ITR

Financial Accounting: Its Importance and 5 Key Features

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Financial-Accounting

Financial accounting is the process of documenting, assessing, and recording a variety of transactions that arise from a company’s operations over time. The balance sheet, profit and loss, and cash flow statements represent the company’s long-term operating performance.

Financial accounting is the preparation of financial statements that are helpful in measuring the financial performance and position of an entity. The objective of financial accounting is to provide information about the financial health to the potential users of financial statements. Financial accounting helps with decision-making for internal as well as external users. It serves as a starting point for potential investors before making an investment decision.

The Role of a Financial Accountant

A financial accountant is a part of accounting department who plays a very important role in the organization. The responsibilities of a financial accountant are to record the financial transactions and prepare and analyse financial statements at the end of every fiscal year. The foundations of financial accounting are a set of well-known accounting concepts.

A financial accountant adheres to various accounting standards issued by regulatory authorities. These are mostly focused on and congruent with the International Financial Reporting Standards (IFRS). General Accepted Accounting Principles (GAAP) is a term that is used to describe rules developed for the preparation of financial statements. Furthermore, the financial accountant is responsible for budget preparation, tax return preparation, and managing tax payments, ensuring compliance with relevant laws and regulations and performing an internal audit.

The Features/Types of Financial Accounting

In the preparation and examination of financial accounts, there are five main features/types of financial data.

1.Income Statement:

An income statement represents the profit or loss incurred by the entity during a particular period. Hence, it is also known as a profit and loss statement. It includes the revenue earned and expenses incurred in relation to the respective income. It keeps a record of all-day-to-day expenses and income from the business. An income statement helps to learn about the financial performance of the business.

2. The Balance Sheet

The balance sheet shows the financial position of the business at a certain date by classifying the assets and liabilities. Assets are the resources that a firm owns and which provide it with future economic value. Whereas liabilities are the financial responsibilities/obligations of the business that are payable to another person.

3. Cash Flow Statement:

It’s a statement that specifies the sources of funds and their application during a particular reporting period. The cash flow statement considers the opening balance of cash and cash equivalents, adds the cash generated through operating activities, investing activities, and financing activities, and deducts all the cash payments that have occurred. The cash flow statement also helps to identify the historical changes in cash and cash equivalents.

4. Statement of Changes in Equity:

The statement of changes in equity is also referred to as the statement of retained earnings. It represents all the changes in equity and retained earnings during a particular period, hence it helps to reconcile the opening equity balance with the closing equity after considering all the transactions effecting equity.

5. Notes to Accounts:

These notes provide an explanation of the information used in the preparation of financial statements. It included all the information related to accounting policies applied and their changes, if any, capital structure, details of revenue and expenses, method of depreciation, details of assets and liabilities, etc. Notes to accounts are considered supporting documents for the financial reports.

What Is the Importance of Financial Accounting?

Businesses need financial accounting because it allows them to keep track of their financial transactions. As an outcome, they will be better able to allocate their resources wisely. Financial accounting also aids in the presentation of your company’s financial position to outsiders such as creditors and investors. On the basis of the financial statements, the other parties will decide whether or not to collaborate with the company. As a result, internal management uses specialised accounting standards and procedures for the company’s internal evaluation.

Why choose us?

With the upsurge in the intricacy of the business environment across the globe, organisations are facing challenges due to significant amendments in financial reporting standards and accounting guidelines. Therefore, finance and accounting outsourcing have become an emergent trend amongst fast-growing businesses. Efficient financial management also plays an important role in determining the growth and downfall of every organization.

We, at Komplytek, deliver illustrious finance and accounting outsourcing services to enhance and assist the complete finance and accounting function. Our primary goal is to reduce operational expenses, provide high-quality service in a timely manner, and set standards for greater corporate regulation and compliance. Komplytek sets up a user-friendly accounting system on widely used accounting software that will assist your company’s finance programme and define financial strategy.

GST – Section 16 (2) (aa) Latest Update

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GST

As per Section 16(2)(aa) of Budget 2021, GST input can only be claimed if the invoice is supplied by the party before April 1, 2021.

It will be effective from 01.01.2022

 

The Input Tax Credit (ITC)

The GST paid on the purchase of Goods & Services is known as Input Tax. The Input Tax Credit fundamentally means that taxes paid on inputs are deducted from taxes due on output. According to Section 16(1) of the CGST Act, every registered taxable person is entitled to take credit for input tax paid on any purchase of goods or services being used or aimed to be used in the course and scope of his business, subject to such conditions and limitations as may be recommended and within the timeframe mentioned in section 49, and the said amount shall be credited to such person’s electronic credit ledger.

Section 16(2)(aa) of the CGST Act of 2017 was introduced into the Finance Act of 2021 via Section 109.  The following is an excerpt from proposed Section 16(2)(aa) of the CGST Act, 2017:

In case (aa) the supplier has provided the details of the invoice or debit note mentioned in clause (a) in the statement of outward supplies. Those details are conveyed to the recipient of such an invoice or debit note in the mode specified under section 37;

Section 16(2) (aa) states that ITC can only be claimed if the supplier has provided the necessary information in his GSTR-1.

In simple words, as per the new amendment (aa) to section 16(2) of the CGST Act, an input tax credit on a receipt or debit note can only be claimed if the details of the invoice or debit note were provided by the supplier in the statement of outward supplies. Those details should be conveyed to the invoice or debit note’s recipient.

The Finance Act of 2021 amended Section 16(2) of the CGST Act to include Clause (aa).

It is now clear that ITC claimed on receipts that the supplier did not upload to his GSTR-1, and that must be reversed. The tax/interest/penalty must also be paid under section 73(5) of the CGST Act 2017.

The vendor must now provide the specifics of such a receipt or debit note in GSTR-1, and the recipient will be entitled to the ITC. Although the communication provision was already included in section 37(1) of the Central Goods and Service Tax Act, it is now a requirement to get an ITC.

Such information will be conveyed to the supply receiver as shown in user services > Communication between taxpayers. The receiver must accept the same. A taxpayer can interact with the beneficiary if there is a disparity, such as payment issues or any other issue. 

Why should you work with us?

Komplytek can handle your GST compliance, allowing you to focus on expanding your business instead of worrying about compliance. We will keep track of your GST compliance on the Ledgers GST platform. This will give you access to real-time financial records from anywhere. Ledgers can also sync and integrate with other offline and online programmes you use on a constant basis.

Komplytek offers integrated services and also pliable solutions that are insightful by design. We create huge productivity in the critical spin-out parts of your business. We are a “One-Stop Solution” for finance and accounting, compliance and regulatory, and other operations portfolios. We personalize our solutions to suit your business requirements. Komplytek has a team of lawyers and chartered accountants who bring many years of corporate experience with them. We ensure that we think like you and act as part of your team rather than an outsourcing partner.

Which ITR to File

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ITR

What ITR should You Submit? Types of ITR Forms
The Income Tax Return (ITR) is a document on which a taxpayer provides information to the IRS regarding their earnings and the taxes they owe.
To date, the Income Tax department has issued advisories for ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7. Every taxpayer must file their income tax return by the deadline or before it.
The type of income, the taxpayer’s classification (individuals, HUFs, businesses, and so on. ), and the individual’s income will all determine the ITR form that must be filed. If taxpayers select the incorrect form, they must also resubmit their ITR. Let’s take a closer look at the ITR Form for Income Tax Return.

ITR – 1 SAHAJ
It is a form (applicable for residents and ordinarily resident) that a taxpayer has to fill and individuals who are Indian citizens with a total income of up to Rs 50 lakh for the fiscal year 2021–22, and whose total income comprises the following items:
Income from a salary or pension
Income from one house property (except circumstances where a loss from a prior year is carried forward)
Earnings from other sources, such as dividends and interest (excluding gambling, winning lottery and race horse earnings),
Agricultural income up to Rs. 5000
No deductions under section 57 have been claimed by an individual.
There is no overseas income or assets for the individual.

Who can’t use the ITR-1?
Individuals who fall into the following categories are not eligible for ITR-1:
Earnings more than Rs.50 lakh
Agricultural income of more than Rs. 5000
If you have capital gains that are taxable,
If you make money from a business,
Having income from multiple rental properties (more than one house property)
In the event that the individual is a company director,
If you have unlisted equity shares in your portfolio at any point during the fiscal year,
If you are a resident, you may own assets (including financial interests in any company) outside India, as well as signatory authority on any account located outside India.
If you’re a non-resident who happens to be a resident who isn’t ordinarily resident (RNOR),
Possessing overseas assets or receiving foreign income
In the event that the individual is a company director,
If you owe tax on someone else’s income, and that person’s tax has been deducted.

ITR -2
This form is for an individual or a Hindu Undivided Family (HUF) with the following total income for the fiscal year:
Individuals with an income of more than Rs. 50 lakh are eligible.
Income from a pension or a salary.
Income derived from residential real estate.
Additional sources of income (including winnings from the lottery and income from racing horses).
If the person is a company’s director,
Agricultural income greater than Rs. 5,000
Profits from capital gains
If a person is an RNOR (resident not normally resident) and a non-resident,
If any unlisted equity shares were held by the company during the fiscal year.
Foreign earnings and assets.
In addition, if the taxable income is to be combined with the income of another person, such as a spouse or child, this return form can also be used if that income falls into any of the following categories.
Who can’t use this form?
Anyone whose total income for the fiscal year 2021-22 includes money from a business or profession should not use this return form. You may need to use ITR-3 or ITR-4 to declare these forms of income.

ITR 3
Individuals and Hindu Undivided Families that earn money from a sole proprietorship or profession must use the latest ITR3 Form. Anyone who earns money from the following sources can use ITR 3.
Individuals who support themselves through a profession or a business (this applies to both Tax Audit and Non-Audit cases).
The return may include income from a house, salary/pension, capital gains, and earnings.
The company’s revenue exceeds Rs. 2 crores.
During the fiscal year, if any unlisted equity stock investments were made,
You are a company’s individual director.
If the person is a business partner,

ITR-4 or Sugam
Form ITR-4 is used by taxpayers who are opting for the Presumptive Taxation Scheme under section 44AD, section 44ADA and section 44AE and who have income as per ITR-1.
Resident individuals, HUFs, partnership firms (other than LLPs), and partnership firms (other than LLPs) who are Indian residents and whose total income includes:
Earnings from a business under section 44AD or 44AE’s presumptive income scheme
Section 44ADA’s presumptive income scheme applies to professional income.
Salary or pension income up to Rs. 50 lakh (total income)
Not more than Rs. 50 lakh in income from a single house property (excluding the amount of brought forward loss or loss to be carried forward).
Other sources of income with a total income of less than Rs.50 lakh (excluding income from the lottery and race-horses)
Agriculture Income up to Rs. 5000.

Additional Disclosure:
If a taxpayer is filing a return under section 139(1)’s seventh provision, they must provide additional disclosures. Section 139(1)’s seventh clause applies to taxpayers whose income does not exceed the given threshold but they have:
During the financial year, deposited Rs. 1 crore or more in one or more current accounts, or
Incurred expenses of Rs. 2 lakh or more for travel to a foreign country for self or any other person, or
Spent at least Rs. 1 lakh on the power bill.
Taxpayers must disclose the amount of such transactions in all of the aforementioned circumstances.
Who is unable to utilise the ITR 4 Form?
If your annual gross income exceeds Rs 50 lakh,
If you have revenue from more than one residential property.
If you have any carried forward loss or loss to be carried forward under any head of income,
Possessing any kind of foreign asset
If you have signing authority over an account outside of India,
Having a source of income other than India
If you are a company director,
Being a resident not ordinarily resident (RNOR) and non-resident during the financial year
Possessing overseas assets or receiving foreign income
If you are liable for taxation on the income of another person, yet the other person has deducted the tax.

ITR-5
Companies, Limited Liability Partnerships (LLPs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), Artificial Juridical Persons (AJPs), Properties of the Deceased, Estates of the Insolvent, Business Trusts, and Investment Funds are all covered by ITR 5.

ITR-6
To file an income tax return, all firms must use this form. To file their income tax return with the Income Tax Department of India, only corporations that do not seek exemption under section 11 must submit ITR Form -6.
Businesses that do not claim an exemption under section 11 must file this form online (income from property kept for charity or religious purposes).

ITR–7
Individuals and businesses must use ITR-7 if they have filed returns under Sections 139 (4A), 139 (4B), 139 (4C), 139 (4D), 139 (4E), or 139 (4F). The returns that must be filed under each section are listed below:
Section 139 (4A): Section 139 requires individuals who receive money from a trust or other legal obligations and use the proceeds entirely for religious or charitable purposes to file returns (4A).
Section 139 (4B): If a political party’s total income exceeds the limit amount, it must also file returns under this section.
Section 139 (4C): The following entities must file returns under this section:
The Association for Scientific Research.
Institutions or organizations covered by Section 10 (23A),
Educational institutions include medical institutions, hospitals, colleges, financial institutions, and other educational institutions, to name a few.
News companies
Institutions covered under Section 10 (23B)
Section 139 (4D): This section requires any college, university, or other institution that is not required to furnish a return of income or loss under any other provision of this section.
Section 139 (4E): This section requires business trusts that are not obligated to report their revenue or loss to file their returns.
Section 139 (4F) This section applies to investment funds that are required to file returns under Section 115UB but are not required to report any income or losses.

Important Note:
The following are the tax filing deadlines for FY 2020-21 (AY 2021-22):
Taxpayer classification                                       Last date for Tax Filing
FY 2020-21 
Individual / HUFs/ AOP/ BOI                                            31st December 2021
(Books of accounts are not required to be audited.)
Business (Requiring Audit)                                                15th February 2022
Business (Requiring Transfer Pricing Report)                28th February 2022
 
Audit Report Furnishing due dates:
Submission of Audit Report (Section 44AB)
For AY 2021-22 for taxpayers liable for                            15th January 2022
Audit under the Income Tax Act 1961.
 
Submission of Audit Report for AY 2021-22
For taxpayers having transfer pricing and                          31st January 2022
Specific domestic transactions
Komplytek will make your ITR filing effortless so that you don’t have to worry about missing deadlines.