Last updated on September 12th, 2023 at 08:19 pm
Clause 44 of the Tax Audit Report
⇒ Clause 44 was notified vide CBDT Notification 33/2018 dated 20th August 2018 to be implemented for FY 2017-18 and onwards.
⇒ Its implementation was deferred for the following years
- FY 2017-18 vide circular 6/2018 dated 17th August 2018
- FY 2018-19 vide circular 9/2019 dated 14th May 2019
- FY 2019-20 vide circular 10/2020 dated 24th April 2020
- FY 2020-21 vide circular 05/2021 dated 25th March 2021
⇒ Modifications in the Tax Audit Report(Form 3CD) are generally not introduced in the Budget but directly through a notification during the year, so no Memorandum is available that explains the need/relevance/importance of this clause.
⇒ There is no clarification from the Income Tax Department regarding the purpose or the end use of the information sought.
⇒ Reconciliation of expense-wise break up of ITC in Table 14 of GSTR 9C is kept optional for FY 2021-22. (GST Law is deferring the requirement but it is being sought by Income Tax Law)
Clause 44 of Tax Audit
|
Break-up of the total expenditure of entities registered or not registered under the GST |
||||||
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Sr. No. |
Total Amount of expenditure incurred during the year | Expenditure in respect of entities registered under the GST | Expenditure relating to entities not registered under the GST | |||
|
Relating to the goods or services exempt from GST |
Relating to the entities falling under composition | Relating to the other registered entities |
Total Payment to Registered Entities |
|||
| 1 | 2 | 3 | 4 | 5 | 6 |
7 |
Is reporting under clause 44 required by the Assessee who is not registered under GST?
Clause 44 requires a taxpayer to provide a break-up of expenditures made to GST-registered entities/non-GST registered entities i.e. Outgoing Expenses. Hence, disclosure in Clause 44 will be applicable to all the assessees who are subjected to tax audit u/s 44AB irrespective of the fact whether they are registered under GST or not.
What are ‘Entities’ for the purpose of clause 44?
Entities here will mean any person to whom expenditure has been paid or against whom expense has been accrued/ booked by Assessee liable for Audit during the year.
Based on the Eighth Edition of the ICAI Guidance Note
ICAI has recently issued new guidance notes effective from AY 2022-23 onwards. In the guidance notes, an explanation has been provided regarding reporting under clause 44 and related points. But there are still a few points regarding which we do not have any direct clarification. [Download the Guidance Note issued by ICAI]
Few such points have been listed out and treatment of the same under clause 44 has been provided as per our understanding: –
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Expenditure |
Column of Clause 44 |
Reporting and Reason |
|
Remuneration and Interest paid to Partners |
NA | Interest and remuneration to partners are nothing but just of distribution/appropriation of profit of a partnership firm to the partners, hence not to be reported in any column of clause 44. |
| Provisions (Provisions for Audit Fees, Power, etc.) | C2 and
C3/C4/C5/C7 |
Provisions that are in nature of Outstanding Liability are to be reported in Total Expenditure. These are provided in P&L A/c and are being claimed as expenses for the year against the income for accounting as well as Income Tax purposes. Columns for reporting shall be decided based on the nature of the entity (Registered/Unregistered) to which payment will be made. |
|
Import of Goods or Services |
C2 and C7 | In the majority of such cases, the entity is outside India and not registered in GST. Imports are very well considered as Supply in GST. |
| Power & Electricity Expenses | C2 and C3 |
Electricity is exempt from GST vide CGST(Rate) Notification no. 02/2017 |
|
GST Composition Tax, PF/ESI Exp. And all other Taxes paid to Govt. |
C2 |
In the line of issued Guidance note, it shall be included in Total Expenditure i.e. column 2, and then not to be reported in any column from 3 to 7. Total Expenditure will include every expense of P&L (Considering the clarification given regarding Depreciation and Salary in the Guidance note). |
|
Interest on Bank Loan/Unsecured Loans etc. |
C2 and C3/C7 |
Interest on Loans is exempt under GST vide CGST(Rate) Notification no. 02/2017 |
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Expenses liable for payment of GST under RCM |
C2 and C5/C7 |
The same has to be reported. If payment is to a registered person then in C5 if to an unregistered person then in C7. (For eg. Registered GTA then in C5). (For eg. Unregistered GTA then in C7) |
|
Rebate & Discounts – GST Credit notes & Financial Credit Notes |
C2 and C3/C4/C5/C7 |
This has to be reported irrespective of the fact that Discount & Rebate is with GST or without GST (only Financial Credit Notes). If the discount is provided to a person registered in GST (irrespective of the fact that the discount is with or without GST), it will be reported in C3/C4/C5, otherwise C7. |
Conclusion
When clause 44 was introduced, the GST Law was still finding its way out and was miles away from stability. GSTR-1, GSTR-2, and GSTR-3 were the base then. GST laws and procedures have gone through complete overhauling since then. But clause 44 is being made applicable for FY 2021-22 and onwards in its original form without the slightest modification.
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He can be contacted at abhashalakhandi@gmail.com and +919530044440
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Well summarized.
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Very use full in filling 44.
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AUDIT FORM 44 EXP DETAIL
FREIGHT PAID 1 CRORE RESERVE CHARGES GST PAID WHICH COLOUM SHOW
TRANSPORT NOT REGISTER IN GST
If the GTA is not registered then in Column 7.
If the GTA is registered then in Column 5.
What about prepaid expenses- expenses which has been paid this year and are reflected in GSTR 2A but actually in PL A/c it will be reflected next year ?
Clauses of Tax Audit Report are to be prepared based on your financial statements not based on their reflection on GST Portal.
If you are showing an expense in P/L Account next financial year. You will report the same in Clause 44 in the next financial year.
Clause 44 is the bifurcation of Total Expenditure i.e. Expenditure debited in Profit and Loss A/c. Hence Prepaid exp will not form part of Clause 44
ELECTRICIRY IS EXEMPTED THEN IT IS SHOWN IN COLUMN 3 ?
YES