Maintenance of Books of Accounts

  • Contributed by S Prakash, Secretary, KSTPA (Karnataka State Tax Practitioners Association)

    Year 2017 will be a remarkable year for both Direct and Indirect Tax reforms in India. Implementation of GST is a giant leap towards creating a unified Indian Market as the PM Says “One India – One Tax”. As we look into the benefits of this Law to elevate India’s economic growth at a global level, it is equally important to be mindful about the transition phase and preparation that our businesses have to undertake at the backstage for the successful implementation of the Law.

    As India gets ready for transition to GST, the key question is whether India is prepared for this transition. GST transition is not only about a tax change but a complete business, finance, accounting and reporting overhaul.  As management teams start assessing these changes, they will also need to factor in changes in financial reporting and indirect tax accounting. Under GST each business small or big requires to maintain details of each transaction for obtaining the seamless tax credits. As per the Model GST LAW section 42 and 43 deal with the provision of maintenance of books of accounts.

    Section 42: Accounts and Other Records – relevant portion on requirement of maintenance of books of accounts.

    Provision Interpretation
    Every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of production or manufacture of goods, of inward or outward supply of goods and/or services, of stock of goods, of input tax credit availed, of output tax payable and paid, and such other particulars as may be prescribed in this behalf.

    Provided that where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business.

    Provided further that the registered person may keep and maintain such accounts and other particulars in the electronic form in the manner as may be prescribed.

    Every person registered under GST shall maintain true and correct account of:

    –       Production or Manufacture of Goods

    –       Inward or outward supply of goods and/or services

    –       Stock of goods

    –       Input tax credit availed

    –       Output tax payable and paid

    –       Such other particulars as may be prescribed.

    The records shall be kept at place of business. But if Registered Person has more than one place of business then accounts relates to each place of business shall be kept at same place of business only.

    The records are required to be maintained in computer only.

    Current provision under VAT (KVAT) Laws:

    Every registered dealer liable to pay tax is required to maintain true and correct accounts in Kannada, English or any languages notified by Government.

    Commissioner is empowered to notify registered dealers to maintain accounts in specified manner

    The dealers who maintain accounts and other documents electronically are required to maintain them in electronically readable formats.

    Such records shall be maintained in paper printed monthly.

    Maintenance of Books of Accounts – Income Tax Act

    Sec 44aa(1) – Following are the persons required to maintain books of accounts:

    (i) Person carrying on business or profession if his total income exceeds Rs.1,20,000 or his total Turnover or Gross Receipts in the business or profession exceeds Rs.10,00,000 in any of the 3 years immediately preceding the previous year.

    (ii) Where the business is newly setup, if his total income is likely to exceed Rs.1,20,000 or his total Turnover, Gross Receipts likely to exceed Rs.10,00,000.

    (iii) where the profits and gains from the business are deemed to be the profits and gains of the assessee u/s 44AE or 44BB or 44BBB and assessee has claimed his income to be lower than the profits and gains so deemed to be the profits and gains of his business.

    (iv) where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax during such previous year.

    Recording of transactions in regular books of account will help assessee in classifying the business-related expenditure which are allowable expenses and will be helpful while computing the business income. In absence of such data it may be difficult to quantify and prove the authenticity of such expenses claimed.

    Instances of complexities in maintenance of accounts under GST

    Booking of revenue in books of account
    The distinction  between  supply  and sale will continue in the post GST regime also. All supply may not be considered sales. As the transaction would not be on account of sale, it shall not be recorded as revenue in the books of principal supplier as well as job worker as revenue can be booked only when  there  is  transfer  of  property  in  goods which is  guided by  Accounting  Standards issued  by  ICAI.  If  all  supplies  are  treated  as  revenue  in  the  books  of  account,  the revenue would be inflated in the books of both principal supplier as well as job worker which    would    be    incorrect.    It    could    be    possible    that    separate    series    of invoice/documentary  evidence  may  be  permitted  to  record  such  transaction  so  that these can be distinguished from sale.

    Therefore, if the point of recognition of revenue as per the IND-AS is different from that of invoicing (as per GST), companies may have to face the challenge of maintaining two sets of records, I,e for accounting and for taxation.

    Stock Transfer

    Further accounting treatment for stock transfer would also differ under GST vis-à-vis the accounting point of view, as under the GST framework tax is expected to be payable even on stock transfers, considering its akin to sales.

    Inventory Valuation

    Secondly valuation of inventory lying in stock at the time of moving into the GST regime may also be a big exercise for the industry and could have a direct impact on the accounting and disclosure in the financial statements.

    Hence it is imperative that maintenance of regular books of accounts would be the need of the hour for the assesse in coming days. For smooth running of business, it is very important that right accounting system need to be put into place to capture details real time to avoid hiccups.

    Views presented in this article are personal view of the author. Information presented in this article is intended for information purpose only and does not constitute any legal opinion or advice. Readers and Users are requested to seek formal legal advice prior to acting upon any of the information provided herein.