Things to be kept in mind before finalization of Books of Account: Income Tax & GST

Finalizing accounts means making sure that the records in the accounting books follow the rules of the Companies Act, GST, and Income Tax regulations. Usually, this is done at the end of the year, but it's a good idea to check them regularly, like every month or every quarter. If the records don't match up with what's required by the Companies Act, GST, and Income Tax rules, then it's up to the person in charge to fix them and make sure they're correct.

The following are the points that have to be kept in mind before finalizing books of accounts:

GOODS AND SERVICE TAX(GST) :-

1. Ensure all GST returns are filed within the stipulated deadline. Any errors in the previous year's returns should be rectified in the annual return (GSTR-9).
2. Reconcile sales, purchases, output tax, and input tax with GST returns.
3. Verify that Input Tax Credit (ITC) is not claimed on items specified under section 17(5) of the CGST Act. If claimed, it must be reversed with interest at 18% per annum.
4. Confirm that if ITC is claimed on any asset, its actual cost should be reduced by the corresponding ITC value for depreciation calculation.
5. Ensure suppliers from whom purchases were made have filed their GSTR-1 on time, reflecting inward supplies in our GSTR-2B for ITC claims. Also, ensure that claimed inputs match GSTR-3B.
6. Obtain confirmations of ledger balances from creditors/debtors for reconciliation purposes, crucial for audits.
7. Monitor any notices sent by the GST department via the GST portal, ensuring timely responses before the reply deadline.
8. Be vigilant of turnover thresholds: above Rs 2 crores necessitates filing GSTR-9, and exceeding Rs 5 crores requires GSTR-9C. Carefully monitor sales turnover to avoid exceeding these limits.
9. Adhere to section 16(2), ensuring payment to suppliers within 180 days from the invoice date to prevent ITC reversal along with interest at 18% p.a.
10. Verify that exporters filing a Letter of Undertaking (LUT) for GST exemption on exports have done so by the due date, typically March 31st of the financial year.
11. Charge GST on the sale of capital assets if ITC was claimed at the time of purchase.
12. In cases of Reverse Charge Mechanism (RCM), claim ITC only upon payment under RCM.

INCOME TAX:-

1. Ensure the preparation of comparative books of accounts. For instance, if books are prepared for the financial year 2023-24, they should be accompanied by those of the previous year, 2022-23. This practice is mandatory for audits and aids external parties such as customers, shareholders, or banks in evaluating the financial performance of the company or firm.
2. If personal expenses are included in the Profit & Loss account, they must be added back to the net profit for Income Tax calculations, as personal expenses are not permissible under the Income Tax Act.
3. Verify that TDS on specific payments has been deducted and paid by the due date.
4. Ensure that TDS receivable matches with Form 26AS and the Annual Information Statement (AIS).
5. If Statement of Financial Transactions (SFT) is applicable, it must be filed by May 31st of the following year.

7. In the case of a partnership firm, ensure that interest on capital and remuneration does not exceed the limits specified under the Income Tax.
8. Make sure Depreciation is calculated as per section 32 of Income Tax for computing tax i.e. WDV method and rate specified in Income Tax Act only.
9. As per the latest amendment in Section 43B of the Income Tax Act Creditors as of 31st March should not be older than limit specified in section 15 of MSME Act i.e. 45 days if there is agreed date or 15days if no agreed date is specified. If it is so, then it should be disallowed.
10. Ensure payment for purchasing asset in cash in a day for more than Rs.10,000/- should not be part of actual cost of asset, if it is there then depreciation will not allowed.
11. Ensure advance tax is paid up to due date.
12. Prepare bank reconciliation statement to reconcile the balance as per cash book and pass book.
13. Ensure no provision for bad debt is taken for computing profit under Income Tax.
14. Make sure that receipt in cash in a single day from a single person should not exceed Rs 2 lakh as per section 269ST of Income Tax Act. If it exceeds Rs 2 lakh then a penalty of the amount equal to the receipt has to pay. For e.g. If person accept Rs. 2,50,000/- in a single day from a single person then he shall be liable to pay Rs. 2,50,000/- under section 271DA of Income Tax Act.
15. If turnover exceeds Rs 1 Crore in case of business or gross receipts of Rs. 50 lakh in case of profession then Tax audit is compulsory as per section 44AB of Income tax. Therefore person should be more careful regarding his sales turnover or gross receipts whether it exceed as the above limit.