Reporting of GAAR, GST Details in Tax Audit Report Deferred

In view of the prevailing situation due to Covid-19 pandemic across the country, the Central Board of Direct Taxes (CBDT) announced that the Companies will not be required to undertake General Anti-Avoidance Rules (GAAR) and 1 (GST) reporting under the Tax Audit Form till March 31, 2021. The CBDT plans to give businesses time to prepare for the tax audit reports that require two key disclosures. Accordingly, the CBDT suspended the due date for reporting compliance under clause 30C and clause 44 of the Tax Audit Report (Form 3CD) till March 2021.

Applicability

According to the Income Tax Act, 1961, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed or exceeds Rs.10 million or Rs.20 million if they have opted for presumptive taxation. In the case of a person carrying on the profession, he is required to get his accounts audited, if his gross receipt in profession exceeds, Rs.5 million in any previous year.

Section 44AB of the Income Tax Act

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Section 44AB of the Income Tax Act, 1961 read with Rule- 6G of the Income Tax Rules, mandates specified persons to submit the Tax Audit Report along with the prescribed particulars in Form 3CD.

Tax Audit Report in Form 3CD

Tax Audit Report in Form 3CD was revised in July 2018 inter alia to incorporate the following two clauses:

Clause 30C pertaining to General Anti-Avoidance Rules (GAAR)
Clause 44 pertaining to Goods & Services Tax (GST) transactions

Brief introduction of Clause 30C and Clause 44 of the Form 3CD is as follows:

Clause 30C – Reporting of GAAR

Clause 30C mandates the organization to provide details of transactions designed to avoid taxes. If an assess entered into an impermissible avoidance arrangement, he/she is required to provide the details of nature of impermissible avoidance arrangement and amount of tax benefit in the previous financial year arising, in aggregate, to all the parties to the arrangement.

Clause 44 – Reporting of GST

The taxpayer need to provide the beak-up of the total expenditure of entities registered or not registered under the GST:

The total amount of Expenditure incurred during the year expenditure Relating to goods or services exempt from GST
Expenditure relating to entities falling under the composition scheme
Expenditure relating to other registered entities
Total payment to registered entities
Expenditure relating to entities not registered under GST

The format of the Tax Audit Form 3CD is as follows:

The Amended Tax Audit Form

The Central Board of Direct Taxes (CBDT) deferred for the third time the requirement for the organization to include General Anti-Avoidance Rules and Goods & Services Tax reporting under the tax audit form till 31 March 2021. Initially, reporting was to be made by 20 August 2018 but then the board deferred the implementation of the change in income tax audit form (Form 3CD) till 31 March 2019. Further, in May 2019, the CBDT again postponed its implementation till 31 March 2020. Now considering the COVID 19 pandemic, The CBDT announced that the reporting requirements under clause 30C and clause 44 of the Tax Audit Reports are kept in abeyance till March 2021. This means that the Tax Audit Reports need to be furnished till March 2021; the tax auditors need not to provide details under the clause 30C and 44 of the Tax Audit Reports.

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Frequently Asked Questions

Common questions about GAAR and GST Reporting Deferred in Tax Audit Report till 2021.

The General Anti-Avoidance Rules (GAAR) reporting requirement under Clause 30C of the Tax Audit Report (Form 3CD) mandates organizations to provide details of any transactions designed to avoid taxes. If an assessee entered into an impermissible avoidance arrangement, they are required to provide the nature of the arrangement and the amount of tax benefit arising from it in the previous financial year.

Clause 44 of the Tax Audit Report (Form 3CD) requires taxpayers to provide a break-up of their total expenditure, categorized based on whether the entities they transacted with are registered or not registered under the GST regime. This includes expenditure relating to goods or services exempt from GST, expenditure relating to entities falling under the composition scheme, and expenditure relating to other registered or non-registered entities.

According to Section 44AB of the Income Tax Act, 1961, every person carrying on business is required to get their accounts audited and submit a Tax Audit Report if their total sales, turnover, or gross receipts exceed Rs. 10 million (or Rs. 20 million if they have opted for presumptive taxation). For professionals, they need to get their accounts audited and submit a Tax Audit Report if their gross receipts exceed Rs. 5 million in any previous year.

The Tax Audit Report in Form 3CD is a mandatory document that needs to be submitted along with the prescribed particulars, as mandated by Section 44AB of the Income Tax Act, 1961, read with Rule 6G of the Income Tax Rules. It provides a detailed analysis of the assessee's financial transactions and compliance with various provisions of the Income Tax Act.

The Central Board of Direct Taxes (CBDT) deferred the GAAR and GST reporting requirements in the Tax Audit Report till March 31, 2021, considering the prevailing situation due to the COVID-19 pandemic across the country. The decision aims to provide businesses with more time to prepare for these additional reporting requirements.

The Tax Audit Report in Form 3CD was revised in July 2018 to incorporate Clause 30C pertaining to General Anti-Avoidance Rules (GAAR) and Clause 44 pertaining to Goods & Services Tax (GST) transactions.

The implementation of GAAR and GST reporting in the Tax Audit Report has been deferred three times by the Central Board of Direct Taxes (CBDT). Initially, it was to be implemented by August 20, 2018, but was then deferred till March 31, 2019, and subsequently till March 31, 2020, before the latest deferment till March 31, 2021.

For businesses, the threshold for being required to get their accounts audited and submit a Tax Audit Report is a total sales, turnover, or gross receipts exceeding Rs. 10 million (or Rs. 20 million if they have opted for presumptive taxation). For professionals, the threshold is a gross receipt exceeding Rs. 5 million in any previous year.

The Tax Audit Report is a significant document for the Income Tax Department as it provides a detailed analysis of the assessee's financial transactions and compliance with various provisions of the Income Tax Act. It helps the department in assessing the correctness of the tax liability reported by the assessee.

The Tax Audit Report needs to be submitted in Form 3CD, which is a prescribed format by the Income Tax Department. The article includes a link to a PDF file containing the format of the Tax Audit Report in Form 3CD.