With increased changes and amendments being made in the GST law, it becomes a bit difficult to keep track of each such change and implement the same in a right way within the statutory mandated timeframe. Although GST law provides for various compliances that needs to be carried out on a regular basis i.e. Monthly, Quarterly, Half-yearly etc. However, there are certain compliances that are mainly required to be carried out on a yearly basis. Since, the yearly compliances are not a matter of routine, therefore they are more prone to the risk of non-compliance.
In this article, the focus would be very specific to the year-end compliances that the entities are required to carry out and the new compliances that needs to be implemented from start of the year in relation to GST.
E-invoicing is mandatory for aggregate turnover more than 50 Crores:
Government has been cautious not to introduce e-invoicing in one go and phased manner approach has been adopted by the government in making e-invoicing mandatory. Initially from 01st October 2020 e-invoicing was made mandatory for taxpayers having aggregate turnover in any preceding financial year from 2017-18 onwards exceeding 500 Crores, then w.e.f. 01st January 2021 limit was reduced to 100 Crores and from 01st April 2021 it is made mandatory for taxpayers having aggregate turnover above 50 Crores as provided vide Notification number 05/2021 CT dated 08th March 2021.
One of catastrophic effect of non-compliance of e-invoicing is that the input tax credit may not be available to the recipient without having e-invoice issued by the supplier. Entities need to consider following compliances in this regard:
- Implement e-invoicing facility in the accounting systems or using various third party software’s for integration of the e-invoicing module.
- Generate E-invoice on a real time basis for all B2B and export transactions.
- Communicating the e-invoice requirement to the vendors liable for this compliance.
- Verifying the vendors compliance to the e-invoicing requirements.
Requirement of dynamic QR code for B2C supplies:
Similar to E invoicing, the requirement of issuing invoice for B2C supplies having dynamic QR code was made mandatory w.e.f. 1st December 2020 for registered persons whose aggregate turnover in any financial year, starting from FY 2017-18, exceeds Rs.500 Crores. Relaxation in this regard was extended in the form of waiver of penalty for non-compliance of QR code provisions from December 1, 2020 till March 31, 2021 subject to the condition that the said person complies with the said provisions from 01st April 2021. Therefore, now if the Dynamic QR code is not specified on the invoice for B2C transactions, then it would be liable for a general penalty of Rs.50,000/- (INR 25,000/- each for CGST and SGST) under section 125 can be imposed.
Input tax credit reversals on account of both taxable and exempt supplies:
When taxpayers are having both taxable and exempt supplies, ITC can be claimed only on those inputs, input services and capital goods which are used for providing taxable supplies or which can be attributed to the taxable supplies. As per rule 42 and 43 of CGST Rules, reversal is required for that portion of common credit which is attributable to exempt supplies or for non-business use. The provisional reversal of input tax credit is required to be made on a monthly/ quarterly basis based on the turnover for such month/ quarter. However, a final re-computation of reversal needs to be computed on an annual basis at the end of the financial year. Based on the yearly calculation if the reversal amount is in the excess of ITC amount already reversed then the excess amount needs to be reversed and in case the reversal amount is less than the amount actually reversed then the assessee can avail the balance amount as eligible ITC. It is to be noted that the said exercise can be done up to September of next financial year i.e., September 2021 for FY 2020-21. However, interest liability is attracted if the reversal is done after 1st April 2021. Hence it is suggested to carry out this exercise and reverse the ITC at the earliest.
Obtaining or renewal of Letter of Undertaking (LUT):
Every registered person willing to make zero rated supplies without payment of taxes, needs to obtain or renew LUT at the end of the financial year for the next financial year. It is important to note that LUT needs to be generated before making any invoice towards the zero-rated supply. Non-compliance of the said provisions can lead to denial of eligible refund as available against the zero-rated supplies. Further, it can also lead to revenue department treating these supplies as taxable and collect taxes from the non-compliant taxpayers.
HSN code to be quoted at a 6 digit level on invoice for taxpayers having aggregate turnover beyond 5 Crores:
The CBIC, vide notification number 78/2020 CT dated 15th October 2020, made it mandatory for a registered person having aggregate turnover in the preceding financial year exceeding Rs. 5 Crores to mention 6 digit HSN code on supply of goods or services on the tax invoices w.e.f. April 1, 2021 and 4 digits HSN code for a turnover up to Rs. 5 Crores. It is to be noted that mentioning of 4 digit HSN code on the tax invoice is optional in respect of B2C supplies for a registered person having aggregate turnover up to 5 Crores in the previous financial year.
Opting into the Composition scheme:
Any person who wishes to opt for composition scheme for financial year 2021-22 should file form CMP-02 on the common portal on or before 31st March 2021. Further any registered person who wishes to switch from the regular scheme to the composition one has to discharge the amount of input tax credit relating to inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock as output tax liability. Such details of the amount shall be furnished by a registered person in FORM GST ITC-03 within a period of sixty days from the commencement of the relevant financial year.
Return for composition taxpayer:
As provided in Rule 62, a registered person who has opted for composition scheme needs to furnish a return for a financial year in FORM GSTR-4 till the 30th day of April following the end of such financial year. Accordingly, for FY 2020-21, a composition taxpayer needs to file GSTR-4 on or before 30th April 2021.
Quarterly Return Monthly Payment scheme:
Any registered person willing to opt for Quarterly Return Monthly Payment scheme for the first quarter of FY 2021-22 i.e., April 2021 to June 2021, may opt for the scheme on the common GST portal from 01st February 2021 to 30th April 2021. It is important to note that, to opt for the QRMP scheme, the registered person must have furnished the last return due on the date of exercising such option.
New series of Invoice for a financial year:
As per invoicing rules, new/unique invoice series not exceeding sixteen characters is to be maintained for every financial year. Hence a new series is to be tossed for FY 2021-22 while issuing tax invoice, bill of supply, receipt voucher, refund voucher, payment voucher, revised tax invoice, debit notes, credit notes, etc. to avoid duplication of invoices issued in preceding financial years. There is no need to start invoice series from first number every year. Previous year’s series could be continued, or fresh number series could be started at the option of taxpayer.
Annual Return and Reconciliation statement:
The due date for furnishing the annual returns and reconciliation statement (GSTR 9 and GSTR 9C) for the financial year 2019-20 has been extended to 31st March 2021. In case of delay in filing of GSTR 9, late fee of Rs. 200/- for each day of delay is applicable subject to maximum of an amount calculated at 0.50% of his turnover in the state or union territory. Further there is no late fee specified for filing of GSTR 9C, however non filing/delayed filing of GSTR 9C might trigger maximum penalty upto Rs.50,000/- under section 125 of CGST Act, 2017.
Input tax credit availability to banks and other financial institutions:
Special provisions regarding ITC are prescribed for banks and financial. As per the section 17(4) of CGST Act, Banks, Financial institution including NBFC have following two options with respect to the availment of input tax credit:
- In order to avail that ITC which is attributable to the taxable supplies made.
- To avail an amount equal to 50% of the eligible ITC on inputs, capital goods and input services in every month and lapsing the rest.
It is important to note that any of the above option once exercised shall not be withdrawn during the remaining part of the financial year. Therefore, a registered person falling in above category should choose the option of availing ITC wisely at the inception of each financial year.
Cross charge to related/distinct persons:
As provided in schedule I of CGST Act, 2017, supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business even without consideration to be treated as supply under GST. There can be many support services availed by the taxpayer which should be identified on periodical basis. Before finalization of annual accounts, it is important to identify the common support services and more important is to allocate this cost to the other units. By adopting appropriate valuation mechanism as provided in the Act and rules, the tax invoice needs to be raised in this regard and GST needs to be discharged. Based on the cross charge, invoice raised by one unit, the recipient unit can avail the ITC in their books and GST returns.
GST payment by builders/promoters under reverse charge mechanism for shortfall from 80%:
CBIC has specified that the builders/promoters are liable to pay tax under reverse charge mechanism, if there is a shortfall in the minimum value of goods or services or both purchased from the registered person for construction of the project in a financial year (or part of the financial year till the date of issuance of completion certificate or first occupation, whichever is earlier). Minimum value prescribed in this regard is 80% of the total value of inputs and input services. Services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI) are excluded for calculating 80% procurement limit. If requirement of procurement of 80% from registered suppliers is not achieved, and there is a shortfall in procurement from registered supplier, GST @18% is payable on value to the extent of shortfall.
Promoter is required to maintain project wise account of inward supplies from registered and unregistered supplier and calculate tax payments on the shortfall at the end of the financial year and make the requisite payment in the due return. Further, tax liability on account of shortfall needs to be discharged on or before filing of GST return for the month of June following the end of the financial year.
ITC reversal on account of reclassification of asset or capitalization of revenue expenditure:
For accounting purpose, it is usual practise to take the final call over any high value transaction at the end of Financial Year. However, certain GST provisions are closely webbed with the accounting methods followed by the assessee. Therefore, it is important to closely watch the impact of accounting treatment of certain transactions which were treated in one way during the year and then shifted to other at the time of closing of accounts. For instance, if certain repairs to building was not capitalised during the year, but at the end it was capitalised then GST impact of same should be analysed in light of section 17(5). Another instance could be equipment or machinery of building regrouped to building.
Writing off the inventories, assets etc.
End of March is quite famous for stock take. Inventories at hand at the closing date are usually physically verified by the assesses. It is highly probable that physical inventory count and figures in books are at variance. If the variance is causes due to loss of inventory for any reason like, theft, destruction, obsolete, etc. and is accounted accordingly then ITC on same is required to be reversed as per provisions of Section 17(5). Similarly, small units issued on sample basis, may together form a big number at the end of year. Requisite provision of ITC reversal should be made at the end of year.
Conclusion:
Above were the specific year end compliances that the organisations need to carry out. However, apart from the above, as a part of yearly exercise, organisations need to carry out a thorough review of their financial and non-financial transactions including various records and documents to be verified to assess the tax compliances, scope of missed benefits, reduction in tax costs and possible avenues of tax planning including possible transaction structuring and many more. This also includes multiple level of reconciliations to be carried out on a periodic basis
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