Applicability of Clause 44
The ‘Tax Audit’ limit under Section 44AB is Rs 5 crore (the threshold limit is Rs 10 crore where minimum 95% of business transactions are done in digital mode).
If the taxpayer is subject to audit, then this process is even more elaborate as one not only has to submit a return but also a tax audit report to the Income Tax authorities. In this context, we should have heard or come across the ‘Form 3CD’.
Reporting under clause 44 of Form 3CD of Income Tax Audit Report
♦ Total amount of Expenditure incurred during the year.
♦ Expenditure in respect of entities registered under GST:
a) Relating to goods or services exempt from GST.
b) Relating to entities falling under composition scheme
c) Relating to other registered entities d) Total payment to registered entities.
♦ Expenditure relating to entities not registered under GST
A Detailed Analysis of the above clauses: –
2(a) Expenditure relating to goods or services exempt from GST:– value of all inward supply of goods or services which are exempt from GST in terms of section 2(47) of the CGST Act,2017. Section 2(47) of the CGST Act,2017, exempt supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under the Integrated Goods and Services Tax Act, and includes non-taxable supply
Section 2(78) of the CGST Act, 2017 non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act .
Value of exempt supply includes supply of alcoholic liquor for human consumption, supply of petroleum crude, high speed diesel oil, motor spirit, natural gas and aviation turbine fuel
However in terms of Schedule III of CGST Act,2017, neither treated as supply of goods nor supply of services (reportable under point no 3).
2(b) Expenditure Relating to entities falling under composition scheme:
Composition scheme governed by Section 10 of the CGST Act,2017 .
It is a normal practice of the small and medium taxpayers not to mention the GSTIN of the said suppliers in their accounting software. Hence, while reporting such expenditures it is quite possible that the same may be reported in the category of “Expenditures relating to entities not registered under GST.
2 (c) Expenditure Relating to other registered entities:-
Value of all inward supplies from registered dealers, other than supplies from composition dealers and exempt supply from registered dealers, are to be mentioned here. There is a possibility that assessee may procure both exempt and taxable supplies from one registered person.
2(d) Total payment to registered entities:-
The value of expenditure booked as per books of account shall be reported. Expenditure relating to entities not registered under GST:- The value of inward supply of goods and/or services received from unregistered persons should be reported here.
Highlighted Points:- The Tax auditor should verify the details keyed in with the underlying document on a test check basis and retain the same as part of his working paper: –
- Expenditure head
- Name of the entity to whom payment is made
- GSTIN of the entity
- Value debited to expenditure account
- Value for which input tax credit is taken
- Total amount paid to the vendor
- Reason for NIL GST
- General Remarks, if any
