Cash accounting method of Professional

[ANIL ANIKHINDI]

It is well settled principle that all professionals like CAs, CMAs, Advocates, CSs etc. follow cash accounting system as against mercantile accounting system. They are preparing bills against provision of services from time to time. But the receipt of fees from clients is certain as to period. Sometimes they may receive payments even after 6 months, especially in case of Govt. audit assignments. Moreover some of the clients deduct certain amount from the billed amount and pay short amount than invoice amount. So far they are following cash accounting system, as such it does not matter much. Even the service tax law at present also permit them to pay on actual receipt basis rather than billed basis. In GST regime, they will be required to raise tax invoices against supply of services and charge GST accordingly. The recipient may avail ITC on the basis of such Invoices, but the supplier may account for only against receipt of value. In the circumstances stated above how to comply with the GST law? Whether they have to continue to follow cash accounting system or they are required to switch over to mercantile system?

[DR.MARIAPPAN GOVINDARAJAN]

The system of paying service tax on actual receipt basis was prevailing only up to 2011. On introduction of point of taxation service tax is payable on billed basis. Once bill is issued GST is payable.

[ANIL ANIKHINDI]

Yes Sir, But for individual and partnership firms, LLP it is allowed to pay on receipt basis u/r 6(1)- 4th proviso for turnover not exceeding ₹ 50 lakhs. What about these types of assesses under GST?

[DR.MARIAPPAN GOVINDARAJAN]

Which rule you are citing?

[ANIL ANIKHINDI]

Rule 6(1) 3rd Proviso of Service Tax Rules 1994

[DR.MARIAPPAN GOVINDARAJAN]

The facility available under third proviso to Rule 6(1) of Service Tax Rules, 1994 will not be available under GST regime.

[Ankit Goyal]

I agree that receipt basis of accounting won't be available to professionals in GST era. However, my question is what about the bills raised prior to 01 Jul 17 i.e the bills raised with S.tax and payment not yet received as on 01 Jul 17.

AI Summary

Cash accounting: professionals must charge GST on invoice issuance, raising transitional concern for pre GST unpaid invoices. Professionals traditionally using cash accounting face a GST requirement to account for tax upon issuance of a tax invoice; recipients may take input tax credit on those invoices while suppliers must account for GST even if payment is deferred. The prior service tax proviso permitting receipt basis payment for certain assesses does not continue under GST, creating a transitional issue for invoices raised before GST commencement that remain unpaid.