Role of GST Registration in Income Tax Compliances

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Goods and Services Tax (GST) registration plays a significant role in income tax compliance. GST Registration is mandatory for businesses in India with an annual turnover of more than ₹40 lakhs (or ₹ 20 lakhs for certain special category states). Once the business is registered under GST, it must comply with various GST regulations and file regular returns from time to time.

These are a few ways in which GST registration plays a crucial role in Income tax compliance:

Businesses registered under GST must mention their GSTIN (Goods & Services Tax Identification Number) in their income tax returns. This is required to reconcile the data between the two tax systems, and non-compliances can lead to penalties.

GST registration enables businesses to claim the Input tax credit (ITC) on business purchases. This credit can be used to offset the GST liability on sales made by the business. The ITC claimed by the business needs to be reconciled with the purchases reported in the Income-tax return to ensure that everything runs smoothly.

GST Registration requires the registered person to maintain proper books of accounts & documents issued, like Tax Invoices, Debit/Credit Notes, Receipt Vouchers, Refund Vouchers, Payment Vouchers, Delivery Challans, e-invoices, e-waybills, Bill of Supply, and other records. These records are helpful for income tax compliance as they provide evidence of income & expenditure.

GST Registration requires the registered person to file regular returns, including monthly and annual returns. These returns contain details of business sales, purchases, and input tax credits, which can be used to reconcile income tax returns & claim appropriate deductions.

Also Read: Beginners Guide To GST Registration

GST returns can serve as a source of information for the Income Tax Department to verify the accuracy of a business’s income tax returns. A discrepancy between the GST returns and the income tax returns filed by a business can raise red flags and lead to further scrutiny. The Central Board of Indirect Taxes & Customs and the Central Board of Direct Taxes have signed a Memorandum of Understanding to exchange data. Off-late notices have been issued for the differences between the income reported in the Income Tax Returns and the Sales Reported in the GST Returns.

Non-compliance with GST provisions will lead to the payment of hefty penalties, interest & late fees, which can be disallowed as deductions while calculating taxable income under the Income Tax Act. This means non-compliance with GST regulations can lead to a higher tax liability for businesses.

GST registration is an important compliance requirement for businesses in India and can also affect their income tax compliance. Businesses should ensure they comply with all GST regulations to avoid penalties or fines and reduce their tax liability.

Businesses that are required to file an Income Tax Audit Report under Section 44AB of the Income Tax Act 1961 have to provide the reconciliation. For Clause 44 of Form 3CD, the taxpayer has to provide the breakup of all the purchases made during the year between the purchases from registered taxpayers, non-registered taxpayers, composition taxpayers under GST, purchases from Composite Tax Payers, total purchases of exempted goods or services.

To capture the above data in the accounting or ERP, taxpayers must maintain the Supplier/Vendor master effectively. CaptainBiz provides mobile & online billing software for businesses that taxpayers can use easily and meet complex compliance requirements.

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CA Abishek Goli Self-employed (Partner)
CA Abishek Goli, Fellow Chartered Accountant, Partner at Manohar Chowdhry & Associates. He is having a post qualification experience of more than 12 years. He is specialized in doing Statutory Audits, Internal Audits, Tax Audits, Assessment of Internal Financial Controls and Goods and Services Tax.

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