In the realm of taxation and financial compliance, the intricacies of reporting under Clause 44 in Form 3CD under Section 44AB of the Income Tax Act, 1961 take center stage. This provision mandates the reporting of Goods and Services Tax (GST) details for those filing tax audit reports in Form 3CA/3CB and 3CD under Section 44AB. This guide serves as a comprehensive resource, addressing FAQs and offering essential insights into the applicability, exemptions, reporting procedures, and complexities surrounding Clause 44. From clarifying the category of individuals and businesses required to report GST details to explaining the interplay between the Income Tax Act and the GST Act, this guide navigates the nuances of Clause 44 reporting, ensuring accurate and compliant reporting for tax audits.
Clause 44 in Form 3CD under Section 44AB of the Income Tax Act 1961 – Updated FAQs
1. Is Clause 44 reporting applicable to all taxpayers who are required to file tax audit reports in Form 3CA/3CB and 3CD under the Income Tax Act 1961?
Clause 44 reporting viz. GST Details reporting is applicable to taxpayers covered under the provisions of the Income Tax Act 1961. It is mandatory to report such information.
2. If Tax Audit Report filing is not applicable, do I need to report such details in my ITR? Can you share any examples?
Clause 44 reporting shall not apply to taxpayers who are covered under the presumptive system of taxations, such as Section 44ADA and 44AE of the Income Tax Act 1961, as they fall under the provisions of the Income Tax Act 1961.
3. Is it necessary to have expert knowledge of GST for reporting such information in Clause 44?
While having expert knowledge of GST is beneficial, it is not necessary. Reasonable knowledge about indirect tax is sufficient to report such details in a reasonable and precise manner. One can rely on the work of experts following guidelines provided by ICAI.
4. Can I depend upon the work of the expert in Indirect Tax to compile and validate such information for reporting in Clause 44?
As a Tax Auditor, you verify, validate, and express your opinion on the data provided in Form 3CD. While you can rely on the work of experts, it’s crucial to exercise care and ensure that the information reported is accurate.
5. If Tax Audit is applicable, is such reporting compulsory for Assessment Year 2023/24 only?
No, Clause 44 details need to be furnished for each of the Assessment Years, viz., AY 2018/19, AY 2019/20, AY 2020/21, AY 2021/22 & AY 2022/23, if the tax audit report is filed electronically today.
6. Do I need to generate a separate UDIN for reporting the information under Clause 44 of the Tax Audit Report?
No separate UDIN is required for reporting information in Clause 44 of Form 3CD. The UDIN generated for Tax Audit Reports serves the purpose of authenticating the data.
7. Whether compilation of such information would be burdensome or stressful?
The burden of compilation depends on whether the taxpayer maintains accurate master data. If the records are well-maintained, compiling such data can be swift. Otherwise, it may be burdensome or stressful.
8. Whether such information needs to be reported as per Income Tax Act, 1961 or GST Act, 2017?
The prevailing view is that information should be compiled and reported based on the provisions of the Income Tax Act, 1961. However, there is a divergent view, and some suggest that data should be compiled as per the provisions of the GST Act, 2017.
9. What information is sought to be reported in Clause 44?
Clause 44 requires reporting of various details related to the expenditure incurred during the year, including:
- Total amount of expenditure incurred during the year.
- Expenditure related to entities registered under GST.
- Expenditure related to entities not registered under GST.
- Details of specified domestic transactions.
10. Whether all the above details need to be reported on a mercantile basis or a cash basis?
The reporting can be done on a mercantile basis in most situations. However, it’s essential to consider the method of accounting followed consistently under the Income Tax Act, 1961.
11. Whether expenditure should be reported inclusive or exclusive of Input Tax Credits (ITC)?
Inclusive reporting is generally recommended, except for certain exceptions like Depreciation and Bad Debts written off.
12. Do I need to report Depreciation claimed as per the provisions of the Companies Act and/or Income Tax Act, 1961 in the value of total expenditure to be reported in Clause 44?
Depreciation is not considered an expenditure in the true sense. It is recommended not to include Depreciation in the reported value of total expenditure in Clause 44.
13. Whether the reported expenditure should be inclusive or exclusive of ITC (Input Tax Credits)?
The expenditure should be reported exclusive of ITC, considering the provisions of Section 145 of the Income Tax Act, 1961.
14. If Assessee is following inclusive method of accounting for taxes, should information under Clause 44 be reported inclusive of taxes?
Yes, if the assessee is following the inclusive method of accounting for taxes, then information under Clause 44 should be reported inclusive of taxes.
15. Do I need to report proportionate ownership of Capital expenditure incurred for the purchase/acquisition and transfer of Fixed Assets as per the provisions of the Companies Act 2013 and/or Income Tax Act, 1961?
Proportionate ownership of Capital expenditure cannot be reported, as vendors usually do not provide tax invoices based on the proportionate ownership of the asset.
16. What should be considered for reporting the amount of expenditure incurred during the year?
All expenses debited to the Profit and Loss account should be considered, except for certain exceptions like Depreciation and Bad Debts written off.
17. Why do you recommend reporting of total expenditure in answer to Question 16? Please explain.
Reporting total expenditure simplifies the process of calculating, compiling, and validating details for reporting in Clause 44. It aligns with the ease of extracting details from audited financial statements and accounting reports maintained by the taxpayer.
18. If Provision for expenses is made for FY 2022-23, but Tax Deducted at Source (TDS) is deducted in the next FY viz. FY 2023-24, based on documentary evidence, does such provision for expenses need to be reported as expenditure for reporting in Clause 44 of Form 3CD?
If TDS is deducted in the next financial year based on documentary evidence, the provision for expenses would be reported as expenditure for the respective financial year (FY 2022-23) in Clause 44.
19. Is such information should be reported in summary form or detailed form in each of the columns of Clause 44?
MIS reporting can be customized for each assessee based on their requirements. It is recommended to reconcile such information to the extent possible.