GST, Income Tax & Banks

Everything is connected to a "System"

In the digital age, with ease of doing business and all, there is the ease of tracing mismatches also. All the pieces of information furnished by the businesses all across various departments, ministries or any other system are exchanged, gathered and analysed concurrently. So that there remains a negligible chance of tax evasion.

For example in October 2016, GSTN signed a memorandum of understanding with the Ministry of Commerce and Industry for sharing of foreign exchange realization and import-export code data. Similar memorandum exists for most of the departments of the government and non-government entities.

Starting from the "Profit and loss" Account, there is a hawk's eye on every transaction reported by a business.

Revenue from Operations: Commonly known as sales done during the year by a business in the ordinary course of business. If one has taken GST registration then, all the sales made must have been reported under GST, and at the same time, taxes must have been collected and subsequently paid to the government. This sales figure get reconciled by the books of accounts and reconciliation is filled with GST department. This figure gets reported directly to income tax department through ITR. And Form 26AS directly shows transactions reported in form 3B along with ARN and date of filing of GSTR 3B all at once for a year.

Other income: Other income commonly includes all forms of income earned from other than ordinary course business. Most of the time, GST is also leviable on such income and some times not. Such as bank interest, dividend, profits on the sale of used fixed assets do not incur GST over them. But, the sale of assets without use may attract GST. And same can be traced from GST portal and will reflect in form 26AS.

Purchase of stock in trade, closing inventory: Everything can be calculated using the information furnished in GST returns. All purchases come directly into GSTR 2A, and 2B and considering the profits reported in ITR, stocks can be calculated easily by the tax officers.

Employee benefit expenses: The expenses incurred on employments can be verified from the returns required to be filled in various labour laws.

Depreciation and Assets: Purchase of assets again can be traced from GSTR 2A and GSTR 2B and should be reported accordingly in ITR.

Debtors, creditors can be traced from analysing the GST returns and bank statements.

Rents: Higher rent payment attracts TDS provisions and can't be falsified.

Power: Electricity companies are required to share data of high use power with income tax departments and GST departments.

Further, the government is not trying to trace the business to customer transactions so there are certain limitations to the audit trials. But, sooner or later all of the limitations are going to be eliminated.

So, it is highly recommended to be strong in compliances. Businesses should adapt to a good and automated ERP system. A business or startup should have independent and responsible finance departments so that the errors of misreporting can be minimised.

Information Return for sharing information of transactions

Under INCOME TAX

As per the amended Rule 114E of the Income Tax Rules, 1962, the Annual Information Return should be furnished by every person mentioned hereunder

1. A banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act).

2. A banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or any other company or institution issuing a credit card.

3. A trustee of a Mutual Fund or such other person managing the affairs of the Mutual Fund as may be duly authorised by the trustee in this behalf.

4. A company or institution issuing bonds or debentures.

5. A company issuing shares through a public or rights issue.

6. Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908.

7. A person being an officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934, who is duly authorized by the Reserve Bank of India in this behalf.

Under GST

The class of persons obligated to file Information Returns is as follows:

1. Any taxable person

2. Any local authority / other public body/association

3. Any authority of the State Government responsible to collect state-level taxes (SGST)

4. Any authority of the Central Government responsible to collect central level taxes (CGST)

5. Any income tax authority

6. Any banking company

7. State Electricity Board or distributor of electricity

8. Registrar or Sub-registrar (Under Registration Act)

9. Registrar (Under Companies Act)

10. Registering authority (Under Motor Vehicles Act)

11. Collector (As under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act)

12. Stock exchanges

13. Depositories

14. Officer of Reserve Bank of India

15. Person to whom UIN (Unique Identity Number) is granted

16. Any other person recommended by the Government’s council