GST Checklist Before Year End

Here is a quick checklist of things to do under GST before the end of the financial year.

1. Creation of New Series of Invoices for the new Financial Year

2. E-Invoicing preparedness for all businesses, as the Central Government may mandate e-invoicing for businesses with turnover thresholds less than Rs. 100 crore starting 1st April 2021 

3. Examine the "Aggregate Turnover" for FY 2020-21 as per the definition under the GST laws, which means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), but includes exempt supplies, exports of goods or services or both and inter-State branch transfers.

The aggregate turnover is a determining factor for the following decisions:

a) To choose options for filing of GSTR-1 in the FY 2021-22 on quarterly QRMP scheme or on monthly frequency

b) Decide on number of digits to be shown for HSN codes (turnover up to Rs. 5 crores - 4 digits, turnover above Rs. 5 crores - 6 digits)

c) Whether to opt for the composition scheme

4. Filing of Letter of Undertaking (LUT) online to be able to export without payment of IGST in FY 2021-22

5. Reconciliation of GSTR-2A with ITC claimed in GSTR-3B - contact vendors who have not uploaded the invoices and reverse ITC wrongly availed either due to blocked credit or due to refusal of vendor to upload the invoice on his GSTR-1

6. Examine vendors unpaid for over 180 days as on 31.03.2021 and either pay them immediately or reverse the ITC taken on supplies received from them.

7. Check if any Blocked Credit under section 17(5) of the CGST Act has been availed during the year and reverse the same with payment of interest.

8. Ensure that items sent for job-work are received back within one year to prevent them being treated as supplies and outward GST be payable. Reconcile and update transactions in ITC-04.

9. Reconciliation of GSTR-1 with GSTR-3B and Sales as per books of accounts

10. Reconciliation of E-Way Bills with GSTR-1

11. Reconciliation of ITC ledgers such as Cash Ledger and Credit Ledger balances with those balances in your books of accounts.

12. Reconciliation of physical stock with stock as per books of accounts

13. Invoicing for administrative supply by Head Office to all branches for support services provided throughout the year

Know Your Supplier on GST Portal

The GST System has introduced the “Know Your Supplier” facility by which you can pick suppliers who are mostly tax compliant and will file proper sales invoices in their GST returns timely so that you can obtain the GST input tax credit (ITC) on those purchases.

On logging in to the GST portal, navigate to the search tab and enter the GSTIN of the taxpayers for which you seek details.

The facility shall provide the following particulars about your suppliers.

State Jurisdiction Officer / Central Jurisdiction Officer

Registration Date

Constitution of Business

Status of GSTIN: Active/Suspended/Cancelled

Taxpayer Type: Regular/Composition/Casual

Annual Aggregate Turnover

Percentage of Tax Payment made in Cash

Goods and Services provided with HSN/SAC code

Names of the Proprietor, Partners, Directors

Nature of business activities

E-way Bill history

Legal and Trade Name

Principal and Additional places of business

Contact Details

TDS on Purchase of Goods - Section 194Q

Which person has to deduct TDS on purchase of goods?

The Finance Act 2021 has introduced the concept of TDS on Purchase of Goods under Section 194Q of the Income Tax Act, 1961, by which:

Turnover > 10 Crores: Any person whose total sales, gross receipts or turnover from business exceeds Rs. 10 crore in the previous financial year; and

Purchase > 50 Lakhs: purchases goods of a minimum value of Rs. 50 lakhs in a financial year from a resident seller; then

Time of Deduction: such buyer shall at the earlier of: (i) time of credit of such amount to the seller's account, or (ii) at the time of payment to the seller 

Rate of TDS: deduct TDS @ 0.1% of such sum exceeding Rs. 50 lakh

From when is this section coming into effect?

This section shall come into effect from 01-Jul-2021.

Is this section contradictory or complimentary to TCS on Sale of Goods under section 206C(1H)? What would happen if both seller and buyer need to collect or deduct TDS?

As per sub-section (5) of section 194Q, the provisions of this section shall not apply to a transaction on which:

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which section 206C(1H)applies.

Further, a proviso to section 206C(1H) states that the provisions of this section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Thus, it can be understood that TDS is mandatorily required to be deducted by a buyer on purchase of goods above Rs. 50 lakhs if the purchaser has a turnover of over Rs. 10 crores in the previous financial year. If such buyer fails to deduct TDS, then the seller has to collect TCS on the sales exceeding Rs. 50 lakhs at 0.10%.

The buyer will be responsible to deduct TDS on purchase of goods @0.1% only if he fulfills the turnover criterion. In case the buyer's previous financial year's turnover is less than Rs. 10 crores, but the seller's turnover is above Rs. 10 crores, then the seller will be responsible to collect TCS @0.1%.

What is the repercussion of not deducting TDS on purchase of goods under this section?

As per section 40(a)(ia) of the Income Tax Act, 30% of the value of purchase will be disallowed while computing the taxable income of the buyer.

Whether TDS is to be deducted on the total invoice value including the GST?

In respect of Section 206C(1H), the CBDT has clarified vide Circular No. 17 dated 29-Sep-2020 that since the collection is made with reference to receipt of the amount of sale consideration, no adjustment on account of indirect taxes including GST is required to be made for the collection of tax under this provision.

As the TDS deduction u/s 194Q is to be made with reference to the purchase value, we may apply the same principle and conclude that GST shall form part of the purchase value, and TDS is deductible on the value inclusive of GST.

Additional Tax Deduction for Generating Employment - Section 80JJAA

The Income Tax Act, 1961 has a provision under section 80JJAA, by which an additional tax deduction is offered to businesses generating new employment during the year.

The section grants a deduction of 30% of additional employee cost incurred by the taxpayer for each of the 3 financial years starting from the year in which such employment is provided to new persons.

How is the deduction calculated?

Additional Employee Cost in the year = Rs. 1,00,000/-

Deduction allowed as expense for income tax calculation purposes:

Year 1 = Rs. 1,30,000/-

Year 2 = Rs. 30,000/-

Year 3 = Rs. 30,000/-

What kind of employees are considered as Additional Employees during the year for the purpose of this calculation of additional deduction?

"Additional Employee" means an employee who has been employed during the financial year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year.

Thus, if a business hires 30 new employees during the year, but 20 old employees leave, the additional employees are only 10.

Only the following category of employees are considered for the purpose of count in new employees:

1. Salary =< 25,000 p.m.: Whose total emolument is not more than Rs. 25,000 per month. Total emolument means all costs paid or payable to the employee by any name called.

Such emolument would not include any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law, or any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.

2. PF Registered: Registered and contributing to a Recognized Provident Fund (PF). Those employees for whom the entire contribution is paid by the government under the Employees' Pension Scheme under the EPF Act are not covered. Casual workers are not covered.

3. Min. 240 Days: The employee is employed with the business for a minimum 240 days in the financial year. If an employee does not complete 240 days in a financial year, he may be considered as new employee in the next financial year when he completes these number of days.

For businesses in the operations of manufacture of apparel, footwear or leather products, the minimum number of days of employment is 150 instead of 240.

Liberties to One Person Companies (OPCs) w.e.f. 01-Apr-2021

Entrepreneurs prefer to incorporate companies over sole proprietorships owing to the benefit of limited liability, i.e. business liabilities would not extend to their personal assets as their legal identity would be different from that of the company in which they hold majority shares or controlling interest.

Further, as a sole proprietor all business profits are taxed as per slab rates in the Individual's ITR. It is also believed that companies enjoy better credibility as businesses over sole proprietorships while dealing with corporate customers.

However, minimum 2 shareholders are required to incorporate a private limited company, and minimum 3 to incorporate a public limited.

To extend the benefit of companies to individual business owners, the concept of a One Person Company (OPC) was introduced by the Companies Act, 2013. However, due to restrictions around the scale of business an OPC could operate under, the structure did not see the kind of popularity it was expected to.

To correct the approach, the Companies (Incorporation) Rules are proposed to be amended w.e.f. 01-Apr-2021 to allow OPCs to grow without any restrictions on paid-up capital and turnover.

Liberties Extended to OPCs

Non-Resident Individual: Any Indian citizen, whether resident in India or otherwise, would be allowed to form an OPC. The residency period has been proposed to be reduced to 120 days from 182 days for NRIs, for being eligible to incorporate an OPC only.

Anytime Conversion to Pvt. Ltd. or Public Co.: Earlier, an OPC could not be converted to a private limited or public company before completion of 2 years from date of incorporation. However, such restriction is now proposed to be lifted. The related e-Forms shall also be rationalized.

No Restriction on Paid Up Capital: Earlier, an OPC could not have a paid up capital of over Rs. 50 lakhs. The restriction shall be lifted.

No Restriction on Turnover: An OPC could not have an annual turnover of over Rs. 2 crores. The condition is now lifted, and there shall be no such cap on turnover for OPCs.

Source:

MCA Press Release dated 03-Feb-2021

MCA Notification dated 01-Feb-2021