GST: 11 Key compliances which need to be check before Financial Year ends

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TaxClue Team
TaxClue Team
Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building.

With the increased changes and amendments to the GST law, it becomes slightly difficult to monitor each such change and implement it properly within the statutorily mandated timelines.

Although GST law provides for various compliance which needs to be done on regular basis i.e. monthly, quarterly, half-yearly, etc.

However, there are some compliances that mainly need to be done on an annual basis. Since annual compliance is not a matter of routine, they are more prone to the risk of noncompliance.

In this article, we will discuss the year-end compliances that the entities are required to carry out and the new compliances that need to be implemented from the start of the year in relation to GST.

E-invoicing is mandatory for aggregate turnover of more than 50 Crores

The government has been cautious not to introduce e-invoicing in one go and the 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.

Read more about E-Invoicing at the below-given links: 

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 that are used for providing taxable supplies or which can be attributed to the taxable supplies. As per rules 42 and 43 of CGST Rules, reversal is required for that portion of common credit that 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.

Recommended Read: Input Tax Credit – How to avail 100% ITC in 2021

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 of 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 with the said provisions can lead to denial of eligible refund as available against the zero-rated supplies. Further, it can also lead to the 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 the 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 a 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 in to the Composition scheme

Any person who wishes to opt for a composition scheme for the 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.

Read more here: GSTN issued an Advisory on Opting-in for Composition Scheme for FY 21-22

Return for composition taxpayer

As provided in Rule 62, a registered person who has opted for the 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 the 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.

Read more at: Frequently asked questions on QRMP scheme

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, a late fee of Rs. 200/- for each day of delay is applicable subject to a 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 the filing of GSTR 9C, however, non-filing/delayed filing of GSTR 9C might trigger a maximum penalty up to Rs.50,000/- under section 125 of CGST Act, 2017.

Recommended Read: How can I prepare and file the Form GSTR-9 return?

Input tax credit available to banks and other financial institutions

Special provisions regarding ITC are prescribed for banks and financial. As per section 17(4) of the CGST Act, Banks, Financial institution including

NBFC have the following two options with respect to taking input tax credit:

  1. In order to avail that ITC which is attributable to the taxable supplies
  2. 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 options once exercised shall not be withdrawn during the remaining part of the financial year. Therefore, a registered person falling in the above category should choose the option of availing ITC wisely at the inception of each financial year.

Recommended Read: Input Tax Credit – How to avail 100% ITC in 2021

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).

The 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 the 80% procurement limit. If the requirement of procurement of 80% from registered suppliers is not achieved, and there is a shortfall in procurement from registered suppliers, GST @18% is payable on value to the extent of the shortfall.

The promoter is required to maintain a project-wise account of inward supplies from a 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, the tax liability on account of shortfall needs to be discharged on or before the 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 purposes, it is usual practice to take the final call over any high-value transaction at the end of the 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 the accounting treatment of certain transactions which were treated in one way during the year and then shifted to another at the time of closing of accounts.

Recommended Read: Restriction on Availing of Input Tax Credit

For example, if certain repairs to the building were not capitalized during the year, but at the end, it was capitalized then the GST impact of same should be analyzed in light of section 17(5). Another instance could be the equipment or machinery of the building regrouped to the building.

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