GST-Focused Year-End Review Of Books: A Practical Guide For Assessees

When closing the books of accounts at year-end, most accountants and finance teams concentrate on Accounting Standards and the Income Tax framework. However, once an assessee is registered under the Goods and Services Tax (GST) regime, the financial statements must also be examined from a GST compliance standpoint. Ignoring this parallel review often leads to avoidable disputes, Input Tax Credit (ITC) reversals, interest demands and penalties during departmental scrutiny.

Companies generally prepare their accounts:

  • In line with Accounting Standards or Indian Accounting Standards (Ind AS) as notified under the Companies Act 2013; and
  • Other entities in accordance with Accounting Standards issued by the ICAI and Generally Accepted Accounting Principles (GAAP).

Yet, many registered persons finalise their accounts purely from an accounting and income-tax perspective, without thoroughly checking GST implications embedded in the same numbers. This guide walks through key GST checks that should be performed while finalising the accounts of a small or medium enterprise, using a simplified balance sheet as a reference.

Note: The discussion below assumes a small entity’s balance sheet for ease of understanding, though the concepts apply equally to larger organisations.

Illustrative simple balance sheet:

M/s. Ram & Co., Bangalore, Karnataka, 560010
BALANCE SHEET AS ON 31-03-2026
(Figures in Rs.)

LIABILITIES Amount ASSETS Amount
CAPITAL ACCOUNT: FIXED ASSETS:
Capital 50,000 Property Plant and Equipment (PPE) 40,000
Add: SB And FD interest 1,100
Add: Profit for the year 11,000 Investments:
62,100 Gold 10,000
Less: Drawings 1,100 Silver 10,000
61,000 20,000
Current liabilities & Provisions: CURRENT ASSETS, LOANS & ADVANCES:
Sundry Creditors (Trade Payables) Sundry debtors (Trade Receivables)
Foreign creditor 30,000 Foreign debtors 10,000
Domestic creditor 10,000 Domestic debtors 10,000
40,000 Inventories (Closing Stock) 50,000
Security Deposits (liability) 20,000 Cash Balances
Duties Taxes: GST GST Asset 5,000
GST payable 10,000 Cash on Hand 500
Income tax payable – Cash at Bank 500
Advances received from Customers 10,000
20,000
Total 1,41,000 Total 1,41,000

Below are the major heads of this balance sheet and the critical GST checkpoints for each.

1. Property, Plant and Equipment (PPE)

While auditing or reviewing the PPE schedule, GST implications need to be evaluated alongside accounting treatment.

(a) Capitalisation of Fixed Assets and GST Component

The cost of capital assets must be adjusted so that, wherever admissible ITC has been claimed, the GST portion is excluded from the asset’s capitalised cost.

  • Section 16(3) of the CGST Act, 2017 prohibits claiming depreciation on any GST component for which ITC has been availed.
  • Therefore, if ITC is taken on GST charged on machinery, plant or other capital goods, the depreciable base in the books should not include that GST amount.

Practical step:
Reconcile fixed asset additions during the year with GST credits claimed to confirm that the asset cost in the fixed asset register does not embed any credit-availed GST.

(b) Construction of Immovable Property

Where costs relate to building, factory sheds, immovable structures or similar items:

  • Verify whether such expenditure falls within the ambit of blocked credits under Sections 17(5)(c) and 17(5)(d) of the CGST Act.
  • If ITC was wrongly taken on such expenditure, ensure that the assessee has reversed the credit in the relevant GSTR-3B within the same or subsequent period as required.

Important:
For in-house construction of immovable property, capital work-in-progress ledgers should be reviewed carefully to trace GST treatment and identify any ITC that needs reversal in line with Section 17(5).

(c) Purchase of Motor Vehicles for Passenger Transport

For vehicles used for transporting persons (with an approved seating capacity of not more than 13 persons including driver):

  • Check whether ITC is blocked under Section 17(5).
  • If ITC has been mistakenly availed on such vehicles when not covered by permissible exceptions (e.g., further supply of such vehicles, transportation of passengers, training, etc.), ensure the reversal has been duly made through GSTR-3B along with interest wherever applicable.

(d) Capital Goods Sent to Job Workers

When capital goods are dispatched to job workers:

  • Confirm compliance with Section 19 of the CGST Act, including:
    • Timely and complete filing of Form ITC-04
    • Proper stock and movement records
    • Monitoring of time limits for return of capital goods from job workers
  • Ensure that where capital goods are not received back within the stipulated period, the transaction is treated as “deemed supply” and tax liability is discharged accordingly.

(e) Component-wise Capitalisation