Why Is Financial Year Closure Difficult For Businesses?
The financial reports before the year closure are crucial for filing TDS, TCS and GST returns. Every corporation needs to ensure that their financial records are accurate and seamless, without any errors. If there are any errors found within the reports, the income tax department may send an Income Tax Notice, or it may even lead to a fine as stated in the Income Tax Act.
Here are some of the major difficulties businesses face during financial year closure:
1. Discrepancies Within Statements
The receipts or invoices of your records may not match up with the bank account statement. If it does not, then the process of manually reconciling accounts becomes a lengthy and cumbersome process, which does not guarantee any fruitful results.
2. Missing Data
If you lose all the data of your invoices or receipts, then you may face repercussions in the form of delays in filing tax returns at the crucial moment. Due to the delays in the reconciliation process, you will be required to pay a fine for filing your ITR which will end up as a major financial loss and a bad impression on the reputation of your business.
3. Too Time-Consuming
The reconciliation of account statements is a lengthy and time-consuming process. You may not have other vital tasks within the business which demand your time and energy. It is ideal for your business to leave it to experts in account reconciliation such as the top GST consultant in Gurgaon.
4. Lack Of Collaboration
If there is an absence of seamless collaboration between different departments of your business, this may lead to missing important documents and abrupt delays in the process.
Read More: The Ultimate Guide To Taxation Of Expatriates In India
10 Points To Plan Before Financial Year End Closure in 2025
Before you prepare for financial year-end close process, here are some of the points you should keep in mind:
1. Check The Due Date of ITR
To ensure compliance with tax laws, carefully check the due date for filing your income tax returns. If you miss the due date, the income tax department will send a notice to you requesting to pay your applicable taxes along with an additional fine. To get a better understanding, here's a list for individuals and corporations:
For Individuals
- Advance Tax Payment: Pay the last instalment of advance tax by March 15, 2025, if applicable.
- Tax-Saving Investments: Make investments in eligible tax-saving instruments under Sections 80C, 80D, etc., before March 31.
For Business Entities and Corporations
- Reconciliation of Accounts: Reconcile TDS/TCS with Form 26AS, AIS, and TIS to avoid mismatches in account statements.
- Transfer Pricing Adjustments: Review the documents and record the inter-company transactions taking place. This helps to ensure compliance with transfer pricing regulations.
- Advance Tax Payments: Ensure advance tax instalments are paid to avoid interest penalties under Sections 234B and 234C.
- Provisioning for Contingencies: Set aside adequate provisions for pending tax disputes or possible liabilities.
- TDS Compliance: Deposit all TDS/TCS dues before the deadlines. Also, Issue TDS certificates (Form 16/16A) to deduct TDS, if pending.
- Income Tax Return (ITR) Preparations: Review books of accounts to ensure all income, expenses, tax rates and tax provisions are correctly accounted for.
2. Take Note Of Tax Exemptions
If you want to strategically plan your taxes, it is important to take note of the important tax exemptions you can benefit from. Our experts provide essential insights on tax exemptions and GST registration in Gurgaon.
3. Cross-Check Rules Under FEMA Act
Foreign Exchange Management Act (1999), or FEMA Act, is a set of rules and regulations that helps the two important institutions of India, the Reserve Bank of India and the Government of India, enforce and create rules regarding foreign exchange policies. The following sections discuss important points to plan for FEMA compliance:
For Individuals
- LRS Compliance: The Liberalised Remittance Scheme or LRS was introduced by the Reserve Bank of India in the year of 2004. It helps to ensure that the remittances made under the Liberalised Remittance Scheme (LRS) are within the prescribed limits and properly documented. For this purpose, File Form A2 is used for all remittances for LRS compliance.
- Foreign Asset Reporting: Remember to prepare for mandatory disclosure of foreign assets. This also includes the income from foreign assets, which is to be reported in the Income Tax Return (ITR).
- Repatriation of Funds: You will be required to repatriate unused foreign exchange holdings or investments within your business. This is as per FEMA guidelines for Indian businesses.
For Business Entities and Corporations
- Export Proceeds Realization: Ensure that your export proceeds are realized within the stipulated period. The period is usually 9 months. Otherwise, you will need to seek an extension from RBI.
- Foreign Direct Investment (FDI): Verify compliance with reporting obligations by filing Form FC-GPR/FC-TRS. This helps to regularize any delays in filings through compounding, if necessary.
- External Commercial Borrowings (ECBs): Make sure that the ECB repayments are made on time and filings from Form ECB-2 are up-to-date.
- Annual Return Filing: File the Annual Return on Foreign Liabilities and Assets (FLA) if applicable.
4. Verify GST Compliance
Depending on the type of your business, here's what you need to do to verify GST compliance. Ensure to follow the mentioned steps:
For Individuals and Small Businesses
- Reconcile Input Tax Credit (ITC): Match the ITC claimed in GSTR-3B with GSTR-2B to avoid mismatches in income and records. This also helps you to avoid future scrutiny.
- GST Annual Return (GSTR-9): Prepare and review records for the annual return filing if turnover exceeds the threshold.
For Business Entities and Corporations
- Payment of RCM Liabilities: Ensure all liabilities under the Reverse Charge Mechanism (RCM) are discharged.
- Year-End Adjustments: Perform year-end reconciliations for turnover, ITC, and tax liabilities across GSTR-1, GSTR-3B, and financial statements.
- Export Documentation: Verify LUT/Bond validity for exports without IGST. Also, ensure compliance with export-related filings like shipping bills and e-Way Bills.
- Pending Refund Claims: File any pending GST refund applications for unutilized ITC or IGST paid on exports.
5. Audit Preparation
Conduct thorough audits of your financial transactions and bank statements with the help of a CA. Begin preparation for statutory, GST, and tax audits to ensure smooth closures.
Read Also: How To Be Ready For Income Tax Assessment In India: A Guide
6. Record Maintenance
To ensure accurate financial statements within your records, make sure to check and update them. This includes maintaining updated records for cross-border transactions, invoices, and compliance filings.
7. Rectification of Errors
One of the most essential tasks during the financial close process is to identify and correct errors within the financial data. This includes checking all financial activities, such as FEMA filings, GST returns, or income tax submissions to avoid penalties.
8. Confirmation of Ledger
While preparing financial statements, it is recommended to confirm ledgers with businesses you have to interact with on a frequent basis. This helps you to check for any mismatches present within the ledgers, and help you reconcile statements with your bank account.
9. Accrual of Accounts Receivable and Accounts Payable
One of the important aspects of account reconciliation for a successful year-end close is ensuring all outstanding bills from other suppliers are paid and making sure your customers have paid their bills to your company. This step ensures that your account is accurate and needs no further bank reconciliation.
10. Seek Professional Advice
Consult with financial experts such as DSRV India, one of the top chartered accountant firms in Gurgaon to address any pending compliance or planning opportunities effectively. They will help you to evaluate your entire fiscal year and ensure long-term financial health and financial stability. At the same time, also helps your business stay prepared for the financial goals and budget of the upcoming year.
Read More: Cross-Border Transactions And Tax Controversies in India
Conclusion
We understand how preparing for year-end financial statements and planning for the new fiscal year may feel overwhelming. Rest assured, because, with these essential key points, you will be able to manage and speed up the process of accounting and bookkeeping. As experienced professionals of a chartered accountant firm, we are always available to help your business.
