As we navigate through the complexities of the Goods and Services Tax (GST) system, we’ll delve into the intricacies of the GST audit, a mechanism designed to ensure compliance and prevent tax evasion.
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The importance of understanding audits in GST cannot be overstated. Recent statistics underscore these audits’ significance in maintaining our tax system’s integrity. In (FY18 and FY19), GST audits conducted by the indirect tax administration have unearthed a staggering ₹ 22,000 crore in tax evasion from nearly 48,000 cases. This figure highlights the magnitude of tax evasion and the pivotal role of GST audits in detecting and curbing such practices.
This guide aims to give you an in-depth understanding of the Special Audit under the GST Act, its definition, its limit, its purpose, and more. Whether you’re a business owner, a tax professional, or simply interested in understanding the dynamics of indirect taxation, this guide will serve as your ultimate resource.
What is a GST Audit?
Under the GST framework, audits serve as a mechanism to ensure adherence to the stipulations of the GST law. This includes the accuracy of submitted tax returns, the appropriate tax amount payment, and compliance with other related legal requirements.
Special GST audits require a thorough understanding of GST laws and regulations. Ensure accurate record-keeping, timely filing of returns, and correct tax payments. Engage a GST expert to identify potential issues and rectify them promptly. Regular internal audits can help prevent non-compliance. Stay updated with GST amendments for smooth audits.
The tax authorities are responsible for conducting these audits, and it is incumbent upon the taxpayer to facilitate the process by providing all necessary information and documentation.
The GST system, introduced by the Indian Government in 2017, is a tax framework that allows taxpayers to evaluate their tax liability, submit an Income Tax Return (ITR), and make the necessary tax payments.
The GST tax audit is crucial in ensuring these assessments are accurate and compliant with the law. Among the various measures in place to uphold GST practices’ integrity, the audit is a key tool to verify its accuracy and correctness.
What are the Objectives and Purposes of Conducting a GST Audit?
The term “Audit” is defined in Section 2(13) of the CGST Act as a thorough review of records, returns, and other documents that a registered person maintains or provides, the rules established under it, or any other applicable law. The purpose of this review is to:
- Confirm the accuracy of the declared turnover,
- Verify the taxes paid,
- Validate the refund claimed,
- Check the correctness of the input tax credit availed, and
- Evaluate the individual’s compliance with the provisions of this Act or the rules established under it.
What are the Different Types of Audits Under GST?
Audits in GST are an essential part of the tax compliance process. These audits are conducted to verify the accuracy and completeness of registered taxpayers’ tax-related records and transactions. Let’s explore the various types of audits under GST:
Audit by tax authorities under GST is done when tax authorities periodically inspect taxpayers’ financial records to guarantee that the correct amount of tax is paid. As authorized by Sections 65 and Rule 101(3) of the Goods and Services Tax Audit Rules, the tax commissioner or an official he delegated can audit a registered taxpayer’s records and accounting books.
- The audit takes place at the taxpayer’s business location or registered address.
- A 15-day advance notice is served before the audit starts.
- The audit must conclude within three months of commencement.
2. Statutory Audit
As stated by Section 35(5) of the GST Audit Rules, taxable persons with an annual turnover exceeding Rs. 2 crores must have their books of account and returns audited by a certified chartered accountant.
Filing of GSTR 9C requires submitting a certified document of the audited accounts and a reconciliation report through the standard portal or facilitation bases notified by the Commissioner. However, as of 30th July 2021, the government repealed the GST audit and certification by CAs/CMAs. Taxpayers must now submit a self-certified GSTR 9C for FY 2020-21.
3. Special Audit
Under Sections 66 and 102 of the GST Audit Rules, an authorized officer (not below the level of Assistant Commissioner) can obtain the services of a CA or CMA’s services during any scrutiny, inquiry, or investigation stage.
This is permitted if the officer believes the declared value is incorrect or the credit claimed is abnormal. The authorized officer issues an order for an audit in Form GST ADT-03. The registered taxpayer must have their records, including account books, examined and audited by the specified CA or CMA within 90 days of the order.
The Commissioner bears the cost of such special GST audits and examinations. The period to audit the accounts can be extended by an additional 90 days.
4. Limited Scrutiny
This limited audit is conducted in specific cases where tax authorities suspect non-compliance with GST law provisions.
5. Taxpayer-Initiated Audit
The taxpayer initiates this audit. Its goal is to verify if GST law, including accurate tax returns, tax payments, and other rules, is complied with.
Forms for Annual Return and GST Audit
Forms for Annual returns and GST tax audits are important documents that need to be filed by certain taxpayers under the GST law. They summarize the transactions and tax payments made during a financial year. The table below will help you understand:
|Taxpayer Type||Form to File|
|Whether or not applicable to GST Audit|
|Filing GSTR 1 and GSTR 3B as a Regular taxpayer||GSTR-9|
|A Taxpayer under Composition Scheme||GSTR-9A|
|Applicable for GST Audit|
|Having turnover above Rs. 2 crores^ in FY||GSTR-9C|
How To Prepare For Audit Under GST?
The introduction of GST in 2017 has led to a series of legislative changes, necessitating substantial readiness for the auditor and the entity being audited. A GST audit requires a comprehensive understanding of GST laws, the workings of the GST portal, the relevance of various notifications and circulars, and the upkeep of records and documents.
1. For Auditors –
To kickstart the audit preparation, auditors can follow these steps:
- Inform the auditee about the relevance of the GST audit.
- Verify your eligibility to conduct an audit in GST for the specific auditee in line with ICAI guidelines.
- Confirm your appointment by issuing quotes and, subsequently, the engagement letter.
- Once appointed, collect information about the auditee’s business nature, products, and services. The auditee should be advised to maintain precise books, accounts, and records before the audit.
- This covers everything and helps to direct the audit process.
- A detailed audit plan should be designed to set the type, time, and range of the audit.
- Compile a list of records for verification and inform the auditee to have them prepared for the audit.
- Secure all necessary reconciliations.
2. For Auditee –
The auditee can follow these guidelines:
- Ensure all documents are maintained accurately and comprehensively.
- Properly preserve all supporting documents.
- The auditor will identify and communicate any data discrepancies discovered during the audit.
- The GST authority prescribes various rules regarding invoice preparation and issuance. The client should adhere to these rules and guidelines. If your invoice format needs adjustments considering your business nature, the auditor will recommend those changes.
- Exercise caution when claiming the input tax credit (ITC), as any over-claimed amount will incur an interest charge of 24 percent.
- There are specific deadlines for filing returns, issuing invoices, and e-way bills. The timelines must be respected by the customer to prevent interest or fines.
- There should be no more than 180 days between the invoice and payment dates.
- The auditor will verify the ITC reversal for invoices that are not paid within 180 days.
- E-way bills should be generated with care and match the original invoice. If a mismatch happens, the E-way bill has a 24-hour cancellation window.
GST Audit Threshold Limit for CA/CMA
Every GST-registered taxpayer with an annual turnover above the prescribed threshold must undergo an audit. The current GST Rules say that businesses with a turnover of Rs. 2 crores or more must get their books of accounts audited by a CA. These taxpayers must submit the following:
- An annual return in Form GSTR 9 by 31st December of the following financial year.
- The audited document of the annual accounts.
- A certified reconciliation statement must be submitted in Form GSTR 9-C. An audited annual financial statement and other documents are used to verify the value of supplies in this statement and the tax returns.
- Other documents.
Rectifications to Returns After GST Audit
Suppose a taxpayer identifies an error or omission in their GST return post-submission (due to an audit). In that case, they can make corrections, provided they pay the necessary interest. However, there are restrictions on when these corrections can be made:
- Corrections must be made before the deadline for submitting the return for September or the second quarter (whichever is applicable) of the following fiscal year, or
- Before the exact submission date of the annual return.
For example, let’s consider Mr. ‘A,’ who, during an audit, realizes he made an error in his October 2021 return. He filed his annual return for the fiscal year 2021-22, along with audited accounts, on December 31, 2022.
The deadline for him to correct the October 2021 error would be either October 20, 2022 (the final date for submitting the September return) or December 31, 2022 (the actual date of filing the relevant annual return), depending on which date comes first. In this case, his final opportunity to make corrections would be October 20, 2022.
However, it’s important to note that corrections are not permitted if the errors or omissions were identified during a review or audit conducted by the tax authorities.
Special Audit Under GST: Everything You Need to Know
In certain situations, tax authorities may initiate a special audit under the Goods and Services Tax (GST) regime to ensure compliance and address complex issues related to registered taxable person records. Let’s delve into the key aspects of special audits under GST:
1. When Can A Special Audit Be Initiated?
The tax department’s assistant commissioner can initiate a special tax audit based on the case’s complexity and the revenue interests. A special audit can be ordered if the assistant commissioner finds that the taxable value was incorrectly declared or wrong tax credits were claimed during any scrutiny, inquiry, or investigation. A special audit is possible even if a regular audit was already conducted.
2. Who Will Order And Conduct A Special Audit?
The assistant commissioner can order a special audit with the Commissioner’s approval. The special audit requires a chartered/ cost accountant appointed by the Commissioner.
3. What Is The Time Limit To Initiate A Special Audit Under GST?
A 90-day extension for the special audit is possible on request from the taxpayer or the auditor. Otherwise, it must be done within 90 days.
4. Who Will Bear The Expenses Of The Special Audit?
The special audit’s expenses, such as the auditor’s fees, are the Commissioner’s responsibility to figure out and cover.
5. How Are The Findings Of The Special Audit Dealt With?
The taxable person will be allowed to be heard on the particular audit findings. If the audit reveals due or short-paid taxes, wrong refunds, or wrong input tax credit, the tax department will initiate demand and recovery actions.
Also read: TDS under GST: Everything You Need to Know
GST has brought significant changes to taxes and compliance documentation in India. One such major change is the introduction of special audits under GST. A special audit under the GST act is done by a chartered accountant or someone nominated by the commissioner when he finds any issues with the value declared or the input tax credit claimed by the taxpayer.
It also helps to prevent and detect tax evasion and fraud under GST. The taxpayer should deliver all the appropriate data and documents to the special auditor and cooperate with them. Also, taxpayers should be well prepared for such audits and ensure all records and documents are correctly maintained to avoid adverse action.
This is all about the GST Audit. We hope this guide has helped you understand this audit’s objectives, procedures, forms, and timelines. If you have any questions or doubts, feel free to write them in the comments section below.
Frequently Asked Questions
Suppose you are a taxpayer whose annual turnover exceeds Rs. 2 crores in a financial year. In that case, you must undergo a yearly audit by a Chartered Accountant (CA) as per Section 35(5) of the CGST Act.
The tax department's assistant commissioner can initiate a special tax audit.
The expenses for the special audit, including the auditor's fees, will be determined and borne by the Commissioner.
The audit must be concluded within three months from the start date of the audit.
The due date for submitting GSTR-9 and GSTR-9C is December 31st of the subsequent fiscal year. However, the due date can be extended through a notification issued by the Central Board of Indirect Taxes and Customs (CBIC).
Failure to file a GST return prevents the filing of subsequent returns. For instance, if the GSTR-2 return for August is not submitted, the following GSTR-3 return and any subsequent returns for September cannot be filed. Therefore, the delay in filing a GST return can result in a domino effect, leading to substantial fines and penalties as mentioned below -
- For the 21 offenses without fraudulent intent or tax evasion: A perpetrator who fails to pay tax or makes underpayments must pay a penalty of 10% of the due tax amount, with a minimum penalty of Rs. 10,000.
- For the 21 offenses with fraudulent intent or tax evasion: The offender must pay a penalty equivalent to the amount of tax evaded or short deducted, i.e., a 100% penalty, with a minimum of Rs. 10,000.
Additional penalties include a jail time of up to 5 years and a fine.
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