Library / Income-tax Act, 2025: The Professional's Master Guide
28. Income Tax and GST
Income tax and GST are separate laws, but they meet in many places. Mismatches between the two are a common trigger for notices, because the department now receives GST data in the AIS.
28.1 Where the two laws interact
Area | Income tax treatment |
|---|---|
Input tax credit (ITC) on capital goods | If ITC is claimed, GST is not part of the actual cost for depreciation; if ITC is not available, GST is added to cost |
ITC on expenses | Where ITC is available, only the net amount is an expense; blocked ITC (for example, on some motor vehicles) is part of the expense or cost |
GST liability | Allowed on payment basis under section 37 if routed through the profit and loss account; most businesses follow the exclusive method (GST not in P&L) |
Interest on late GST payment | Compensatory, generally allowed as a business expense |
GST penalties | Disallowed if for infringement of law |
TDS on invoices with GST | TDS generally on the amount excluding GST when shown separately |
Turnover for tax audit and presumptive limits | Usually excludes GST under the exclusive method; be consistent |
28.2 GST and income tax turnover reconciliation
Illustration 104: Reconciliation A company's turnover in the books is Rs. 48.6 crore, while its GST returns (GSTR-3B) show taxable and exempt supplies of Rs. 50.1 crore. |
Turnover as per books | 48,60,00,000 |
Add: stock transfers to branches in other states (GST supplies, not sales in books) | 1,20,00,000 |
Add: sale of old fixed assets (GST supply, not revenue in books) | 15,00,000 |
Add: advance received on which GST was paid, revenue not yet recognised | 25,00,000 |
Less: credit notes issued after the GST return period | (10,00,000) |
Turnover as per GST returns | 50,10,00,000 |
The tax audit (Form 26) asks for this reconciliation. Prepare it every year, and explain each reconciling item with documents, because unexplained excess GST turnover is often treated as unrecorded sales.
Chapter summary • ITC claimed is not part of cost; blocked ITC is. • Reconcile GST turnover with books every year; the tax audit asks for it. • Interest on late GST is compensatory; penalties are disallowed. |
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