Reflections on GST Reconciliation Statement (GSTR 9C)
The Central Board of Indirect Taxes and Customs (CBIC) has recently notified the final Forms for Annual Return (GSTR 9) and Reconciliation Statement (GSTR 9C). The Annual Return and Reconciliation Statement must be filed on or before December 31, 2018. The Reconciliation Statement (Form GSTR 9C) seeks comprehensive details of Taxable Turnover, Taxes Paid and Input Tax Credit availed with a reconciliation of the same with the audited financial statements. The Reconciliation Statement is likely to be the reference point for GST Compliance and analysis for Tax Authorities. Below are the pointers to be kept in mind while preparing the Reconciliation Statement (Form GSTR 9C):
1) Classification of Inputs
While the Annual Return (Form GSTR 9) requires classification of Input Tax Credits into inputs, input services and capital goods, the Reconciliation Statement (Form GSTR 9C) requires a more detailed description wise classification into purchase, insurance, repair maintenance, bank charges, employees cost etc. to facilitate reconciliation of input tax credits with audited financial statements . The requirement for such a classification undoubtedly adds to the compliance burden as now all Input data requires detailed segregation.
2) Preparation of Financial Statements in case of Multiple GSTINs in different States
From a plain reading of the GST regulations it was not clear whether Profit &Loss Account, Balance Sheet and Cash flow statement had to be separately prepared for each GSTIN for purpose of GST Audit. However, the Audit certification format released by CBIC now expressly requires preparation of Profit &Loss Account, Balance Sheet and Cash flow statement for each GSTIN. The Persons with multiple GSTINs in different states shall have to internally prepare Profit &Loss Account, Balance Sheet and Cash flow statement for each GSTIN. This significantly adds to the compliance burden.
3) HSN-wise classification
Annual Return also requires HSN wise classification of outward and inward supplies. In the GSTR 2 form introduced earlier (now suspended), HSN wise summary of inward supplies drew criticism due to the onerous compliance burden. The HSN information did not get auto-populated but had to be filed manually by each taxpayer. This caused significant hardship in return filing as recipients could not always be expected to know HSN codes for goods supplied, especially when the supplier was not legally bound to disclose the same in invoice. Keeping in view above difficulties, Government set up an advisory panel for recommending changes for making compliance easier for traders and small businesses. Inter alia, thepanel recommended doing away with HSN code requirement in the invoice for easier return filing (especially when no such requirement exists for services).The requirement of HSN wise summary of bothinward and outward supplies in the Annual Return form is at odds with the recommendations of the Advisory Panel. The requirement for such a classification shall again add to the woes of the taxpayers.
4) Different Categories of Turnover
In the Reconciliation Statement and Annual Returns, there is reference to following three different kinds of turnover values:
- Gross Turnover – i.e. turnover derived from the audited financial statements;
- Taxable Turnover or Value of taxable supplies (including zero rated supplies) and
- Turnover from which tax liability arises (excluding zero rated supplies and any supplies on which recipient is liable to deposit tax on reverse charge basis)
- Further, the Reconciliation statement requires reporting of turnover for the entire Financial Year, i.e. FY 2017-18, and prescribes the adjustment for the months of April-June 2017 (Pre GST Months).
5) Break-down of outward supplies
Detailing of all outward supplies into exempt, Non GST, Zero Rated (exports) and supplies to SEZ and taxable supplies is required under both forms (GSTR 9 and GSTR 9C).
6) Separate Disclosure of Deemed Supplies
The Reconciliation statement requires separate disclosure of 'Deemed Supplies' i.e transactions without consideration treated as supplies under Schedule I of the CGST Act. The most significant and common component of such supplies is transactions with related parties. Therefore, all inter-branch transactions undertaken as per valuations rules including the rendering of common services from head office require separate disclosure in Form GSTR 9C.
While the GST Law is still finding feet, there is an ongoing effort by Government to bring clarification and uniformity on the interpretation and application of GST Regulations. Given that the Annual Return and Reconciliation Formats are highly detailed requiring submission of segregated and compendious data, taxpayers are advised to start preparing/ collating information at the earliest to ensure timely and meticulous compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.