Income tax and GST issues

On 21 March, the Secretary of the Auroville Foundation called all trustees, executives, managers and accountants of all Auroville units for an urgent meeting at the Sri Aurobindo Auditorium to hear about Income Tax (IT) and General Service Tax (GST) issues. A PowerPoint presentation was shown which explained the complexities of accounting of the Auroville Foundation and the present problems. The general tax management in India has evolved to become data centric with the Government having wide information and the enforcement of tax laws have become more stringent in the last decade with greater significance on accounting data. Though the Auroville Foundation has been exempted from paying income tax, it currently faces an income tax dispute of Rs. 14.00 crores (approximately US $ 1.6 million) related to repayment of tax deducted at source (TDS). Also, various trusts of Auroville have faced GST investigations and scrutiny, resulting in a cumulative liability of around Rs. 15.00 crores (approximately US $ 1.75 million). The reasons for this are lack of clarity and inadequate understanding of regulations leading to inaccurate accounting; not providing timely advice to units when regulatory non compliances are identified / if identified; and not maintaining sufficient documentation to support representation before GST and Income Tax departments. Gaps in Auroville accounting practices were listed, which have led to questions by from the office of the Comptroller and Auditor General of India, which ultimately audits the accounts of the Auroville Foundation before they are presented to the parliament of India. For these reasons, and others, there is a need for qualified professionals to be deputed as accountants, and Auroville needs to ensure that there is a rotation of accountants and auditors as a matter of good governance process. This has led to a number of policy decisions, such as that audit firms will be rotated periodically to ensure that no audit firm is continuously engaged; accounting support firms will also be periodically rotated; and accounting resources will be developed in-house and provided so that the skill sets of these resources are regularly upgraded.