Clause 44 of Tax Audit Report Applicability

Q: Are there any expenditures whose reporting has been exempted under clause 44 of Form 3CD?

Yes. As per the guidelines issued by ICAI, some expenditures do not fall under the reporting requirements of clause 44 of Form 3CD.

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

Aug, 06 2022
Indirect Taxation
By ASC Group

Clause 44 of Form 3CD Tax audit Report 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!

The applicability of clause 44 of tax audit report was kept in abeyance till 31^st March 2022 due to the prevailing Covid-19 situation in the country. However, for tax audit reports filed from 1^st April 2022 onwards, reporting under clause 44 of form 3CD will be mandatory. Hence, you will be required to report the information as required in this clause 44 for the tax audit for FY 2021-22.

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

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)

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.

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).

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.

Also Read: 47th GST Council Meeting Recommendation- Relaxations and Clarifications

Frequently Asked Questions

Whether reporting under clause 44 is required by the assesses who are not registered under GST?

Yes. Regardless of whether the assesses is registered under GST or not, reporting under clause 44 of Form 3CD is mandatory.

Whether only the expenses whose payment has been made shall be reported or all the expenditures recognised in the books of accounts shall be reported under clause 44?

All the expenses that have been recognised in the books of accounts shall be reported in clause 44 of Form 3CD irrespective of whether the payment has been made or not.

Are there any expenditures whose reporting has been exempted under clause 44 of Form 3CD?

Yes. As per the guidelines issued by ICAI, the following expenditures do not fall under the reporting requirements of clause 44 of Form 3CD:

Salaries: As there is no GST on salaries and it is neither supply of goods nor supply of services
Depreciation: It is not specifically an expenditure but an allowance
Bad Debts: Like depreciation, it is not an expenditure but an allowance
Short and excess balances
Rounding off

Whether reporting under clause 44 shall be done on a total basis or head-wise reporting of expenditure is required?

The reporting under clause 44 shall be done on an aggregate / total basis. There is no requirement for head-wise reporting of the expenditure in clause 44.

Whether capital expenditure is required to be reported under clause 44 or only the revenue expenditure?

The language used in the clause uses the word ‘expenditure’. Therefore, the capital expenditure shall also be reported under clause 44 of Form 3CD along with revenue expenditure.