Changes in GST Input Tax Credit from 01-Jan-2021

ITC Maximum up to 105% of Available Credit in GSTR-2B

As per Rule 36(4) of the CGST Rules, the restriction of claim of Input Tax Credit (ITC) in respect of invoices or debit notes not furnished by the suppliers has now been reduced from 10% to 5% of the credit available in GSTR 2B.

Thus, it is reiterated to all registered persons and their accountants that to avail full input tax credit, ensure that all vendors upload the invoices in GSTR-1 and/or IFF and file the returns on time.

The GST Department may not allow ITC only on the basis of availability of invoice from the vendor, which may lead to dispute with the Department, and may also not be allowed by the GST Auditor at the time of filing of GSTR-9 and GSTR-9C for the year.

Communication with Defaulting Vendors

A registered person can communicate with its defaulting vendor through the GST portal itself, informing them of missing documents or shortcomings.

The person may access such facility by going to "Services" tab on the portal, and then selecting the "Communication Between Taxpayers" option under "User Services".

An Inbox and Outbox would also be available to track responses and follow ups.

We recommend that businesses use such facility where they feel that the loss on account of input tax credit due to vendor's default in filing returns may be high, and they would want to create a written trail to later seek their right to claim the credit with the department if the vendor continues to default.

Documents may also be allowed to be uploaded along with such notifications.

 

Further, the notification sent will also be intimated to the recipient's registered email ID and phone number.

Quarterly Return Monthly Payment (QRMP) in GST from 01-Jan-2021

The CBIC has introduced the Quarterly Return Filing and Monthly Payment of Taxes (QRMP) scheme under GST to help small taxpayers whose annual turnover is less than Rs. 5 crores. This scheme allows taxpayers to file their GSTR-3B on quarterly basis, but continuing to pay tax every month.

Eligibility for QRMP

Any registered person with annual aggregate turnover up to Rs. 5 crores in the preceding financial year may be allowed to file his GST returns on quarterly basis, with payment of tax on a monthly basis.

If the aggregate turnover exceeds Rs. 5 crore at any time during the year, the person would not be eligible for QRMP from the succeeding quarter.

Further, a person would be eligible for QRMP in any quarter only if the last return due as on date of availing such option has been filed. 

If a person has multiple registration numbers on the same PAN, they may choose to opt-in for QRMP for only a few out of all the registrations.

Features of QRMP

Any eligible person who has availed the option would have to:

a) furnish details of outward supply in Form GSTR-1 on a quarterly basis

b) facility to furnish invoices relating to the first and second months of such quarter through the Invoice Furnishing Facility (IFF) available on the portal latest by the 13th of the succeeding month. This has been enabled so that the customers of such persons can view the invoices in their GSTR-2A, GSTR-2B and avail input tax credit (ITC) thereon without having to wait for the quarterly GSTR-1 to be filed.

c) pay the GST for a month by the 25th of the succeeding month through challan in Form PMT-06. While generating such challan, the person should select the option "monthly payment for quarterly taxpayer"

ITR Due Dates Announced - 30-Dec-2020

Extended Due Dates (AY 2020-21)

ITRs for Non Audit Cases: 10-Jan-2021

Tax Audit Report (TAR) and Other Audits: 15-Jan-2021

ITRs for Audit Cases: 15-Feb-2021

Vivad Se Vishwas Scheme: 31-Jan-2021

GSTR-9/9C for FY 2019-20: 28-Feb-2021

Financial Due Diligence Checklist

While investing in a business or a start-up, there is a due diligence process, which primarily has two parts, viz. Financial Due Diligence (FDD) and Legal Due Diligence (LDD).

Here's a basic checklist that we use during the Financial Due Diligence process as a preliminary list of requirements.

GENERAL INFORMATION

Business Presentation

Description / details on the following (if not covered in as much detail as part of Business Presentation mentioned above):

a. Detailed description of the business model of the Company including business verticals of the past and present and verticals that the Company plans to cater to in the near future post investment.

b. Revenue Streams (past, current and future revenue streams, include description of all revenue streams to be captured)

c. Areas of Focus – Target Customer types (include segmentation undertaken based on size, needs or other criteria)

d. Detailed description of the product offerings provided, including breakup of margin % earned on each product offered

e. provide a list of all existing and under development products and services & its versions, along-with timelines.

f. List of large / key customers (cumulatively accounting for at least 50% of current revenues) and their product usage patterns (over the past 12 months). If the Company is consumer / user based company, please provide details of user data (e.g. DAU, MAU, No of registered users, CAC, user churn etc)

g. List of Key Vendors and Partners and a brief on transactions with these parties

h. List of Competitors in India and globally

i. Description or copy of company's purchasing policy, credit policy

j. All surveys and market research reports, done by the company (For E.g. Weblinks of articles and press releases etc)

k. Key areas that the Company faces challenges in when running and growing the business and the action plan to address these.

BASIC REGISTRATION/OTHER SPECIFIC DOCUMENTS

Certificate of Incorporation, MOA and AOA.

Copy of PAN, TAN, Registration Certificates of VAT, Service Tax, GST, Excise, PF, ESIC, PT, Shop and Establishments for all premises used, IEC code, and any other registration certificate as applicable to the company

Descriptive list of all significant acquisitions, restructurings, reorganizations, spin-offs and other transactions (intercompany or otherwise) not in the ordinary course of business which have occurred in the Company history.

Copies of any letter rulings, non-privileged tax opinions obtained for all such transactions.

FINANCIAL STATEMENTS/REPORTS & MIS INFORMATION

Signed Audited Financial statements along with, annexures, notes to accounts, trial balance, audit reports, CARO report, cash flow statements and any other report that forms part of the annual financial statements for Target Company for the Historical Period (from Inception till last financial year for which audit has been completed).

Unaudited financials for that part of the Historical period where audit is not complete.

Accounting Data for the Historical Period that matches the audited and unaudited financials as provided above. (Tally Backup / Quickbooks login / Xero.com Login or any other accounting software used for the historical period)

Internal Audit Reports (if any)

Management letters issued by the auditors during the historical period

Transfer Pricing - Provide copy of Form 3CEB filed, Transfer Pricing Study Report, Inter-Company agreements, Arm’s Length Pricing workings, if any.

MIS prepared, key KPI's for the Historical Period. (Customer Acquisition cost, Life Time Value, Product wise bifurcation, No of bookings and customers, Average cost etc). Where for any reason MIS and financial accounting data do not match, please provide reconciliation statements.

Co-Founder Selection Questions

A number of co-founders visit us regularly, asking for a company to be incorporated as they have a shared passion for a novel business idea, commercializing a pet project, or the will to use their spare time to start a side stream of income.

A number of times though, we've seen such partnerships not go through beyond a year or two due to rising cultural or ambition related differences between the two.

The importance of Term Sheets and Co-Founder Agreements notwithstanding, it's important that the two founders come on the same page in spirit for the benefit of the business.

Based on our experience, here are a few things that you must discuss with your co-founder when you think you've found the one.

1. Skills

a) List down your skills, achievements, and study each other's sincerely drafted work CVs

b) List out respective areas of strength - areas where you complement and/or differ from each other

c) Divide functions between yourselves in a way that you know how your functions are inter-connected, but who shall be in-charge of which function.

d) Answer to yourselves about if you genuinely feel your co-founder is amazing and you're excited to be working with them.

e) Do they like to do tasks that you dislike and vice-versa? Do they make up for your weaknesses?

2. Entrepreneurial Experience

a) Whether they have founded any venture in the past?

b) Have they been a part of an early team within an entrepreneurial venture that belonged to them or to someone else?

c) What happened of that venture? What is the sense of ownership that they have towards that venture and its results (success or failure, both)?

d) Are your independently made business plans with financial figures and timelines in sync? Can you both agree on a mutual philosophy and decide on one plan?