Audit Under GST- When You Might Get Audited by Tax Officers
GST Services Audit & Assurance Services
Examining records, returns, and other documents kept by a GST-registered person is part of an audit under the GST law.
Additionally, it verifies that the amount of revenue reported, taxes paid, refunds requested, and input tax credits claimed are accurate.
It also evaluates other similar compliances with the GST Act to be verified by a qualified professional.
Since the GST is a self-assessment tax regime, an audit of the taxpayers' records is crucial for the smooth operation of a self-assessment-based tax system.
This audit verifies the accuracy of the taxpayers' self-assessed tax liability, tax paid, amount of claimed refund, and amount of input tax credit utilised.
It's important to note that the requirement for a mandatory GST audit by a CA/CMA with a turnover of more than Rs. 2 crores has been eliminated as of the Financial Year 2020–21.
Introduction to GST AUDIT:
India's Goods and Service Tax (GST) was a revolutionary tax reform that was introduced in 2017.
The new plan has been portrayed as an effective taxation system. By creating a single market and adopting the mantra of "One Nation, One Tax", popular in India, it also streamlines the taxes system.
A GST audit examines and confirms the financial records kept and delivered to the tax body under GST. The GST Act of 2017 mandates that registered taxpayers have their accounting records audited.
In light of this, the GST Audit under section 35(5) of the Act specifies that the GST registered taxpayer should submit an audited document of their annual accounts by an Accountant designated by the Commissioner.
Audit Requirement Under GST:
Verifying returns, records, and other associated documents kept by a person registered under GST is the goal of the GST audit.
The purpose of a GST audit is for a qualified tax authority member to verify the information's accuracy and determine if it complies with the GST Act 2017.
Under the GST programme that the Indian government introduced in 2017. It is a taxation system in which the taxpayer can figure out how much is owed, file an income tax return, and pay the due amount.
A GST audit is, therefore, necessary to ensure that the taxpayer has calculated it accurately. An audit is one of the ways to verify the accuracy of GST practice among the many other methods.
GST Audit Types in India
Under the GST, there are three different types of audits. The following lists these audits and their requirements: -
Based on turnover, a GST audit: The Cost Accountant or the Chartered Accountant appointed or retained by the taxpayer conducts this type of audit.
The CGST Act states that this audit is carried out when the taxpayer's records and accounts require an audit because their turnover is above the threshold of 2 crores.
GST Audit, Standard/General: The CGST/SGST Commissioner or another officer authorised by them is in charge of conducting this GST audit.
It is carried out under the Commissioner's directive after giving the taxpayer 15 days' notice.
Special GST Audit: A certified cost accountant or chartered accountant conducts this audit under the accreditation of the commissioner.
It is carried out as directed by the Assistant or Deputy Commissioner with the Commissioner's prior consent.
Goals of a GST Audit Under the Law:
The following goals of the GST audit are outlined in section 2(13) of the Central Goods and Services Tax (CGST) Act, which defines an audit as:
- Examining returns, records, and other related papers is what an audit means.
- The GST or other laws should be used to issue or maintain returns, records, and other documentation.
- Verification of the Declared Turnover Paid Amount of Taxes is scrutinised.
- Declared a Refund
- using the input tax credit
- The auditor's compliance with the GST Act's laws and regulations is also evaluated during the inspection.
A GST audit aims to ensure that the declared turnover, claimed refunds, input tax credit, and taxes paid are correct.
The verification is carried out in accordance with the GST Act. Furthermore, the GST Audit ensures that the intentions are in accordance with GST Rules.
GST Audit is based on Turnover Section 35 (5) (Section 35 (5) of the Central Goods and Services Tax (CGST) Act states that any taxpayer with an aggregate turnover of 2 crores or more in any fiscal year (FY) must have their account books audited on an annual basis.
A cost accountant or a chartered accountant should conduct the GST audit. The financial year is the calendar year that begins on April 1st and ends on March 31st of the succeeding year).
The formula for calculating an enterprise's total turnover is as follows:
Aggregate Turnover = value of taxable supplies (intrastate and interstate) + export supplies of goods and services + exempt supplies
Items to Include in the Annual Turnover Calculation:
- All taxable supplies, with the exception of those subject to a reverse charge. It consists of both interstate and intrastate supplies.
- Including all supplies that are shared by different business verticals.
- Goods are received or supplied to the job worker on a regular basis.
- Include all zero-rated or export supplies' values.
- Supplies of job workers or agents in the principal's name.
- All exempt supplies, including agricultural supplies and ready-to-eat food.
- The taxes, excluding those covered by GST, include parlour tax paid after receiving the service.
Excluded Items from Annual Turnover Calculation
- Inward supplies for which the tax is paid in reverse charge.
- All cess and taxes levied under the GSTs, such as SGST, IGST, CGST, or compensation cess.
- Goods received or supplied to a job worker.
- According to Schedule III of the CGST Act, all of these activities do not constitute the supply of services or goods.
- Person Accountable for GST Audit
- According to the GST Act 2017, registered taxpayers in India and businesses with a turnover of more than 2 crores in a fiscal year are subject to GST audit.
- A cost or chartered accountant must audit the liable person's GST. The GST turnover limit of 2 crores is the same across all Indian borders.
The following are the aggregate turnover sectors for GST audits:
- Interstate Distribution
- Exempt Supplies for Exports
- Stock transfers
- Tax authorities conduct a GST audit.
- An audit of a taxpayer must be completed by an SGST/CGST commissioner or authorised personnel of the commissioner.
- A GST audit notice should be sent to the taxpayer 15 days before the procedure is carried out.
- The audit will be completed three months after the tax authorities began it.
- The Commissioner of SGST/CGST has the authority to extend the audit period under the GST for up to 6 months by submitting a valid reason in writing.
Along with the responsibilities, the Tax Authority has some obligations when conducting a GST audit.
These responsibilities include conducting a thorough audit to cross-check the accuracy of turnover, claimed returns, input tax credits, and taxes paid in accordance with GST rules.
After concluding, the auditor should submit a report detailing their findings, the taxpayer's obligations and rights, and the reasons for their findings.
In addition to the auditor's obligations, the auditee (taxpayer) has some obligations as well, such as:
- To provide complete assistance to the auditor in completing the GST audit on time.
- The auditee should provide the auditor with all necessary information to verify account books and other required documents.
- CA or CMA GST Audit Limit
- The GST Audits by CA and CMA have been eliminated, according to the budget presented on February 1, 2021. This discontinuation can only provide relief to auditees if the other audits performed by special audits and departments are correct.
- The GST audit limit is currently 2 crores. Any registered GST taxpayer with a total turnover of more than 2 crores should have an audited document ready for submission before the due date.
Documentation Requirements for Taxpayers:
For the GST audit, the taxpayer must provide a few documents in front of the auditee. The following are the documents:
- Financial Audited Statements Based on PAN.
- Annual Return led by GSTIN-based Form GSTR-9.
- Form GSTR 9C is used to obtain a Reconciliation Statement Certificate. The certificate should reconcile the value of the supplies, the tax, and the declared sum in Form GSTR 9 with the financial audited in Part A and the audited reports in Part B.
It refers to the determination of GST tax liability. GST assessments are classified into five types:
GST requires every registered taxable person to assess their own taxes and file a return for each tax period. This is known as self-evaluation.
If a registered dealer cannot determine the value of goods or the tax rate, he may request a provisional assessment from the officer. The proper officer may grant the assessee permission to pay tax on a provisional basis at a rate or value specified by him.
Examine the Situation
A GST officer can examine the return to ensure its accuracy. The officer will request explanations for any discrepancies in the returns.
Summary Assessment is performed when the assessing officer discovers sufficient grounds to believe that any delay in proving a tax liability will harm the revenue. To protect the revenue, he can pass the summary assessment with the additional/joint commissioner's prior approval.
Recovery and Demand:
Demand and recovery provisions apply when a registered dealer pays tax incorrectly or not at all. It is also applicable when the dealer claims an incorrect refund or ITC.
In the event of fraud, the proper officer will issue a show-cause notice and a demand for tax and penalty payment.
Demands may arise in the following circumstances:
- Unpaid or underpaid taxes or an incorrect refund
- Taxes are collected but are not deposited with the federal or state governments.
- When CGST/SGST was payable, CGST/SGST was paid, and vice versa.
- If the demand is not paid, the GST authority initiates recovery action.
Under GST, the advance ruling means seeking clarification from the GST authority on specific tax matters before beginning the proposed activity. This contributes to less expensive litigation.
An advance ruling is a written decision issued by the tax authority to an applicant in response to a question about the supply of goods or services.
Penalty for Failure to Submit Audit Report
There is currently no specific provision for the GST Audit report. However, a fine of 25,000 must be paid to the authority as a penalty.
The penalty, however, does not apply to taxpayers whose annual turnover is less than 5 crores and whose GST return filing has been waived off in Form GSTR 9C in FY 2018-19.
Funding for ESOPs and Cashless Exercise
Liquidity Event Administration
Compliance with GST rules and audits of returns, records, and documents is critical. It is critical to schedule an audit appointment well in advance or at the start of a fiscal year.
It is also critical that the GST audit reports are unbiased and not completed by a registered GST payer.
FAQs related to Audit under GST
1. What is the audit turnover limit for GST?
Ans: According to the current GST Audit Rules, the turnover threshold is greater than Rs 2 crores. Any GST registered taxpayer whose annual turnover exceeds the specified limit is subject to audit.
2. What is the purpose of the GST Audit?
Ans: GST auditing is critical because it is the only way to determine whether the declared turnover, tax amount paid, credit if input tax is availed, and claimed refund is correct or not. It is also an important audit for determining compliance with GST provisions and rules.
3. Who will request and oversee a special audit?
Ans: The Assistant Commissioner will order and conduct an audit under GST in writing with the Commissioner's permission.
4. Who is qualified to conduct an audit under GST?
Ans: An audit under GST can be conducted by a chartered accountant or a cost accountant. To issue a GST Audit report, the chartered accountant must not be a registered GST practitioner.
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