When the end of the financial year approaches, businesses gear up to ensure compliance with the Goods and Services Tax (GST) regulations and to effectively manage their financial affairs for the upcoming new financial year. Here, we will delve into the key aspects of GST that businesses need to focus on as they prepare for the year-end and new financial year to effectively handle their GST year-end activities and GST activities for the new financial year.
Reviewing Financial Statements
During each financial year’s closure, the business should review the financial statements to ensure that they are proper and have been prepared with the GST law in mind. This entails measuring the income, balance sheets and cash flow sheets to determine the position of the business. Specifically, businesses require focusing on the following aspects: proper input and output tax documentation and proper accounting of the GST payable and receivables accounts.
Subsequently, there is also the need to ensure that the financial statements portray the proper accounting of GST on many activities, such as sale purchases. This includes making the appropriate GST entries on the invoices and correctly identifying GST as an expense or an asset in the balance sheet. Any losses or mistakes in the company’s financial statements concerning the GST should be recovered or corrected before the end of the financial year to avoid fines or investigation by the tax authorities.
Inventory Management
It is essential for any business to manage its stocks efficiently and effectively to satisfy the requirements of GST. Therefore, creating effective GST inventory management strategies is vital. It is recommended that the inventory be evaluated when the company is preparing for the end of the year and the beginning of the new financial year since this might contain certain products that are not selling well or have become old, which would influence the GST computation. Furthermore, if it pertains to the records, the company must ensure that its inventory records are correct and up to date, above all else, as accurate inventory valuation is essential for GST purposes.
It is required by law under GST that traders, manufacturers, and suppliers of goods keep proper records of the purchase, sale, and stock returns. This is a good practice that any business must embrace as it helps one check the movements of physical items and the accounting records. In addition, it is also necessary for businesses to consider how GST would impact their stock and their own decision on how they would prefer to cost their inventory as to the specific identification, FIFO or the weighted average costing method in the calculation of cost for the GST purpose of both the cost of the goods sold and the value of the closing inventory.
Input Tax Credit (ITC) Utilization
Another vital area that companies must use effectively is GST input tax credit utilisation, which will help decrease the firm’s GST liability and improve the cash flows. Whenever companies are closing their books for the end of the financial year and opening new books for the subsequent financial year, they should always verify the position of their ITC to ensure that any ITC which businesses are legally allowed to has been claimed and that the provisions of the GST Act do the use of ITC. This involves supporting and substantiating all the input tax invoices, credit, and debit notes to determine the correctness of the ITC claims.
It is also essential for businesses to be familiar with the time limits associated with using ITC under the GST, where there are likely to be extra taxation costs if the credits are not claimed on time. Further, for the claimed ITC, businesses need to ensure that it is fairly distributed for both the taxable and exempt supplies and for using ITC against the payment of GST liabilities. Any variance in the ITC availed or utilised with the actual ITC should be addressed using reconciliation and adjustments to prevent penalties or interests under GST.
Also Read: What Is Input Tax Credit (ITC)?
Reconciliation of GST Returns
Businesses must revisit their GST returns during the year-end and the start of the new financial year because it helps verify and confirm compliance with GST requirements. This entails comparing the GST returns with the related business financial and operational data to determine differences or discrepancies. GSTR-1 should be checked to ensure all the details relating to outward supplies are correctly filled, GSTR-3B summary return should also be checked, and GSTR-2A, an auto-drafted input tax credit, should also be verified.
In addition, businesses should also map the GST returns with their balance sheets, such as mapping sale and purchase register data with input and output tax data and the ITC claims. Any difference should be analysed and corrected during the preparation of the GST returns and adjustments and disclosures if necessary.
Also Read: What is GST Return Filing
Compliance with E-Invoicing Requirements
With the implementation of e-invoices under the GST regime, vast changes have been observed in organisations’ invoicing and documentation norms. This is because when the companies are planning for the year-end and the new financial year, it is essential to follow the e-invoicing conditions to avoid any business interruptions. This includes using IT solutions to generate and submit electronic invoices in the correct format as required under GST legislation.
Businesses should also assess their current invoicing practices and technologies to assess the compatibility with the e-invoicing rules, such as the generation of IRNs QR codes and digital signatures. Furthermore, businesses also need to focus on the real-time upload of invoice data to the IRP for creating e-way bills and for the mutual cross-referencing of input tax credits. Any failure to meet the e-invoicing standards may attract fines and affect the companies’ supply chain. Therefore, businesses should ensure that they have proper e-invoicing structures in place.
Handling GST Audits
When companies are doing their accounting for the year-end and entering the new financial year, they should expect to be audited by the tax authorities for their compliance with the GST laws. These audits are typically carried out to confirm the truth and exhaustiveness of the GST returns filed by organisations and to also look at their conformity to the GST law. To properly deal with GST audits, companies must provide all the proper documentation and records, such as invoices, ledgers, purchase orders, and others, that prove the company’s compliance with GST legislation. Companies should give thorough GST audit preparation high priority.
Businesses should also review their GST data internally and reconcile them to ensure they can easily find any problem with the GST results they might see during the GST audit. Further, there are some key points that business entities must be aware of, including the rights and obligations of the auditee under the GST audit, including the provision of information and assistance to the audit body. Any conclusions and notes made from the GST audit should be responded to and corrected through actions to avoid any potential assessments or penalties from the tax authority.
Also Read: GST Audit: When and How GST Audits Are Conducted and What Businesses Need To Prepare
Conclusion
Businesses must prioritise several facets of financial management and accomplish their GST compliance checklist as they prepare for year-end and the upcoming fiscal year. Businesses may improve their financial sustainability and health by streamlining their GST operations and adhering to regulations with diligence and proactive preparation.
