The Institute of Chartered Accountants of India

1
THE INSTITUTE OF CHARTERED

ACCOUNTANTS OF INDIA
© Indirect Taxes Committee, ICAI

GST & INDIRECT TAXES COMMITTEE
Finalisation of Accounts with GST

Perspective
S Ramesh Aug 23, 2020

GST & Indirect Taxes Committee, ICAI
2
Finalisation of Accounts
with
GST perspective

Session Coverage 3
 Books of Accounts
 Financial Statements
 Director’s Report
 Audit Report & CARO
 Notes to Accounts
 Internal Audit Report
 Tax Audit Report
 Year end Adjustment Entries
Books of Accounts 4
Financial Books GST Ledgers/Returns

ITC Credit ledger
Excess cash paid (if any) Cash Ledger
TDS -GST Cash Ledger
Turnover GSTR 1 & GSTR 3B
GST Liability GSTR 3B
ITC refund receivable Refund Application
status
Turnover/GST Liability Credit and Liability
Statement
Review of Financial Statements 5
 Revenue recognition Vs GST turnover reconciliation.

Eg:1. Goods invoiced on March 28. However risk and reward
passes only in April. Revenue cannot be recognised as per
Accounting Standard. Since invoice was raised in March, GST
turnover will include the sale and tax has to be paid in April
Eg: 2. In construction contracts the turnover as per books &

GST returns will vary and needs to be reconciled.

 Revenue recognition Vs GST turnover reconciliation.

Eg:3. Entities following IND AS, where the functional currency
is not INR. For the purpose of GST, sales will be accounted at the
exchange prevailing on the date of transaction, whereas in books it
will generally be recorded at a prefixed average rate. This will
result in difference, requiring reconciliation.

 Analysis of turnover rate wise to ensure correctness of GST

liability.
 Check if HSN & rates are appropriate.
 Impact of GST on year end discounts
- Volume discounts passed on at year end reduces the taxable value
and consequently the GST liability. Auditor to ensure that an
agreement was entered into before supply commenced and the discount
can be linked to specific invoices. If not, discount will not reduce
taxable value.
 Analysis of Other Income to ascertain GST liability

Scrap sales – Whether GST has been charged
Profit or loss on sale of fixed assets – Where ITC has not been
availed, GST liability is on the gross sale consideration.
However, in cases where ITC has been availed and the asset is sold
within 5 years, the GST payable will be the higher of (a) sale
consideration X applicable rate & (b) reversal of proportionate ITC
claimed

Profit or loss on sale of fixed assets

Cost of capital asset Rs 10,00,000
ITC claimed Rs 1,80,000
Max life of asset as per GST rules – 5 years
Asset sold after 3 years of use for Rs 3,25,000
(A) ITC to be reversed= 1,80,000 x 24/60 = 72,000
(B) GST payable on sale value= 3,25,000 x 18% = 58,500
Higher of (A) & (B) will be the GST liability

 Reconcile the ITC claimed on expenses with the amounts

debited to the profit & loss account.
 For entities following IND AS, having lease rental payables

for long term lease (> 1 year), there will not be a line item in
P&L as “Lease charge”, as the same is accounted under
Financial cost. This will form a line item in reconciliation of
expenses debited vis a vis ITC claimed.

 Analysis of Expenditure heads for RCM liability accounting

and payment thereof.
 Accounting for TDS (GST) receivable (Check whether entries

uploaded by deductor has been accepted online and the return
filed)
 Has claims for refund been lodged in time and as per the laid
down guidelines.
 Analyse payables to ensure that all invoices on which ITC has

been claimed have been paid within 180 days. Else ITC to be
reversed and liability plus interest to be provided.
 Analyse export receivables on account of supply of service, to

check for amounts outstanding for more than a year from the
date of export. In such cases, GST is payable on amounts not
realised and the liability is to be provided for along with
interest.
 Status of long pending refund claims
 Disclosure of GST related figures in financials

- Net off GST liability & ITC/ TDS/
excess cash paid.
- Resultant balance to be disclosed
under Other Current Assets/Liabilities

Purchase of Goods/services 14
 Check whether the goods/services & have been received.
 Check whether the taxable invoice/debit note issued by the
supplier is available
 Claiming of ITC without satisfying both the conditions will

result in incorrect ITC claim.
 This is a common problem especially in an non ERP

environment, some MSME entities and in transactions
between HO & branches
Audit of PPE (Fixed Assets) 15
 Check the accounting policy on PPE.
 Property, plant and equipment are stated at cost of acquisition or
construction less accumulated depreciation less accumulated impairment, if
any. Freehold land is measured at cost and is not depreciated. (Maruti Suzuki
India Limited)
 Property, plant and equipment are stated at cost of acquisition or

construction less accumulated depreciation less accumulated impairment, if
any…….. Cost includes purchase price, taxes and duties, labour cost
and direct overheads for self-constructed assets and other direct costs
incurred up to the date the asset is ready for its intended use. (Tata Motors
Limited)
 Property, plant and equipment is stated at acquisition cost net of GST

credits as reduced by accumulated depreciation and accumulated
impairment
© Indirect Taxes Committee, ICAI losses, if any. (Wheels India Limited)
Audit of PPE (Fixes Assets) 16
 Check the accounting policy on PPE.
 ITC generally not available on motor vehicles for transportation of
persons having approved seating capacity of not more than thirteen
persons (including the driver).
 ITC generally not available on works contract services when supplied
for construction of an immovable property (other than plant and
machinery).
 ITC not available on goods or services or both received by a taxable
person for construction of an immovable property (other than plant or
machinery) on his own account including when such goods or services
or both are used in the course or furtherance of business.
ITC on Vehicles 17
ITC is generally not available on the following expenditure incurred on
account of motor vehicles, Vessels or aircrafts
 General Insurance
 Servicing
 Repairs & Maintenance

Employee Benefit Expenses 18
ITC not available on the following supply of goods or services or both
 Travel benefits extended to employees on vacation such as leave or
home travel concession
 Food & beverages supplied to the employees (includes outdoor catering
also). Sweets & gifts distributed during Pooja.
 Health services, beauty treatment, cosmetic & plastic surgery
 Life Insurance &Health insurance
 Membership of a club, health and fitness centre
Provided that the input tax credit in respect of such goods or services or both shall be
available, where it is obligatory for an employer to provide the same to its employees
under any law for the time being in force
Conveyance expenses
19
ITC not available on renting or hiring of motor vehicles, unless it is a
statutory obligation
When auditing corporates (Public ltd cos, Pvt ltd cos, corporations set up
by a separate statute) private companies and check whether Rent-a-cab
services have been availed. If yes check
 If it was from individuals (proprietorship concern), partnership firm or HUF.
 Whether the above service providers are unregistered or are charging only
5% without availing ITC
If both the conditions are satisfied, then the liability GST liability is to be
discharged by the recipient.
ITC credit cannot be availed on the liability discharged under RCM
Travel & hotel Accommodation expenses 20
 Check whether the GST charged on rail and air fare is either IGST or
CGST & SGST of the state in which the business entity is registered.
 GST charged on room rent by hotels located in a state other than the
state where the business is located cannot be claimed as ITC
 Watch out for cases where other state CGST & SGST have been
accounted as IGST due to ignorance.

Reconciliations-GST Outward Supplies 21
 Month wise for broad summary and drill down in case of

discrepancies
 GSTR 3B & GSTR 1 with Books of Accounts
Parameters for verification
 Liability of the particular FY discharged in the same FY
 Liability of the particular FY discharged in the next FY (April to Sep
returns or through DRC challans)
 Liability not yet discharged
 Liability discharged under wrong head
Reconciliations-GST Inward Supplies 22
 Month wise for broad summary and drill down in case of

discrepancies
 GSTR 3B & GSTR 2A with Books of Accounts
Parameters for verification
 ITC of the particular FY claimed in the same FY
 ITC of the particular FY claimed in the next FY (April to Sep returns)
 ITC not yet claimed – deferred
 ITC not yet claimed – lapsed
RCM 23
Sl.N Ledger Account / Line item Services rendered by Recipient of Service
o
1 Transport charges/Freight Goods Transport Agency Factory\Society\Co-op society\person regd under
GST\Body corporate\Partnership firm\AoP\casual
taxable person located in the taxable territory.
2 Legal charges Legal services rendered Any business entity located in the taxable territory
by an Advocate/ Sr.
Advocate/ firm of
Advocates
3 Arbitration fees Services rendered by an Any business entity located in the taxable territory
arbitral tribunal
4 Sponsorship expenses Any person Body corporate & partnership firms located in the
taxable territory
5 Project expenses – Transfer Any person Promoter of the project
of development rights
RCM 24
Sl.N Ledger Account / Line item Services rendered by Recipient of Service

o
6 Lease rentals Any person Promoter of the project
Payment made for long term
lease of land(>30 years) for
construction of a project
7 Payments to Directors A Director of the Corporate
company making the
payment
8 Security services Any person other than a A registered person located in the taxable territory
body corporate
9 Conveyance expenses Any person A body corporate located in the taxable territory
Renting of motor vehicle

25
ITC on Job Workers
 Section 19 of the CGST Act, 2017 provides that the principal (a person
supplying taxable goods to the job worker) shall be entitled to take the credit of
input tax paid on inputs sent to the job- worker for the job work.
 Further, the proviso also provides that the principal can take the credit even
when the goods have been directly supplied to the job worker without bringing
into the premise of the principal. The principal need not wait till the inputs are
first brought to his place of business
Time limit for returning the goods of principal
Inputs and Capital Goods after processing shall be returned back to principal within
one year or three years respectively of their being sent out.

Directors Report 26
 Expenditure in foreign currency - Paid for services - GST on

RCM
 Earnings in foreign currency – Check whether LUT filed
 GST on remuneration to directors (other than salary) - RCM
 GST on sitting fees – RCM

Directors Report 27
 CSR activities - Whether GST paid if any has been claimed as

ITC
 Correctness of any reference in the report to GST paid (under

contributions to exchequer) if any
 Response to Auditor’s comments (EoM or Qualification)

Audit Report 28
 To Qualify or mention in Emphasis of Matter paragraph,

Material impact on the financials due to the following:
- Unreconciled/unexplained difference between turnover as
per books & as per GST.
- Under booking of GST liability due to wrong rate
- Claiming of ineligible ITC
- Export of goods & services without filing LUT

CARO 29
 Inventory [Paragraph 3(ii)]

Whether physical verification of inventory has been conducted at reasonable
intervals by the management and whether any material discrepancies were
noticed and if so, whether they have been properly dealt with in the books
of account;
 The discrepancies noticed on verification between the physical stocks and the book records
were not material and have been properly dealt with in the books of account. (Tata Motors Ltd)
 The discrepancies noticed on verification between the physical stocks and the book records
which were not material, have been properly dealt with in the books of account. (Wheels India
Ltd)
 The discrepancies noted on physical verification of inventories as compared to book records
were not material and have been properly dealt with in the books of account. (Maruti Suzuki
India Ltd)
CARO 30
 Statutory Dues [Paragraph 3(vii)(a)]

Whether the company is regular in depositing undisputed statutory dues
including Provident Fund, employees’ State Insurance, Income-tax, Sales-tax,
Service Tax, duty of customs, duty of excise, value added tax, cess and any other
statutory dues to the appropriate authorities and
if not, the extent of the arrears of outstanding statutory dues as on the last day of
the financial year concerned for a period of more than six months from the date
they became payable, shall be indicated
Disputed vs Undisputed - Need positive evidence or action on the
part of the company to show that it has not accepted the demand for
payment of tax or duty
CARO 31
Statutory Dues
• “Dues” include taxes, interest & penalty
a) Regular Payment
b) Generally Regular but slight delay in a few months
c) Not regular but delay not serious
d) Not regular and serious delay
As per ICAI GN on CARO, the above four situations warrants different disclosure.
The concept of Materialty to be kept in mind

CARO 32
Statutory Dues
1. Regular Payments throught the year
 “undisputed statutory dues including……. and GST have been regularly
deposited by the company with the appropriate authorities in all cases during
the year”.
2. Generally Regular but slight delay in a few months

 “undisputed statutory dues including……. and GST have been regularly
deposited by the company with the appropriate authorities though there has
been a slight delay in a few cases”.

CARO 33
Statutory Dues
3. Not Regular but delay not serious
 “undisputed statutory dues including……. and GST have not generally been
regularly deposited with the appropriate authorities though the delay in
deposit have not been serious.
4. Not Regular and serious delay

 “undisputed statutory dues including……. and GST have not been regularly
deposited with the appropriate authorities though there have been serious
delays in a large number of cases”.

CARO 34
Statutory Dues
The details of arrears of Undisputed Statutory Dues Outstanding for More than Six Months from
the date they became payable to be presented in the format set out below

CARO 35
 Statutory Dues [Paragraph 3(vii)(b)]

Where dues of income Tax or sales Tax or service Tax or duty of customs or
duty of excise or value added tax have not been deposited on account of any
dispute, then the amounts involved and the forum where dispute is pending
shall be mentioned. {A mere representation to the concerned Department
shall not be treated as a dispute.}
The information required by the clause may be reported in the following format:
Statement of Disputed Dues

Check for disclosure of Contingent Liability
Notes to Accounts 36
Related Party Disclosures

 Check for Reimbursement of expenses to related parties – RCM
liability
 Payment made to Foreign holding / Subsidiary companies /
Associate concerns. Check if they are liable to GST and if yes,
has the same been discharged
 Check for any extraordinary note or item and examine whether
the same attracts the provisions of GST
Review – Internal Audit Report 37
Check for observations/comments on: a)accounting for GST

liability
b) Frequent claim of ineligible ITC
c) Claim of ITC based on 2A without acual receipt of goods or
services.
d)Comments on efficacy of controls in accounting for Input &
output GST.
Consider the impact of IA report while drafting Audit report &
Internal Financial Control Report
Tax Audit Report 38
Tax Auditor’s report -3CD
Q 4. Whether the assessee is liable to pay indirect tax like excise duty,
service tax, sales tax, goods and service tax, customs duty, etc. if yes,
please furnish the registration number or GST number or any other
identification number allotted for the same
■ Includes liability on RCM
■ Mention all GSTINs across the country

Tax Audit Report 39
Clauses in Tax Auditor’s report -3CD
18. Depreciation Schedule

■ Ensure that assets included are exclusive of GST if ITC has
been claimed. Also check accounting policy on PPE
21(a) Amounts debited to the profit and loss account, being in the
nature of capital, personal….
■ Check that on amounts disclosed under this clause, ITC has not
been claimed.
Year end adjustment entries 40
 Ensure provision is made for services availed from domestic

vendors exclusive of GST, as ITC cannot be claimed without the
invoice.
 Ensure provision is made for services availed from overseas
Associated Enterprises inclusive of RCM-GST.
 Ensure provision is made for GST short paid during the year due
to inadvertent errors in rate/classification/calculation along with
interest thereon
 Ensure reversal of ineligible ITC and creation of liability & interest

Conclusion 41
 Knowledge of GST law & Rules is a sine qua non for conducting
audit of any enterprise.
 Reconciliation between figures as per books of accounts and GST
returns to be done as far as practically possible before finalization
of accounts.
 Auditing standards to be followed
 Cross verify figures disclosed in various reports (Financials/Tax
audit report/GST annual returns) to ensure accuracy & consistency

42
Thank You
S Ramesh
ramesh@srbr.in
© Indirect Taxes Committee, ICAI 9841018302

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1

THE INSTITUTE OF CHARTERED

© Indirect Taxes Committee, ICAI

Finalisation of Accounts with GST

S Ramesh Aug 23, 2020

© Indirect Taxes Committee, ICAI

Financial Books GST Ledgers/Returns

 Revenue recognition Vs GST turnover reconciliation.

Eg: 2. In construction contracts the turnover as per books &

© Indirect Taxes Committee, ICAI

 Revenue recognition Vs GST turnover reconciliation.

© Indirect Taxes Committee, ICAI

 Analysis of turnover rate wise to ensure correctness of GST

 Analysis of Other Income to ascertain GST liability

© Indirect Taxes Committee, ICAI

Profit or loss on sale of fixed assets

Higher of (A) & (B) will be the GST liability

© Indirect Taxes Committee, ICAI

 Reconcile the ITC claimed on expenses with the amounts

 For entities following IND AS, having lease rental payables

© Indirect Taxes Committee, ICAI

 Analysis of Expenditure heads for RCM liability accounting

 Accounting for TDS (GST) receivable (Check whether entries

 Analyse payables to ensure that all invoices on which ITC has

 Analyse export receivables on account of supply of service, to

 Status of long pending refund claims

 Disclosure of GST related figures in financials

© Indirect Taxes Committee, ICAI

 Claiming of ITC without satisfying both the conditions will

 This is a common problem especially in an non ERP

 Property, plant and equipment are stated at cost of acquisition or

 Property, plant and equipment is stated at acquisition cost net of GST

© Indirect Taxes Committee, ICAI

© Indirect Taxes Committee, ICAI

 Month wise for broad summary and drill down in case of

 Month wise for broad summary and drill down in case of

Sl.N Ledger Account / Line item Services rendered by Recipient of Service

© Indirect Taxes Committee, ICAI

© Indirect Taxes Committee, ICAI

 Expenditure in foreign currency - Paid for services - GST on

 Earnings in foreign currency – Check whether LUT filed

 GST on remuneration to directors (other than salary) - RCM

 GST on sitting fees – RCM

 CSR activities - Whether GST paid if any has been claimed as

 Correctness of any reference in the report to GST paid (under

 Response to Auditor’s comments (EoM or Qualification)

© Indirect Taxes Committee, ICAI

 To Qualify or mention in Emphasis of Matter paragraph,

© Indirect Taxes Committee, ICAI

 Inventory [Paragraph 3(ii)]

 Statutory Dues [Paragraph 3(vii)(a)]

© Indirect Taxes Committee, ICAI

2. Generally Regular but slight delay in a few months

© Indirect Taxes Committee, ICAI

4. Not Regular and serious delay

© Indirect Taxes Committee, ICAI

© Indirect Taxes Committee, ICAI

 Statutory Dues [Paragraph 3(vii)(b)]

© Indirect Taxes Committee, ICAI