GST Reconciliation Statement GSTR 9C, GST Annual Return GSTR 9: Section 35(5) of the CGST Act, 2017 (the Act) requires all taxable persons with a turnover exceeding rupees 2 crore to get the GST records audited by a Cost Accountant or a Chartered Accountant in practice and furnish a copy of audited annual accounts and a Reconciliation Statement, duly certified by the auditor, in Form GSTR-9C while filing the Annual Return in Form GSTR 9.
That is, the Annual Return for the year ended March 31, 2018 (the period from July 1, 2017 to March 31, 2018), which is to be filed by December 31, 2018 cannot be filed by such taxable person without the Reconciliation Statement GSTR 9C, duly certified by the auditor.
The Central Board of Indirect Taxes and Customs (CBIC) has notified the format of the Reconciliation Statement to be signed by the GST Auditor appointed to conduct audit under S. 35(5) of the Act.
A perusal of Form GSTR 9C would reveal that the Reconciliation Statement involves reconciliation of the information furnished in the Annual Return GSTR 9 and the financial records of the registered person.
It is to be noted that both the Forms GSTR 9 and GSTR 9C are to be filed for each one of the Goods and Services Tax Identification Number (GSTIN). Thus, where a registered person has operations in more than one state or has opted for multiple registrations in a state, such registered person would posses more than one GSTINs against his PAN no. In such cases, the GSTIN-wise data will have to be extracted from the financial books of the entity.
The Annual Return essentially involves compilation of the data furnished in the GSTR 1 and GSTR 3B Returns filed during the year. An attempt is made to consider individual line-wise requirements of GSTR 9C, its connection with the relevant details in the Annual Return GSTR 9 and the audited financial statements.
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1. Section 5 of the GSTR 9C deals with reconciliation of gross turnover. The figure of turnover as reported in the audited financial statements may differ from that reported in the GST Returns during the year on account of the following factors:
- a. Revenue included in the previous year on accrual basis but actually billed during the audit year. GST would be payable on such accrued revenue of the earlier year if billed during the audit year and accordingly the GSTR 1 and GSTR 3B Returns will have reported such revenue during the audit year. Thus, the revenue figure reported in the audited financial statements will be lower than that reported in the GST Returns. Similarly, the audited financial statements may include revenue accounted on accrual basis but which is actually billed in the subsequent year. Since GSTR 9 Return will include turnover only on the basis of billing such revenue included in the audited financial statements on accrual basis will have to be reduced to reconcile with the Annual Return.
- b. On the other hand, advances might have been received from customers against pending orders. These advances, if received before October 12, 2017 (in the case of persons having turnover less than rupees 1.50 crore) or before November 15, 2017 (in the case of persons having turnover more than rupees 1.50 crore), would be liable for payment of GST. Thus, such advances would get reported in the GSTR 1 and GSTR 3B Returns. However, the financial statements will not recognize unbilled advances as income. Similarly, unbilled advances carried forward from the previous year, billing in respect of which was done during the audit year would be recognized as revenue in the audited financial statements, whereas the GST Returns will not reflect such carried forward unbilled advance as turnover during the audit year.
- c. Schedule I of the CGST Act lists certain supplies as ‘deemed supplies’ even if these supplies are made without consideration. Value of such deemed supplies will be reported in the GST Returns whereas these supplies will not be reflected as revenue in the audited financial statements.
- d. Where credit notes have been issued after the end of the audit year in respect of invoices raised during the audit year, such credit notes will get reflected in the GSTR 1 and GSTR 3B Returns of the following year, however such credit notes will get included in the Annual Return. Since such credit notes will not be included while reporting revenue figures in the audited financial statements, these will appear as a reconciliation item in the GSTR 9C.
- e. Audited financial statements will reflect revenue figures net of any trade discounts. Where such trade discounts are not recognized and hence GST has been charged on such price before reducing such trade discount, the turnover figures as per audited financial statements and that reported in the Annual Return will need to be reconciled.
- f. The auditd financial statements are prepared for the period April, 2017 to March, 2018. Since GST Annual Return is for the period July 2017 to march 2018, turnover for the period April-June 2017 included in the turnover as per the audited financial statements will have to be reduced to reconcile with the GSTR 9 Return.
- g. If any advances have been received from customers after 12th October or 15th November, 2017 (as the case may be), on which GST has not been charged and in respect of which invoice has not been raised until March 31, 2018 and if such advances have been included as revenue in the audited financial statements, the value of these advances will have to be reduced from the revenue as per the audited financial statements to reconcile with the GSTR 9 Return.
- h. Section 15 of the CGST Act prescribes the method of valuation to be adopted to arrive at the taxable value. There can be cases where the taxable value for a supply as determined as per S.15 may be different from the value actually billed for a supply. Thus, whereas the audited financial statements will include the amount actually billed, the turnover declared in the GST Returns will be different from the amount actually billed. In such cases the difference in billed amount and taxable amount will have to be reconciled suitably.
- i. The turnover as reported in the audited accounts might have been adjusted to give effect to foreign exchange fluctuations. Thus, there will be a difference between the amount of turnover as per audited accounts and that as reported in the GST Returns. Such differences arising on account of foreign exchange fluctuations will have to be reconciled appropriately
2. Section 6 -Despite identifying the items that lead to difference in the turnover as reported in the audited financial statements and the Annual Return GSTR 9 there could be in existence certainissues that are not covered in the various items included in section 5 of the GSTR 9C statement. Section 6 of the GSTR 9C seeks reasons for such un-reconciled amount.
3. In the section 7 of the GSTR 9C is to be shown the net taxable turnover subject to GST. That is, the amount of turnover as arrived at in section 5 minus :
- i. Nil-rated supplies;
- ii. Non GST supplies;
- iii. Supplies that are not deemed to be a ‘supply’ under any of the provisions of the Act;
- iv. Zero-rated supplies (exports and supplies to SEZs) made without payment of tax;
- v. Supplies that attract reverse charge mechanism under S. 9(3) of the Act;
- vi. Un-reconciled turnover after making adjustments for items i to v above, and reasons for such differences
4. Section 9 of the GSTR 9C requires reconciliation of taxes payable and actually paid.
5. Section 12 of the GSTR 9C relates to account of the input tax credit (ITC) availed during the year as per in the audited financial statements and its reconciliation with the corresponding figures of ITC reflected in the Annual Return GSTR 9. Difference between the ITC figures reported in the audited financial statements and that reported in the GSTR 9 could arise on account of the following factors:
- i. Input tax credits booked in the financial books of the earlier year but actually availed during the audit year. A typical example of this is ITC carried forward from the earlier year under the transitional provisions (TRAN I, etc.).
- ii. There can be cases where ITC, though booked in the financial books, could become available only in the following financial year. For example, if the supplier has omitted to declare the supply in his GSTR 1, such ITC claimed will not get reflected in the GSTR 2A for the time being. Such ITC will be available for availment in the subsequent financial year after the supplier corrects the omission.
Check points for the auditor:
- a. The auditor should prepare details of eligible and ineligible credit pertaining to Inputs, Input Services and Capital goods for filing annual return in Form GSTR -9.
- b. Check ITC register maintained by the company to ensure that no ineligible credits have been taken erroneously in monthly return Form GSTR-3B.
- c. Check if GST paid under reverse charge in under Section 9(3) and Section 9(4) (as applicable) of the CGST Act has been correctly availed as ITC to the extent eligible.
- d. Ensure that the ITC in respect of the invoices for inward supplies which were not paid within 180 days from date of invoice was duly reversed. Similarly, ensure that such reversed ITC has been duly reinstated when payment is subsequently made to the supplier.
- e. As per Rule 42(2) of the CGST Rules, 2017, reversal in respect ITC availed on common inputs and input services used for making both taxable and exempted supplies, is to be done for the financial year before the due date for furnishing of the return for the month of September (October 20, 2018). Ensure that the reversals, where applicable, are duly carried out.
- 6. Section 13 of the GSTR 9C is for explain the reasons for Un reconciled difference, if any, in ITC claimed in the Annual Return and the adjusted figure of ITC as worked out in Section. 12 above.
- 7. Section 14 is to provide break-up of ITC claimed according to expense heads in the audited financial statements. In case the total of expense-head wise ITC availed does not match with the ITC claimed in the Annual Return, reasons will have to be provided for such un-reconciled differences under section 15.
- 8. If on account of un reconciled differences, if any, GST becomes payable, such tax liability and interest/ penalty, as applicable, is to be shown in section 16 of the GSTR 9C.
- 9. Part V is for the GST auditor’s recommendation regarding additional tax liability/penalty on account of un-reconciled items.