Why this is a welcome step for MSMEs?

Earlier the government has introduced rule 36(4) which says that a taxpayer can claim ITC of only those invoices which are appearing in 2A. A variation of only 10% is allowed. This rule was inoperative for the period from February 2020 to August 2020, but now it is operative.

By the introduction of this rule 36(4), the quarterly filers of GSTR-1 are facing a unique problem. Let’s understand this through an example.

The invoice appears in GSTR-2A only after counterparty files GSTR-1. The quarterly filer files GSTR-1 quarterly. The invoice of this taxpayers appears in GSTR-2A of the counterparty once every quarter. Say if the invoice date is of April 2020 and he is filing the quarterly return on 28th July 2020, his invoice will appear in the GSTR-2A of the counterparty on 28th July 2020. By then the counterparty must have already filed its monthly return GSTR-3B for June month.

This creates a situation that a person purchasing from a quarterly filer can claim ITC credit after a long period which can extend up to 4 months.

This provision alone has created a great hardship on the quarterly filers. The MSMEs who are supplying to large companies are getting continuous requests to file the GSTR-1 monthly.

But the taxpayer cannot change the option to monthly return filing in a mid of the year. This created a situation where the large companies started to avoid doing business with such taxpayers who are filing their return quarterly.

By the introduction of this new due date, quarterly filers get a marginal relief. The period of delay of a maximum of 4 months is now reduced to 3 months.

But this still does not solve the problem completely. Unless the quarterly filers get to change the option of filing GSTR-1 from quarterly to monthly in the mid of the year, the problem cannot be completely solved.

The post Why due date for filing quarterly GSTR-1 is changed first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

This rule is one of the most complicated rules to apply in practical circumstances. Let’s discuss what this rule is all about.

In layman’s language, rule 36(4) says that the input tax credit of regular invoices availed in a particular month cannot exceed 110% of the value of invoices matched in GSTR-2A.

Further, as per the circular, an additional condition is also specified. It says that the ITC from the suppliers who have filed their GSTR-1 within the due date will be eligible for availment in the same month. If supplier files GSTR-1 late, then that invoice will become eligible for availment only in next months.

Now, the taxpayers who want to comply with this rule has to do the following exercises every month.

1. Prepare the list of invoices on which he wants to claim ITC.
2. Match those invoices with the invoices available in GSTR-2A.
3. Bifurcate the matched invoices in 2 categories. 
   1. Matched invoices of vendors who have filed GSTR-1 within the due date.
   2. Matched invoices of vendors who have filed GSTR-1 after the due date.
4. Identify the matched invoices of past months, which are becoming eligible for availment in the current month.
5. Keep a record of invoices which are becoming eligible for availment in next months so that they do not get missed out from ITC claim.
6. Claim the ITC of invoices which are eligible for availment in the current month. A variance of 10% is allowed.

As we can see, the above steps can appear very simple to write but believe us they are really difficult to implement in practical situations. Now let’s see what are the difficulties, the taxpayers will be facing? 

1. Matching of Past Invoices: As per GST rules, the ITC of a particular invoice can be claimed up to September of the next financial year. This means that to do the matching, at the maximum the taxpayer can be required to match GSTR-2A of the last 18 months. 
2. Dynamic nature of GSTR-2A: GSTR-2A is a dynamic document. Thus for the matching process, the taxpayer is required to download the GSTR-2A for each of the past months.
3. Tracking GSTR-1 filing dates of vendors: As per the new condition, the ITC will become eligible for availment based on the GSTR-1 return filing dates of the vendors. Thus the taxpayers have to track the return filing dates of vendors.
4. Keeping a record of availment eligibility of the invoices: Due to vendor filing date condition, the taxpayers have to keep a record of availment eligibility of invoices. He needs to track when a particular invoice will be eligible for availment. 

Thus with these challenges, the taxpayer has to complete a very difficult task of complying with rule 36(4). 

We at Digitax Automation are in the process of streamlining this process. Rule 36(4) reports will be added in our system very soon. You can contact us at support@digitaxindia.com for any queries. 

The post How to comply with Rule 36(4) for claiming GST Input Tax Credit first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

This is not a new thing in the tax regulatory system in India. In the time of service tax and excise duty, the Income Tax Department used to share the 26AS data with CBIC. There are so many cases of tax evasion found out by CBIC just by sharing of 26AS data.

In our previous article, we emphasized that now GSTR-2A is the new equivalent of 26AS. GSTR-2A contains such vital information about a particular business that it can be a huge data mine for the income tax authorities in finalising the assessments. 

Now the government has openly come up with an MOU with its 2 departments. This means that in future, the GSTR-2A will play a very important role in income tax assessments.

How GSTR-2A can play a game-changing role in tax assessments, let’s discuss.

1. Expense Verification: The verification of expenses claimed by an income taxpayer can be done from the GSTR-2A data. If expenses data primarily matches with the GSTR-2A, it can be reasonably assumed that the expenses are verified. If data is not matching then there is something fishy about it.
2. Unexplained Expenses: GSTR-2A can show the data of such expenses which have not been claimed by the income taxpayer. This will form a basis of enquiry as to check for the source of such expenses incurred. If the taxpayer is not able to justify the source of the expenses incurred, then it can be treated as unexplained expenses by the taxpayer.
3. Underreported income: GSTR-2A can give a good idea about the size of the business. At present, many cases are showing on the income tax compliance portal where the taxpayer is having entries in his GSTR-2A but not filing the income tax return or not disclosing adequate turnover in the income tax return. This will help in unearthing the underreported income by the income tax department.
4. Non-existing firms: In GST era, the government is facing serious challenges in the form of the dummy and non-existing firms. There are many cases where a GST registered firm is running in a person’s name without the knowledge of the said person. With data sharing between CBIC & CBDT, this will introduce an additional check for finding out the non-existing firms in GST.

The above points are just a brief view of how powerful GSTR-2A can be in tax compliance. Government is now sitting on huge data where it can extract such information which an ordinary taxpayer cannot imagine.

Reconciliation of GSTR-2A is now more important than ever before as it will be treated as a “Janam Kundali” of the taxpayer by the assessing authorities.

The post GST Department to share GST data with Income Tax Department first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

The company had 80% of its expenses as GST input expenses. Being a service company, it was quite important to vouch for all such expenses. In this period of COVID-19 where movement is quite limited, he used the GSTR-2A reconciliation as the vouching tool for completing the audit.

He got the GST Input Tax Credit register from the client and used Digitax G-RECS for reconciling the full-year data. He was able to do so within hours.

After matching the GSTR-2A data with the GST input tax register of the company, he was able to vouch for 80% of the companies expenses with reasonable certainty that such expenses are genuine and validly claimed.

He was able to find the unclaimed credit on bank charges paid by the company which was more than double the amount of audit fees charged by him. In effect for the client, the auditor has recovered twice the amount of audit costs to the company.

The focus of the auditor remained on the accounts which are not matching with GSTR-2A data and he was able to suggest many points of correction to the client which he was quite happy to implement.

From this case, it can be seen that the GSTR-2A reconciliation is a very powerful tool to finalise the audit for the professionals. As the time period for completion of the audit seems shrinking forever, with the help of a good tool, it is quite possible to complete the audit in an effective and efficient manner.

With our user-friendly GST credit reconciliation tool Digitax G-RECS, it will be quite easy for the professionals to reconcile the GST Input tax credit.

To know more about this product you can contact us over mail on support@digitaxindia.com.

The post Using GSTR-2A Reconciliation as an Audit Tool first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.

Recently the government has introduced 26AS in a new avatar. 26AS is now not only a tool to monitor your TDS but also an information tool for the government.

You must have experienced how Income Tax and GST (earlier Service Tax and Excise) departments are continuously pressing upon the reconciliation of 26AS with both income tax returns and service tax or excise returns.

Similarly, in very near future Income Tax and GST departments will also ask for matching of GSTR-2A with your Income Tax Returns, your books, and GST returns.

GSTR-2A will be one of the most important weapons in the arsenal of the Income Tax and GST departments while doing the assessments of your clients.

That’s why we say that GSTR-2A = 26AS

Have you included GSTR-2A reconciliation in your GST and Income Tax return filing process for your clients?

This is very important not only in the return filing process but also in doing accounting for your clients.

Try using Digitax G-RECS ITC reconciliation system.

The post Why GSTR 2A is equal to form 26AS first appeared on ITC Reconciliation, GSTR 2A Reconciliation - Digitax Automation.