Increase sales turnover tax pay procedure for composite dealer

A discrepancy between your reported turnover in GST returns and your Income Tax Return (ITR) is a significant compliance issue that can trigger scrutiny from tax authorities. Because the GST and Income Tax departments now share data for cross-verification, such mismatches are frequently flagged by automated systems.

Here is the breakdown of how to address this:

1. Identify the Reason for the Mismatch

Before taking any action, you must determine why the turnover figures differ. Common legitimate reasons include:

• Accounting Methods: GST follows the "time of supply" rules, while Income Tax may use accrual or cash-based accounting.

• Exclusions/Inclusions: Certain receipts (like interest, rent, or exempt income) might be included in your ITR turnover but excluded from GST turnover.

• Timing Differences: Invoices recorded in different periods due to accounting entries at year-end.

• Reporting Errors: Simple clerical errors in filing your GSTR-4 or your ITR.

2. Reconciliation Procedure

You should immediately prepare a Reconciliation Statement. This document is your primary defense against notices.

• Gather Documentation: Collect your books of accounts, Profit & Loss statement, GSTR-4 annual returns, and ITR filings.

• Create a Reconciliation Table: List the turnover as per your books and show line-item adjustments to arrive at the GST turnover figure.

• Maintain Evidence: Keep invoices, bank statements, and ledger copies ready to explain every adjustment (e.g., "exempt supply," "advance received," "accounting adjustment").

3. If the Turnover Exceeded Limits

If the reason for the mismatch is that your actual turnover exceeded the Composition Scheme threshold (e.g., ₹1.5 crore for most dealers), you must be aware of the following:

• Lapse of Eligibility: The option to pay tax under the composition scheme lapses from the day your aggregate turnover exceeds the limit.

• Switching to Regular Scheme: You would be required to shift to the regular GST payment mechanism. If this happened in the previous financial year, you may need to consult a tax professional to assess your liability for the differential tax (the difference between the composition rate you paid and the standard GST rate for your goods).

4. Corrective Steps

• Voluntary Disclosure: If you find that you under-reported your turnover in your GST returns due to an error, you may need to file an amendment or address it in your subsequent filings if possible.

• Wait for Notice: If a notice is issued (e.g., in FORM GST CMP-05), you must respond within 15 days. YourThe discrepancy in turnover between your GST filings (GSTR-4) and Income Tax Returns (ITR) creates a significant compliance risk for a composition dealer. Under the GST composition scheme, you are required to pay tax on your aggregate turnover. If the actual turnover is higher than what was reported, you have underpaid your tax liability and failed to provide accurate disclosures.

Recommended Steps to Rectify:

1. Reconcile the Turnover: Identify why the figures differ (e.g., whether the extra 25 lacs are taxable supplies, exempt supplies, or accounting errors).

2. Voluntary Tax Payment (GST): Since you have under-reported turnover, you must pay the differential tax amount along with applicable interest. This is typically done through Form GST DRC-03 (voluntary payment of tax/interest/penalty).

3. Amend/Revise Filings:

   • GST: If the financial year is still open for amendments in annual returns, update the figures. Otherwise, ensure the differential is accounted for via the payment process.

   • Income Tax: If the ITR has already been filed with the 95 lacs figure, you may need to file a Revised Return (u/s 139(5)) if the due date has not passed, or an Updated Return (ITR-U) if the time limit for a revised return has expired.

4. Documentation: Keep a clear working paper reconciling the GSTR-4 and the ITR. This is essential if you receive a notice from the GST department regarding the discrepancy in turnover.

Summary: You must reconcile the 25 lakh difference between your GST and Income Tax records. The standard procedure is to pay the differential tax and interest voluntarily via Form GST DRC-03, and file a revised or updated Income Tax return to ensure your financial reporting is consistent and transparent to avoid scrutiny or penalties.

How would you like to proceed with investigating the specific cause of the 25 lakh discrepancy?