Threadbare Discussion on Clause 44 This presentation is only for knowledge sharing CA. Deepak Bhholusaria 12Taxmann.com th September 2022
• Mr. Deepak Bhholusaria is a commerce graduate and fellow member of the Institute of Chartered Accountants of India. • He has also completed various certificate courses of ICAI on Indirect taxes, Blockchain, Information Systems Audit and Valuation. • A seasoned professional, author, speaker, public figure and YouTuber with 23+ years of experience. About presenter
1 Applicability of Clause 44 2 Overview of information to be furnished in 3CD-Clause 44 3 Meaning of Total Expenditure for reporting 4 Reporting of capital expenditure in clause 44 5 Inclusions and exclusions from reporting 6 Reporting of Provisions and Accrued Expenses in Clause 44 7 Consolidated details or account head wise to be furnished? 8 Clause 44 vis-à-vis line Items of Profit & Loss Account 9 Insight into ICAI Guidance Note on Tax Audit, 2022 edition 10 Insight into section 35 of CGST Act and Rule 56 of CGST Rules Webinar coverage
Clause 44 – Applicability 1. Clause 44 is applicable for all 3CD reports issued after 31st March 2022. 2. Para 82.16 of GN: Reporting is qua PAN, not GSTIN 3. Para 82.4 of GN: Applicable even if auditee is not registered under GST (e.g., Doctors, Lawyers, GTAs) 4. Applicable even if auditee is registered and his entire/part income is exempt.
Clause 44: Overview 1. Col. 2: Total amount of Expenditure incurred during the year 2. Expenditure in respect of entitiesregistered under GST 1. Col. 3: to goods or services exempt from GST 2. Col. 4: Relating to entities falling under composition scheme 3. Col. 5: Relating to other registered entities 4. Col. 6: Total payment to registered entities (sum total of 1, 2 and 3 3. Col. 7: Expenditure relating to entitiesnot registered under GST Clause 44: Break-up of total expenditure of entities registered or not registered under the GST -
35. Accounts and other records.— (1) Every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of— a) *** b) inward and outward supply of goods or services or both; c) *** d) inputtaxcreditavailed; e) *** f) suchotherparticularsasmaybeprescribed: Section 35 – GST Act
56.
***
(4) Every registered person, other than a person paying tax under section 10, shall keep and maintain an account, containing the details of tax payable ***, input tax, input tax credit claimed, together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period.
***
(5) Every registered person shall keep the particulars of –(a) names and complete addresses of suppliers from whom he has received the goods or services chargeable to tax under the Act; (b) ***
Maintenance of accounts by registered persons.-
Rule 56 GST Rules
(1) Every registered person shall keep and maintain, in addition to the particulars mentioned in subsection (1) of section 35, a true and correct account of the goods or services imported or exported or of supplies attracting payment of tax on reverse charge along with the relevant documents, ***
(2) Every registered person, other than a person paying tax under section 10, shall maintain the accounts of stock in respect of goods received and supplied by him ***
–
goods nor a supply of services and thus expenditure incurred in respect of such activities need not be reported under this clause in any of the columns from 3 to 7*. Remuneration to employees need not be reported. 82.15 Both Revenue & Capital expenditure is covered. Separate reporting of capital expenditure will provide ease in reconciliation. *GNissilentoncolumn2inrespectofitemscoveredbypara82.2and82.4
Recommendations 82.2 Depreciation
debts u/s 36(1)(vii) etc.
7*.
Act, 2017
GN: Inclusions and exclusions
in
the Columns
in nature of allowances 82.3 Schedule III to the
32, deduction
activities or transactions which are
Para under section for bad which are not not this clause any of from to These are CGST lists out treated as a of
be reported under
expenses should
3
neither
supply
2. ** 3. **
8. (a) Supply of warehoused goods to any person before clearance for home (b)consumption;Supplyofgoods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption
6. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India. {aka High Sea Sales}
7. Actionable claims, other than lottery, betting and gambling.
4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Schedule III: GST
1. Services by an employee to the employer in the course of or in relation to his employment.
Principally these are to be excluded from column 3 to 7: A. Items of which are in the nature of allowances. B. Items of which are not in the nature of expenses C. Items which are not “supplies” as per GST law. GN: Inclusions and exclusions
Clause 44 – Consolidated? Para 82.1 of GN, 2022 edition: Heading of the table starts with the words “Breakup of total expenditure” ➢ hence the total expenditure including purchases as per the notified format may be given. ➢ Head wise/nature wise expenditure is not envisaged
AS-29: Provisions can be distinguished from other liabilities such as trade payables and accruals because in the measurement of provisions substantialdegreeofestimationis involved with regard to the future expenditurerequired in settlement.
Provisions & accrued expenses
Head Explanations
Ind-AS 37: Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the futureexpenditurerequired in settlement.
• All accrued expenses have already been incurred but are not yet paid.
Definition Ind-AS 37: A provision is a liability of uncertain timing or amount.
• Accrued expenses and provisions are separated by their respective degrees of certainty.
• By contrast, provisions are allocated toward probable, but not certain, future obligations. They act like a rainy-day fund, based on educated guesses about future expenses.
AS-29: A provision is a liability which can be measured only by using a substantialdegreeofestimation .
Summary
provisionsv/sAccruals
Provisions & accrued expenses Provisions example Accrued expenses examples • Provisions for warranties or post-sales client support • Provisions for gratuity • Provisions for lease encashment • Provisions for long term service award • Audit fee payable • Electricity expenses payable • Telephone expenses payable • Salary payable
• under the Integrated Goods and Services TaxAct
Sec. 2(47)
means supply of any goods or services or both
2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council
• includes non-taxable supply;
• under this Act {read CGST/SGST} or
1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption,***
Exempt v/s non-taxable supplies
Non Sec.supply-taxable2(78)
• which attracts nil rate of tax or
• which is not leviable to tax
Exempt Supply
• which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services TaxAct, and
Levy Sec. 9
CGST referenceSection Provisions
means a supply of goods or services or both
Petroleum crude, high speed diesel oil, motor spirit etc.
Cash discount or early payment discount for sales, Sundry balances of AR w/off
Exempt supplies. Power distribution companies are usually registered under GST, hence should be reported in Col. 3
Interest paid on loan to individuals
High sea purchases (used for high sea sales) Sch. III - “No supply”, hence excluded from col. 3 ~ 7
PL line head Clause 44 treatment
Interest paid on loan to banks/NBFCs
Taxable supply of services. Col. 7
Depreciation
Taxable supply of services. RCM. Col. 7
Sch. III - “No supply”, hence excluded from col. 3 ~ 7
Exempt supplies. Petrol/HSD vendors are usually registered under GST, hence should be reported in Col. 3
Foreign exchange loss
Import of goods or services
Electricity expenses
ESI, EPF expenses
Royalty payment to Government
Clause 44 vis-à-vis line Items of Profit & Loss Account
Fee for trade license > Rs. 5000
Remuneration to employees
Not a supply. Excluded from col. 3 ~ 7
Not a supply
Not an expenditure, should be reduced from revenue
Allowance, hence excluded from col. 3 ~ 7
Exempt supplies. Should be reported in col 3
Exempt supplies. Either Col. 3 or Col. 7 depending upon registration status of lender
Not a supply. Excluded from col. 3 ~ 7
Supply from unregistered suppliers. Col. 7
Inward returns of goods sold
Para 82.14 –It should be ensured that the total of columns 6 and 7, tallies with the amount mentioned in column (2) except to the extent of expenditure/ allowance mentioned in para 82.2. and 82.3**. The auditor may retain the reconciliation prepared by the assessee for verification. Reconciliation between various columns of table ** Misprinted as 8.2. and 8.3 in GN
Para 82.14 of Guidance note 2022 edition Col 6 Allowances, No Supplies etc Col 7 ExpenditureTotalasperColumn2 Can an item be “expenditure” for Column 2 and not for column 3 to 7?
ExemptSuppliesfrom registeredsuppliers (e.g.INR10)
Balance Rs.100
Column4oftable
ExpensesasperProfitStatement+ CapitalExpenditure =
TotalExpenditureincurred (e.g.,INR120)
Column3oftable
Column6oftable
Para 82.14 of GN
SuppliesfromComposition TaxablePersons (e.g.INR20)
Column7oftable
Column2ofTable
TaxableSuppliesfromNonCompositionRegisteredTaxable Person (e.g.INR40)
Expenditureinrelationto UnregisteredSuppliers (e.g.,INR30)
Clause 44
Expenditureinrelationto RegisteredSuppliers (e.g.INR70)
Exclude Depreciation,Allowances, NoSupplyetc. (E.g.Rs.20)
Column5oftable
• Assessee has informed auditor’s that "Expenditure relating to entities not registered under GST" includes import of goods, import of services and services from unregistered suppliers on which GST liability under RCM has been discharged. • Assessee has further informed that the difference between Clause 2 (i.e. "Total expenditure“) and sum of clause 6&7 is on account of depreciation, bad debt and expenditure, like salary, which is not a supply as per GST. Also, Total Expenditure as pe column 2 includes “capital expenditure”. Clause 44: Sample auditor’s Note
Open House
Slide No. 20
दक्षम:
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