profit under Income Tax. Because personal expenses are not allowed under Income Tax Act.
• Confirm TDS on specific payment deducted and paid up to due date.
• TDS receivable should be matched with Form 26AS and AIS.
• In case SFT is applicable then it should file on or before 31st May of the following year.
• In case of Partnership firm, Interest on capital and Remuneration should not exceed the limit specified in Income Tax.

• Make sure Depreciation is calculated as per section 32 of Income Tax for computing tax i.e. WDV method and rate specified in Income Tax Act only.
• As per the latest amendment in Section 43B of Income Tax Act Creditors as on 31st march should not be older than limit specified in section 15 of MSME Act i.e. 45 days if there is agreed date or 15days if no agreed date is specified. If it is so, then it should be disallowed.
• Ensure payment for purchasing asset in cash in a day for more than Rs.10,000/- should not be part of actual cost of asset, if it is there then depreciation will not allowed.
• Ensure advance tax is paid up to due date.
• Prepare bank reconciliation statement to reconcile the balance as per cash book and pass book.
• Ensure no provision for bad debt is taken for computing profit under Income Tax.
• Make sure that receipt in cash in a single day from a single person should not exceed Rs 2 lakh as per section 269ST of Income Tax Act. If it exceeds Rs 2 lakh then a penalty of the amount equal to the receipt has to pay. For e.g. If person accept Rs. 2,50,000/- in a single day from a single person then he shall be liable to pay Rs. 2,50,000/- under section 271DA of Income Tax Act.
• If turnover exceeds Rs 1 Crore in case of business or gross receipts of Rs. 50 lakh in case of profession then Tax audit is compulsory as per section 44AB of Income tax. Therefore person should be more careful regarding his sales turnover or gross receipts whether it exceed as the above limit.