What is a GST audit?
GST audit is a systematic and independent examination of the books and records of an entity to ascertain and report on the facts regarding its financial operations. This compulsory audit is intended to ensure proper maintenance of books of account and other records, in order to reflect the true turnover and purchase of a dealer and also to reflect the correctness of input tax claimed and output tax which was paid, to facilitate the administration of tax laws for his further assessment. GST auditors ensure GST regulations and compliances are made, and they are also responsible for examining GST returns, and other major documents.
Goods and Service Tax (GST) is a tax imposed on goods and services in India that came into effect in July 2017 under the State Goods and Service Tax Act, 2017. It is a multistage tax, which absorbed almost all of the previous taxes including VAT, service tax, etc. except a few remaining state taxes on things like alcoholic drinks, electricity, etc. It levies a tax on goods as well as services on the value addition occurring at every stage of business activity. Goods and services are divided into five different tax slabs for collection of tax: 0%, 5%, 12%, 18%, and 28% in addition to various other special rates on things like gold, luxury cars, etc.
Objectives of GST audit
The objective is also defined under Section 2(13) of the Central Goods and Services Tax Act, 2017 (CGST Act) which defines it as;
“audit means the examination of records, returns, and other documents maintained or
furnished by the registered person under this Act or the rules made thereunder or under
any other law for the time being in force to verify the correctness of turnover declared,
taxes paid, refund claimed and input tax credit availed, and to assess his compliance
with the provisions of this Act or the rules made there under.”
Other objectives are:-
1)Verification of Tax Liability
GST audit is responsible for verifying whether the right amount of GST has been paid to the government. It ensures that businesses have correctly assessed and discharged their tax liabilities.
2) Accuracy of GST Returns
Auditors check for any discrepancies, errors, or omissions in the returns filed by the taxpayer in the annual tax records
3) Input Tax Credit (ITC) Verification: The audit process includes an examination of the Input Tax Credit (ITC) claimed by the taxpayer. Auditors ensure that Input Tax Credit has been claimed only on eligible goods and services and that proper documents are present to support these claims.
4) Compliance with GST Laws and Rules: GST auditors assess whether the taxpayer is following all the provisions and regulations of GST.
5)Identification of Tax Evasion
GST audit serves as a tool to identify cases of tax evasion or fraud. It also helps in detecting cases where businesses may intentionally underreport their sales or overstate their expenses to reduce their tax liability.
6) Promotion of Transparency: They conduct regular audits as a way to promote transparency in the tax system.
Audit Applicability and Legality
Any registered taxable person whose annual lumpsum turnover exceeds the prescribed limit shall during a financial year have to get their accounts audited. The registered eligible taxpayers are required to get their records and accounts audited either by a certified Chartered Accountant or Cost and Work Accountant. They are also required to submit audited annual accounts, a reconciliation statement, and other prescribed documents.
This is covered under Section 35(5) of the Central Goods and Services Act, 2017
The audit is different and is charged based on state.is disbursed state-wise.
Every registered taxable person who is required to get his accounts audited
if annual lumpsum turnover exceeds the limit shall present, electronically, the annual return with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return made for the financial year with the audited annual financial statement, and such other particulars as may be prescribed. This is covered under the provision of Section 44(2) of the CGST Act, 2017.
Applicability for the Audit under GST
GST Audit will apply every year for those GST-registered businesses (GSTIN) having turnover of more than 2 crores, by the sale of goods or services in the financial year.
Though it was declared that from financial year 2018-2019, applicability will be mandatory under both GSTR9 and GSTR9C for those who had turnover of more than 5 crores during the financial year and turnover less than 5 crore annually was waived off for GSTR9C it was still mandatory if turnover is between 2 crore- 5 crore to file audit under GSTR 9, and if it’s under rupees 2 crore then it’s optional.
GSTR-9 is an annual return to be filed by all registered taxpayers under GST except a few handfuls. It is an annual compilation of outward/inward supplies, tax liability, and input tax credits availed during a financial year.
GSTR-9C is a form for annual GST reconciliation statements filed by applicable taxpayers. This is filled by those whose annual turnover exceeded rupees 5 crore per financial year.
Documentation required for GST audit
GST Registration Certificate:
A copy of the GST registration certificate, which includes details such as the GSTIN (Goods and Services Tax Identification Number), legal name, trade name, and address of the registered person.
Financial Statements
financial statements, including balance sheets, profit and loss statements, and cash flow statements for the audit period.
GST Returns
Copies GST returns filed during the audit period, including GSTR-1 (outward supplies), GSTR-2A (auto-populated inward supplies), GSTR-3B (summary return), and any other applicable returns.
E-way Bills
If the record of the e-way bill may be applicable, so keeping records of it generated for the movement of goods should be helpful.
GST Audit Reports
Any reports generated by accounting software or GST software specifically for GST audit purposes.
Compliance Certificates
If any business is subject to any specific compliance requirements, provide relevant compliance certificates.
Types of Audit
Audit by a Chartered Accountant
This audit is conducted by a chartered accountant or cost accountant appointed by the registered taxpayer.
Audit by GST Authorities
Audit under this situation is not mandatory and shall be only applicable in cases where the appropriate authorities authorize the same. It shall be conducted by the commissioner or any officer authorized on this behalf.
Special Audit
This audit is conducted by the GST authorities when they suspect any irregularities or non-compliance by the taxpayer.
Penalties for failure to submit Tax return or GST audit
For the failure to submit the annual return within the specified time, a late fee is levied at the rate of Rs. 100 per day during which the failure to submit the annual return continues, subject to a maximum of a quarter percent of the turnover in the State/Union Territory (UT). Additionally, an equal amount of late fee would be applicable under the respective State/UT GST law.
However, there is no specific penalty in GST law for not having accounts audited by a Chartered Accountant or Cost Accountant. Instead, Section 125 of the CGST Act allows for a general penalty of up to Rs. 25,000 for contraventions of GST provisions or rules without separate penalty provisions. This penalty applies if the failure to audit accounts and submit the annual return with the audit report is considered a contravention of GST law.
Conclusion
The GST audit plays a vital role in the Indian tax system. It is designed to verify the accuracy of financial transactions and statements, ensure compliance with GST laws, and promote transparency.
To navigate this process effectively, it’s crucial for both businesses and auditors to have a good understanding of the legal provisions, the consequences of non-compliance, and the necessary preparations for a GST audit. By following these requirements, companies can improve their financial operations, avoid penalties, and contribute to a stronger GST framework in India.
This blog is written by Aditya Sahijpal.
