Clause 44 of Tax Audit Report vs. Bad Debts, GST on RCM, Depreciation, Electricity, Salary, Interest to Bank & Others, Late Fee

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Clause 44 of Tax Audit Report vs. Bad Debts, GST on RCM, Depreciation, Electricity, Salary, Interest to Bank & Others, Late Fee

Tax Audit Report (TAR) is turning out tough for the taxpayers for the CA who are required to do a lot of work to ensure its reporting. Despite working, the accuracy is also too doubtful and so the majority of the professionals have started giving “Disclaimer” rather than “Disclosure with a disclaimer as to its accuracy”. The general survey indicates that around 85% of the professionals have started giving the disclaimer for clause 44.

One may recall that Clause 44 is the new reporting requirement which has been made effective for all tax audit reports filed after 31.03.2022 for the FY 2021-22 i.e. it is applicable for AY 2022-23.

Let us have a short overview of the reporting requirements of Clause 44.

The clause 44 requires tax auditor to give the details of entire expenditure in the following format:

 Break-up of total expenditure of entities registered or not registered under the GST:

Sl No Total amount of Expenditure incurred during the year Expenditure in respect of entities registered under GST Expenditure relating to entities not registered under GST
Relating to goods or services exempt from GST Relating to entities falling under composition scheme Relating to other registered entities Total payment to registered entities
(1) (2) (3) (4) (5) (6) (7)

 

Column 2:

The question arises as to which items of expenditure should not be reported in column 2 or any other column.

All the items which are not supplied under GST are also not required to be reported in Column 2 or any other column. E.g.

  1. Bad Debts,
  2. Depreciation
  3. Salary and Remuneration related items
  4. Stock in Hand
  5. Forex Loss & Gain etc.

All other items of expenditure including capital expenditure are to be reported here.

Column 3:

 Exempted, Nil Rated and Non Taxable supplies are to be reported in Column 3.

Few of the examples are

  1. Liquor
  2. Petrol,
  3. Natural Gas,
  4. Electricity
  5. Interest charged by Bank,
  6. Interest on Loan (If lender has GSTIN) etc.

Column 4:

Expenditures incurred relating to entities falling under composition scheme are to be reported under column 4.

For proper reporting, the Auditor may refer to the copies of the bills to verify the status of these dealers.

In the absence of this information, a suitable disclosure may be made in the audit report.

Column 5:

Value of all inward supplies from registered dealers, other than supplies from composition dealers and exempt supply from registered dealers, are required to be reported here.

Column 6:

The word payment does not refer to the “payment” as such here.

The total of Column 3 + 4 + 5 is to be mentioned here.

Column 7:

 Expenditures relating to entities not registered under GST are to be reported under column 7.

Few of the examples could be

  1. Import of Goods and Services,
  2. Expenses on which RCM has been paid,
  3. Custom Duty,
  4. Late Fee,
  5. Interest on Loan (if lender does not have GSTIN)
  6. Other non-GST registered entities expenditure.

It is by and large a settled view that the information in clause 44 is not to be given with respect to each head separately but has to be given on aggregate basis.

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