bank reconciliation

Bank Reconciliation

Reasons for Difference Between Bank Statement and Company’s Accounting Record

When banks send companies a bank statement that contains the company’s  beginning cash balance , transactions during the period, and ending cash balance, almost always the bank’s ending cash balance and the company’s ending cash balance are not the same. Some reasons for the difference are:

  • Deposits in transit: Cash and checks that have been received and recorded by the company but have not yet been recorded on the bank statement.
  • Outstanding checks: Checks that have been issued by the company to creditors but the payments have not yet been processed.
  • Bank service fees: Banks deduct charges for services they provide to customers but these amounts are usually relatively small.
  • Interest income: Banks pay interest on some bank accounts.
  • Not sufficient funds (NSF) checks: When a customer deposits a check into an account but the account of the issuer of the check has an insufficient amount to pay the check, the bank deducts from the customer’s account the check that was previously credited. The check is then returned to the depositor as an NSF check.

Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates.

TDS COMPLIANCES

  1. What is TDS?

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments.

Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you.

The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit of the amount already deducted and paid on his behalf.

2. When should TDS be deducted and by whom?

Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.

However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN.

Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information. For most payments rates of TDS are set in the income tax act and TDS is deducted by payer basis these specified rates.

If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted on your income. Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they don’t deduct TDS on your interest income.

In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a return and claim a refund of this TDS.

The complete list of Specified Payments eligible for TDS deduction along with the rate of TDS.

TDS Rate Chart for F.Y. 2020-21 (A.Y: 2021-22)

SectionNature of paymentThreshold LimitApplicable from 01/04/2020 to 13/05/2020Applicable from 14/05/2020 to 31/03/2021
   ResidentNon-resident *ResidentNon-resident *
  Rs. TDS Rate (%)TDS Rate (%)TDS Rate (%)TDS Rate (%)
192SalariesNormal slab rateNormal slab rateNormal slab rateNormal slab rate
192APremature withdrawal from EPF5000010101010
194CContractor-Single transaction-Individual/HUF            -Others30000  1 2  – –  0.75 1.5  – –
194CContractor – Consolidated Payment During the F.Y. – Individual/HUF – Others100000    1 2    – –    0.75 1.5    – –
194HCommission/Brokerage1500053.75
194IRent of – Plant/Machinery /Equipment – Land and Building/Furniture & Fixture2400002 10– –1.5 7.5– –
194IATransfer of certain immovable property other than agriculture land50 lakh10.75
194IBRent by Individual/HUF50000 per month53.75
194ICPayment under Joint Development Agreements to Individual/HUF107.5
194JProfessional Fees30000107.5
194JTechnical Fees (w.e.f. 01.04.2020)3000021.5
194JDirector’s fees107.5
195
Long-term capital gain – Under Section – 115E/ 112(1)(c)(iii)/112A – Any Other Gains    – –    10 20    – –    10 20
3. What is the due date for depositing the TDS to the government?

The Tax Deducted at Source must be deposited to the government by 7th of the subsequent month.

Documents required for TDS Compliances

  1. TDS challans copy deposited during the month
  2. Details of vendors on which TDS is deducted during the month
  3. Pan numbers of all vendors on which TDS is deducted during the month
  4. Details of Properitor/Directors/Partners who are authorized to sign TDS returns Like Name , Address, Pan number and Digital Signature

GST COMPLIANCES

1. Accounts and Other Records

Every registered person is required to keep and maintain all records at his principal place of business.

Who must maintain accounts under GST?

It is the responsibility of the following persons to maintain specified records-

  • The owner/Businessman/Trader/Service Provider
  • Operator of warehouse or godown or any other place used for storage of goods
  • Every transporter

Every registered person whose turnover during a financial year exceeds the prescribed limit (2 crore) will get his accounts audited by a chartered accountant or a cost accountant.

What records must be maintained under GST?

Every registered person must maintain records of:

  • Production or manufacture of goods
  • Inward and outward supply of goods or services or both
  • Stock of goods
  • Input tax credit availed
  • Output tax payable and paid and
  • Other particulars as may be prescribed

Under GST, a trader has to maintain the following a/cs (apart from accounts like purchase, sales, stock) –

  • Input CGST a/c
  • Output CGST a/c
  • Input SGST a/c
  • Output SGST a/c
  • Input IGST a/c
  • Output IGST a/c
  • Electronic Cash Ledger (to be maintained on Government GST portal to pay GST)
2. Accounting entries under GST

In spite of initial transition challenges, GST will bring in clarity in many areas of business including accounting and bookkeeping.

While the number of accounts is more apparently under GST, once you go through the accounting entries you will find it is much easier for record keeping. One of the biggest advantages a trader will have is that he can set off his input tax on service with his output tax on the sale.

3. Electronic Cash and Credit Ledger

Every registered taxpayer will have 3 ledgers under GST which will be generated automatically at the time of registration and will be maintained electronically.

  • Electronic Cash Ledger- This ledger will serve as an electronic wallet.  The taxpayer will have to deposit money into his cash ledger (add money to the wallet). The money will be utilized to make the payment.
  • Electronic Credit Ledger- The input tax credit on purchases will be reflected here under three categories i.e IGST, CGST & SGST. The taxpayer will be able to utilize the balance shown in this account only for payment of tax (not for interest, penalty etc.)
  • E-Liability Ledger: This ledger will show the total tax liability of a taxpayer after netting off for the particular month. This ledger will be auto-populated.
4. Period for Retention of Accounts under GST

As per the GST Act, every registered taxable person must maintain the accounts books and records for at least 72 months (6 years). The period will be counted from the last date of filing of Annual Return for that year.

The last date of filing the Annual return is 31st December of the following year.

For example:

For the year 2017-2018, the due date of filing the annual return is 31.12.2018. The books & records of 2017-2018 must be maintained for 6 years, i.e., 31.12.2023

If the taxpayer is a part of any proceedings before any authority (First Appellate) or is under investigation then he must maintain the books for 1 year after the order of such proceedings/appeal has been passed.

5. Consequences of Not Maintaining Proper Records

If the taxpayer fails to maintain proper records in respect of goods/services, then the proper officer shall treat such unaccounted goods/services as if the taxpayer had supplied them. The officer will determine the tax liability on such unaccounted goods.

The taxable person will be required to pay the tax liability calculated along with penalty.

 DOCUMENTS REQUIRED FOR GST COMPLIANCE

1)    Duplicate Copy of Sales Invoices issued during the month
2)    Duplicate copy of Purchase Invoices received during the month
3)    Details of Reverse Charge Liability
4)    Duplicate copy of Debit/Credit Note issued during the month
5)    HSN wise summary of all goods sold during the month
6)    Copy of Shipping Bill in case of export of Goods