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GST checklist before finalising P&L and balance sheet

Updated on:  

08 min read

An auditor is required to issue an audit report on the financials of the company. For this, he needs to keep in mind several considerations with regard to GST to ensure that the financials give a true and fair view. This GST checklist discusses the considerations that need to be kept in mind before finalising the profit and loss account and its balance sheet.

GST checklist before finalising the profit and loss account

Sr. No.

Particulars

Remark

1

Turnover

1. A reconciliation shall be done between turnover as per books and returns. But, in some cases, there will be differences as follows:

  • Stock transfer- In the case of financials, the stock transfers are nullified. But, in GST, it is included in turnover, and GST shall be paid on the same.
  • Exchange rate differences- In the books, sales are recorded at the average transaction rate, but in GST, the rate used is as notified under Section 14 of the Customs Act.

2. Classification of goods – The HSN codes applied and the GST rates used should be correct. If not, the differential liability has to be paid.


3. Discount allowed- Year-end discounts will affect the turnover and thus reduce the GST liability. There should be an agreement before or at the time of supply, and the auditor should verify the same.


4. Samples for sales promotion- Certain free samples (For example, samples marked as “physician samples” or “not for sale”) are not considered as supply under GST. Thus, ITC claimed on the inward supply of these free samples should be reversed. 


5. Additional place of business- Any other place of business, the turnover of which has been considered, should be added to the registration.


6. Related parties- The valuation rules in place should be followed for all related party transactions.

2

Other Income

1. Other Income- The auditor should go through every transaction reported under ‘Other Income’ to check if GST is applicable on any transaction for which a tax invoice has not been prepared.


2. The GST liability on the sale of fixed assets shall be checked as follows:

  • ITC not availed- GST is applicable on the transaction value.
  • ITC is availed-If the asset has been sold within 5 years, GST shall be paid on higher of the following 

a) Transaction value as determined under Section 15 multiplied by the rate applicable; or

b) The ITC availed, reversed by such percentage points as may be prescribed.


3. Interest Income- GST is not applicable to interest income, but the same should be included in aggregate turnover as per section 2(6) of the CGST Act 2017. 

3

Expenses

1. The auditor should scrutinise all the expenses to check for RCM liabilities.


2. The auditor should ensure that ITC is not availed on: 

  • Employee benefit expenses- Life & health insurance, travel benefits, foods and beverages, etc., are not eligible for ITC claims.
  • Prepaid expenses- ITC can be claimed only at the time of receipt of goods and services.
  • Personal Use- As per Section 16 and Section 17(5), ITC can be claimed only when goods are used for business purposes. (If goods are used for both business and personal use, then ITC can be claimed proportionately.)

3. Director’s remuneration- RCM is applicable on directors remuneration. But, in case there is an employer-employee relationship, and TDS is deducted under section 192 of the Income Tax Act, then RCM is not applicable. Hence, the auditor needs to scrutinise payments made to directors properly.


4. Reimbursements-  GST is applicable on all reimbursements unless they fall under the category of pure agents as per Rule 33 of the CGST Rules.


5. Repairs and maintenance- The auditor should ensure that ITC on repairs and maintenance is availed as per section 17(5) of CGST Act, 2017.

GST checklist before finalising the Balance Sheet

Sr. No.

Particulars

Remarks

1

Property, Plant and Equipment

An auditor should consider the points below while scrutinising property, plant and equipment:

  1. Depreciation should not be claimed on the GST component on which ITC is already taken as per section 16(3) of the CGST Act, 2017.
  2. ITC is not taken on ineligible/ blocked credit. The GST component should be added to the cost of the asset.
  3. In case capital assets are given to the third party for job work, then the same should be returned within 1 or 3 years, as applicable. If not returned within the prescribed time frame, the same should be considered as deemed supply.
  4. GST should be paid on disposal of capital assets if ITC was claimed to purchase such capital assets as per section 18(6) of the CGST Act, 2017.

2

Inventory

An auditor should consider the points below while scrutinising inventory:

  1. ITC should be claimed only on the goods which are in possession of the client. In stock in transit, ITC can be claimed only when the client actually receives the goods.
  2. ITC is to be reversed in case of goods stolen, destroyed or written off. 
  3. If the goods are sent on a “Sale on an approval basis”, the same should be returned within six months, otherwise, it should be treated as deemed supply.

3

Trade payables

An auditor shall consider the points below while scrutinising trade payables:

  1. Payment should be made to the suppliers within 180 days from the date of invoice as per section 16(2) of the CGST Act, 2017, otherwise, ITC should be reversed.
  2. In case of transactions with related parties, the valuation rules shall be complied with.

4

Trade receivables

An auditor shall consider the below points while scrutinising trade receivables:


  1. The export of services criteria is met in terms of receivables in foreign currency and whether the same is received within one year from the invoice.
  2. In case of transactions with related parties, the valuation rules shall be complied with.

5

GST balances

Any excess of ITC over output liability shall be disclosed as a part of other current assets, and excess of liability over ITC should be disclosed as other current liabilities. These numbers should be shown separately and should not be set off.

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