India has experienced the completion of its first financial year of the much-awaited Goods and Services Tax (GST) from 1 July 2017 to 31 March 2018. This contemporary regime held high aspirations digitally by mandating taxpayers to undertake transaction-level reporting of its business on to its information technology/Goods and Services Tax network (IT/GSTN) platform. It proposes to close the compliances with the filing of the last consolidated return for this first year (i.e., annual return in Form GSTR 9) by 31 December 2018 coupled with a third-party certified reconciliation statement (more commonly known as GST audit report in Form GSTR 9C). In a press release dated 7 December 2018, it was informed that the last date to file the compliances has been extended to 31 March 2019.
To ensure better tax governance, this yearly audit targets a reconciliation of the differences between books of accounts and annual GST returns filed. This is akin to several tax regimes requiring audit by tax professionals. GST audit is applicable for every registered person whose aggregate turnover during a financial year exceeds INR2 crores. GST audit is required to be done either by a chartered accountant or a cost accountant. Separate state-/registration-wise reconciliation statement is to be electronically submitted.
The online utility for populating and filing of the said information on the GSTN is yet to be released. The government’s order granting an extension of deadline also mentions that the electronic system that is undergoing development is at the advanced stage and is likely to be made operational by 31 January 2019.
Formats for annual return as well as GST audit form have been notified in the month of September 2018 (notification number 49/2018 dated 13 September 2018 and 39/2018 dated 4 September 2018, respectively). These forms contain various aspects which need a detailed reporting and as a consequence, may require an incremental activity of collation of these details. Taxpayers expected an early release of these formats so as to gear their information technology (IT) systems and processes for gathering the desired information at the time of execution of the transactions. It was also expected that these forms would be similar or identical to monthly return formats and hence may take lesser time in population/presentation of data.
As per the notified formats, certain information in the form will be auto populated by GSTN directly at the time of downloading the utility, pursuant to which, reconciliation could be finalized. Given this, there may be dependency of finalization of reconciliation on the release of online utility.
Further, there may be several clarifications required in terms of disclosure sought in the said forms/certification. It is expected that these clarifications to be issued at the earliest by the government. A few examples are as under:
- Manner of splitting (state-wise) and corresponding disclosure of turnover for the period April 2017 to June 2017 (i.e., erstwhile service tax regime) given that prior to GST, tax reporting was undertaken centrally by service providers and not state-wise
- Clarification on the treatment of items which typically are not recorded state-wise in the financial statements but at company level such as foreign exchange fluctuations, etc.
- Requirement of inclusion of credit notes issued in FY 18-19 and corresponding reasons
- Detailed clarity on sections pertaining to input tax credit
Relaxation of some reporting might also provide a relief to the tax payers. For example, procurements from composition dealers, Special Economic Zones (SEZ) units, etc. This casts incremental compliance to categorize specific vendor classes at the time of procurements. Specific sectors may even need greater clarity. These have separate valuation mechanism under GST such as air travel agent, money changer, etc. The turnover disclosed in their financials may differ from the turnover reported in the GST returns due to specific valuation provisions prescribed under GST law.
On a separate note, while this reconciliation exercise may result in additional tax revenue for the authorities, these documents may also form the basis of future assessments and enquires. Tax payers may need to comprehend the peculiarity of these new compliances and duly comply with the desired reconciliations and reporting. Given the challenges faced, it is important for large companies to go digital in their compliance ecosystems enabling faster and accurate reporting along with greater number of validations.
The year (1 July 2017 to 31 March 2018) has been eventful for the GST tax payers especially now with GST audit compliances and associated clarifications. It is a wait and watch how government strikes a balance between “ease of doing business” and an evolving compliance framework of a law, which is still at a nascent stage.
The author of the blog is Sandeep Saraf, Tax Partner, EY India
The blog is co-authored by Nirmal Singh, Tax Director, EY India