GST Audit is the process of verifying and examining the documents and records maintained by a business or professional. The process involves checking the veracity of the paid taxes, overall turnover as claimed by the taxpayer, refund claims and other key compliances that are applicable to the GST act.
This is a crucial exercise as the GST taxation regime is dependent on the individual’s honesty and trust, wherein the taxpayer is required to assess his own tax liability. Thus an efficient mechanism like a GST audit is required to ensure that the self-assessment by the taxpayer is accurate, transparent and devoid of any financial discrepancies. This is a check and balance put in place by the Government to deter fraudulent behaviour among businesses and professionals. And the taxpayers are held accountable for their tax claims.
Types of GST audit
Now that we have an idea of what is GST audit, let’s look at the types. There are mainly three types of GST audit systems, these include:
1. When a profession or businesses’ overall turnover is more than 2 crores, in this case it is mandatory for the taxpayer to get audited. The GST audit will be undertaken by a Chartered accountant or a Cost Accountant on a yearly basis.
2. If a business or professional has received a specific order from the commissioner on audit requirements. In such a scenario, the taxpayer will be intimated 15 days prior to the audit. The audit in this case will be undertaken by the Commissioner of CGST or SGST, or by any other authorized officer as delegated by the Commissioner.
3. Similar to the above scenario, if a business or a professional is summoned by orders from a Deputy/Assistant Commissioner for an audit, then a Chartered Accountant or Cost accountant authorized by the commissioner will undertake the GST audit.
Who is applicable for a GST Audit?
1. GST audit applicability varies depending on the GST audit turnover limit. In case of GST audit for businesses and professionals with a turnover more than 2 crores, the overall turnover is calculated based on taxable sales, which excludes those with a reverse charge, labour or job worker supplies, export supplies and all taxes other than GST.
Also, the annual returns as per the GST act need to be filed, along with the reconciliation statement that details and supports the values indicated in the Annual returns. All the GST audits are PAN based, hence all the registrations under the same PAN are liable to a GST audit.
2. In the second scenario, the taxpayer is liable to a GST audit under Section 65 of CGST, and a 15 day prior notice is sent to the taxpayer through FORM GST ADT-01. The audit must be undertaken by the commissioner of CGST/SGST within three months. Or at the discretion of the commissioner, and under adequate justification, the commissioner can choose to extend the GST audit for 6 months. The findings of the GST audits will be intimated to the taxpayer through Form ADT-02 and appropriate action will be undertaken.
3. This scenario is a special GST Audit under Section 66, as aforementioned it is undertaken by Deputy/Assistant Commissioner and a FORM GST ADT -03 is sent to the taxpayer for a GST audit. This happens, if the Deputy/Assistant Commissioner has reason to believe that the taxpayer has not indicated the correct value of supply or the input tax credit availed is incorrect and is more than the credit value that is due.
A chartered account or cost accountant delegated by the Deputy/Assistant Commissioner will undertake the GST audit within 90 days, and will be extended to another 90 days only under legitimate reasons.
Also, this special GST audit can be undertaken even if the business has been audited under other laws like the Income Tax law and The Company Act 2013.
GST Audit Checklist
There are few key points to remember during a GST audit process, these need to be maintained by the businesses and will be verified by an authorized authority like a chartered accountant or a Cost accountant.
As a precaution during the internal audit the following needs to be kept in mind:
1. Businesses need to file a monthly return GSTR 3B with a consolidated figure of the transactions. And pay a tax based on self-assessment. They will also have to file a GSTR-1 on a monthly or on quarterly basis based on the turnover and sale receipts. It should be ensured that there are no variations or mismatch between the values in the GSTR 3B form and GSTR-1 form. During the internal audit, reconcile the data points in GSTR 3B form and GSTR-1 form and nullify any differences between the values in the two forms.
2. Be mindful of the interest and the penalties under the GST act , if the individual has claimed a higher input tax credit as opposed to a lower credit due, then he/she will be required to pay an interest at 2.5% per annum on the excess claimed tax amount. During the reconciliation of GSTR 3B form and GSTR-1 form the auditor must ensure that an excess tax has not been claimed, in such a scenario the auditor must inform the management to pay the interest and tax amount on time to avoid further legal action.
3. In case there are voids in the GSTR-1 form, the auditor must suggest to the management to amend the invoices and rectify the details on GST -1R. Failure to amend and rectify the invoices will result in a penalty.
4. Ensuring the right format of the invoice has been followed as per the GST act. In case there are errors in the format of the invoice a penalty of Rs 25,000 will be imposed on the business. To avoid such a situation, during the internal audit, the auditor must recommend to the management to rectify the invoice format as per the GST Act and amend the GSTR -1 Form.
5. In case the invoice amount and GST has been paid to the supplier after 180 days of issuance of the invoice, then the payer’s input tax credit will be added to his output tax liability. If the auditor identifies such a case, then he must recommend to the management to revise the invoice amount and ensure all dues are cleared within 180 days of invoice issuance.
Also, this applicable if the invoice amount, GST and the paid amount are incorrect, then the invoice should be rectified immediately.
6. The auditor must ensure that the management has implemented the right policies for issuance of E-way bills. A discrepancy in the E-way bills will lead to a penalty as per the GST act. Also, the auditor must cross check the lack of issuance of E-way bills in the case of non-motor vehicles used for movement of goods, especially if the goods being transported were above Rs. 50,000. The reason for such a decision must be investigated and if the reason is found to be illegitimate, then the business will incur a heavy penalty.
7. Goods and machines entrusted to the job worker or labourers must be deposited back with the business within a year for goods and two years for machines/equipment. If not, it will be considered as a transaction (purchase) with an unregistered buyer and the business will be penalized.
The auditor must recommend to the management to ensure that all the goods and machines that are with the job worker are returned to the business before the stipulated due date.
Documentation required for GST audit
The management must submit the following documents, reports and invoices in the event of a GST Audit:
- Invoices and agreements, GST return filings, documents on details of payment of tax , sales and credit availed
- The representation letter, offer letter, engagement and appointment letter of the auditor which details the objective of both the auditor and management
- Important electronic (Excel, PDF, JPEG) documents/working papers must be submitted during the GST audit
- GST audit checklist should be submitted during the audit
- Report on the gap analysis of the internal controls during internal audit and other crucial aspects identified during the audit
- Crucial critical points and risk assessment procedures incorporated in areas of high, medium and low risk
- Report on the findings and evidence gathered during internal audit
Due dates for submission of GST Audit report:
The final aspect of GST audit is the submission of the consolidated report, submitting it within the due date will prevent penalties.
The following due dates are applicable:
For submission of GSTR-9 AND GSTR-9C the due date is on or before 31st December of the ensuing financial year.
Ensuring records and documents are clearly categorised and securely stored using a good cloud accounting software can help business owners experience a hassle-free GST Audit process.