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Clause 44 of Tax Audit Report Applicability - Form 3CD of GST Disclosures

Clause 44 of Tax Audit Report Applicability - Form 3CD of GST Disclosures

Tax audit Report 3CD contains a pool of various clauses that keep on amending owing to the disclosure requirements and transparency. New clause 44 of Form 3CD was introduced requiring entities to disclose the break up of total GST and non-GST expenditure irrespective of whether they are registered under GST or not. Let’s take a deeper look clause 44 of tax audit report!

Clause 44 of Tax Audit Report Applicability

The applicability of clause 44 of tax audit report was kept in abeyance till 31st March 2022 due to the prevailing Covid-19 situation in the country. However, for tax audit reports filed from 1st April 2022 onwards, reporting under this clause will be mandatory. Hence, you will be required to report the information as required in this clause for tax audit for the FY 2021-22.

Following are the reporting requirements under Clause 44 of audit Form 3CD:

Sr. No.

The total amount of expenditure incurred during the year

Expenditure in respect of entities registered under GST

Expenditure in respect of entities not registered under GST

   

Relating to goods or services exempt from GST

Relating to entities falling under the composition scheme

Relating to other registered entities

Total payment to registered entities

 

(1)

(2)

(3)

(4)

(5)

(6)

(7)

  1. The total amount of expenditure incurred during the year: Here, the total expenditure incurred during the year shall be considered. It is yet to be clarified whether the expenditure only includes revenue expenditure or it shall include capital expenditure as well.
  1. Expenditure in respect of entities registered under GST: This section has been further divided into 4 parts.

a. Relating to goods or services exempt from GST: It includes those expenses that have been exempted from GST. As per Section 2(47) of the CGST Act, exempt supply includes the following supplies of goods or services or both:

  • That attracts NIL rate of tax or
  • That is wholly exempted from tax under section 11 of the CGST Act or
  • That is wholly exempted from tax under section 6 of IGST Act or
  • Non-taxable supply

However, exempt supplies do not include zero-rated supplies.

b. Relating to entities falling under the composition scheme: It includes the amount of expenditure incurred from the composition dealers. To know whether any of the vendors was a composition dealer or not, you can either recheck the vendor invoice or visit the GST portal and search the vendor through GSTIN to know his registration status.

c. Relating to other registered entities: It includes those expenditures that are neither exempted from GST nor incurred from the composition dealer. In other words, it includes the normal taxable supplies received from the registered persons.

d. Total payment to registered entities: This is the sum total of all the expenditures you incurred in the above points 2(a), (b) and (c).

  1. Expenditure in respect of entities not registered under GST: This includes the expenditure incurred from the persons that are not registered under GST.

Sum total of all the expenditures in points above shall be equal to point 1 above.

In a Nutshell

In a bid to increase the transparency and genuineness of the transactions incurred by the taxpayers, income tax requires the assessees to meet the increased reporting requirements by inserting clause 44 in tax audit report. It shall also be noted that all the expenses incurred by the assessees from registered persons are already reflected in the GST portal in Form GSTR-2A and form part of the Annual Information Statement and Taxpayers Information Statement of income tax. Therefore, it would be in the interest of the assessees to correctly bifurcate and report the expenditures in Clause 44 of Form 3CD in order to ensure consistency between income tax and GST. In case of any query on clause 44 of tax audit, please feel free to contact the ASC Group.

 

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