GST is a self-assessment regime wherein taxpayers are required to assess and deposit tax themselves. Periodical returns are required to be filed with revenue authorities. Such returns filed, are later assessed or scrutinized by the Government to identify any deviations. To further corroborate the assessment or scrutinization process, the Government relies on the accounts and records maintained by the taxpayer. Therefore, such accounts and records are of extreme help to the revenue in order to conduct assessments and scrutiny.
LIST OF TOPICS COVERED:
Who is required to maintain accounts and records under GST?
What is the period of retention of accounts and records under GST?
What records must be maintained?
What are the consequences of not maintaining records in prescribed manner?
Who is required to maintain accounts & records under GST?
- Every registered person is required to maintain specified accounts and records at his principal place of business. If there is more than one place of business in the registration certificate, then accounts of all such places of business should be maintained at respective places.
- Section 35 of the CGST Act, 2017 (the Act) casts the responsibility of maintaining accounts and records on the owner or operator of warehouse or godown or any other place used for storage of goods and on every transporter for the consigner or consignee.
- The Commissioner may prescribe a specific class of taxable persons to maintain additional accounts or documents.
- Where the Commissioner believes that a specific taxable person is unable to maintain accounts and records in a specified format, he may modify the manner in which accounts are to be maintained and record the reasons in writing. Circular No. 23/23/2017-GST dated 21 December 2017 provides relaxation from maintenance of books of accounts relating to additional place of business by a principal or an auctioneer for the purpose of an auction of tea, coffee, rubber, etc. subject to prescribed conditions.
What records must be maintained under GST?
A registered person must keep the particulars of:
- Supplier’s name and address from whom taxable supplies have been received
- Recipient’s name and address to who taxable supplies have been made
- Address of the premises where goods are stored
A registered person must maintain a true and fair account of the following:
What is the period of retention of accounts & records under GST?
The GST law prescribes 6 years for a taxable person to retain its records and books of accounts. The period of 6 years would be counted from the last date of filing of Annual Return for that year. For example, for the year 2019-2020, the due date of filing the annual return was 31 March 2021. The books & records of 2019-2020 must be maintained for 6 years, i.e. till 31 March 2027.
What are the consequences of not maintaining records in a prescribed manner?
If the taxpayer fails to maintain proper records in respect of goods and/or services, then the proper officer shall treat such unaccounted goods and/or services as if the taxpayer had supplied them. The officer will determine the tax liability on such unaccounted goods. The taxable person will be required to pay the tax liability calculated along with the penalty.
- The accounts can be kept in electronic form in the manner specified.
- Any entries in registers, documents, and accounts should not be erased, effaced, or overwritten. Further, all clerically incorrect entries should be scored out under attestation and thereafter, correct entries should be recorded. In case of electronic accounts, a log of every entry edited or deleted should be maintained. Moreover, each volume of books of accounts manually maintained should be serially numbered.
Vide Finance Budget, 2021, the provision of getting annual accounts audited and the reconciliation statement submitted by specified professionals has been done away with. This amendment is said to be done with the intent of reducing compliance burden on taxpayers.
Accounts and records are an outcome of a process of recording journal entries, preparing ledgers, and maintaining books of accounts. The blog has been written from a GST perspective. However, there are other guidelines and regulations which any business has to adhere to, such as accounting standards, Ind AS, US GAAP (for USA-based companies), etc. A taxpayer needs to also abide by these rules and regulations (as and when applicable) while preparing accounts and records. Moreover, from the Income-tax perspective and Transfer Pricing perspective, there are certain book adjustments that need to be carried out in the records. Thus, holistically, accounts and records have to be maintained in line with multiple regulations.
Reconciliations have been an important activity under GST. Input Tax Credit (ITC) reconciliations, reconciliations are done as a part of GSTR 9C, turnover reconciliations between GSTR 1 and GSTR 3B, etc. are some reconciliations which have proven difficult and challenging for businesses. However, the first step for any reconciliation activity to prove useful is the correctness of the underlying accounts and records. In absence of structured, correct, and fair accounts and records, reconciliations are not possible.
Accounts and records, if properly kept can prove valuable at the time of tax assessments, litigations, etc. However, a lack of proper accounts and records can lead to a challenging situation. The reason for the law to prescribe a minimum duration for retaining accounts and records is exactly for this purpose. The authorities cannot go back beyond six years in case of issuing show-cause notices, and hence the time limit. Further, accounts and records are the first ask in any assessment or proceedings initiated by the department. An incoherent accounting could certainly tamper the course of the proceedings.
The importance of accounts and records is also evident from the fact that in some countries until a taxation regime was not in place, the accounts and records were also unkempt. A disorganized accounting record can not only lead to taxation chaos but could also question the going concern ability of any business.
A common challenge that businesses face in the case of a manual accounting system is continuity and accounting practices. The accounting practices change when the accounting team undergoes a change. This also hampers any assessment and litigation procedure because the person who prepared the accounts is not present to get them assessed. Retrieval of information also becomes a challenge. A simple and effective solution, in this case, is the use of technology in accounting. Technology when used in accounting can solve all these issues and more. Not only can it ensure consistency in accounting practices, but it also makes retrieval of information and formation of audit trail very smooth. Moreover, Indian accounting systems have undergone a makeover in the last decade. A comprehensive accounting system not only maintains books of accounts but also automates tax and other compliances for businesses.
Therefore, in a nutshell, though accounts and records may appear to be procedural and routine, it is one of the most important activities for any business.