written by Khatabook | June 28, 2021

All About GST Audit For Taxpayers With Annual Turnover Above Rs. 2 Crores

What Is An Audit Under GST? The GST Act or Goods and Services Tax Act specifies that you must conduct an audit for certain businesses. An audit under GST is about checking the records, returns, and other documents maintained or submitted by the taxpayer registered under GST. An audit verifies the total turnover, along with the taxes paid, refund claimed, ITC - Input Tax Credit availed and whether the taxpayer is following all GST laws or not. 

Why Is A GST Audit Needed?

GST audits make sure that you pay the correct taxes to the government. Every taxpayer registered under GST must self-assess the tax liability for the given period, like a month or a quarter. An audit makes sure that you have correctly self-assessed your liability. It is also the most used and effective way to verify GST measures implemented by the government. So let’s understand the audit criteria and the GST audit turnover limit for FY 2020-21.

Types of GST Audit

Here’s a simple chart to help with the applicability of GST audit and audit types.

Types

Performed By

Initiated when

Turnover-based GST Audit

Cost/Chartered Accountant appointed by the taxpayer

GST audit applicability is for taxpayers with a turnover of more than 2 Crores. They have to audit their records and accounts.

Note: Filing of GSTR-9C for the FY 2018-19 waived off for a business with an annual turnover of less than Rs 5 Crore.  

General/Normal GST Audit

SGST/CGST Commissioner or any authorised officer authorised by the Commissioner.

The  GST audit applicability  is issued by the SGST/CGST Commissioner with 15 days prior notice.

Special GST Audit

A Cost/Chartered Accountant nominated by SGST/CGST Commissioner

SGST/CGST Deputy/Assistant Commissioner, with the SGST/CGST Commissioner’s prior approval, orders the GST audit.

A GST Audit can be classified into three types which are as described below:

1. GST Audit based on Turnover: Every business with an annual turnover over Rs. 2 Crores must be audited. The business can appoint a Chartered or a Cost Accountant for this purpose.

2. GST audit by tax authorities:

  • General Audit: The Commissioner or any other officer can undertake the GST audit of a registered person for part of the year or multiple financial years. A notice will be sent 15 days before the audit by the proper officer. The Cost Accountant or Chartered Accountant should complete the audit within three months from the commencement of the audit.
  • Special audit: It is conducted at any stage of inquiry or investigation if the assistant commissioner believes that value is not correctly stated or the registered person has availed excess ITC. Thus, the taxable person has to get his accounts audited by a Chartered/ Cost Accountant.

Also Read: MahaGST Online Portal for GST in Maharashtra

GSTR-9 and 9C Updates

  • In the Budget 2021 and as of 1st February 2021, the requirement of a GST audit for specified professionals like Cost Accounts, Chartered Accountants, CMAs etc., stands removed under the GST law using suitable amendments to Sections 44 and 35. 
  • The Budget 2021 has removed the need for the reconciliation statement, Form GSTR-9C. Instead, you can file self-certified annual returns in GSTR-9 on the GST portal. However, the government is yet to notify the date of applicability.

Turnover based Audit 

GST audit turnover limit is specified in the GST Act is when the annual business turnover of a taxpayer registered under the GST Act is more than Rs. 2 crores in that financial year. Then, it is mandatory to have the business audited by a Cost Accountant or a Chartered Accountant every year after that. Financial year means the 12 months from 1st of April to the 31st of March in the next year. 

Special Notes: 

  • The government’s press release dated 3rd-July-2019 notifies the turnover limit calculation for the FY 2017-2018, will be the period 1st-Jul-2017 up to 31st-Mar-2018 and the Q1of 2017-2018 or the first quarter of FY 2017-2018 is excluded when calculating the turnover.
  • The government waived off filing Form GSTR-9 and 9C for the financial year of 2018-2019 of any business with an annual turnover of less than Rs 5 Crores. The aggregate turnover is thus calculated as the value of the intra and inter-state supplies plus the exempt supplies plus export supplies of all services and goods.
  • The calculation of the total turnover must be PAN-correlated. In simple terms, if the PAN turnover exceeds Rs. 2 Cr, then a business taxpayer registered under GST for that particular PAN is liable to a GST audit by a Cost/Chartered Accountant for that financial year. 
  • Any business/ taxpayer having a 5 Cr or less annual turnover is waived from the filing of returns using Form GSTR-9C for the financial year 2018-2019.

Items To Be Included For Turnover Calculations:

  • All supplies made to or received by its separate businesses.
  • Include all intra-state and inter-state taxable supplies, excluding the supplies with reverse charges.
  • The total value of goods received/ supplied to job workers on P-to-P or principal-to-principal consideration.
  • All supplies of job workers/agents working on behalf of the principal.
  • The full value of all zero-rated/ export supplies.
  •  Include taxes like Entertainment tax paid on the sale of movie entry tickets etc., except those covered under GST. 
  • All exempt supplies, like agricultural produce, are packaged and supplied with ready-to-eat branded food.

Also Read: GST Rates in India - List of Goods and Service Tax Rates, Slab

Items Excluded In The Turnover Calculations

  • Reverse charge tax paid inward supplies.
  • All cess and taxes like the IGST, SGST, CGST, Compensation Cess etc., charged under GST Goods supplied to or received back from a Job Worker.
  • Activities covered under the CGST Act Schedule III specified as neither supply of service or goods.

GST Audit Compliances:

Qualification & Eligibility for the GST Auditor:

The audit u/s 35 can be conducted only by a Cost Accountant or a Chartered Accountant.

How to do a GST audit?

  • The GST Auditor should be independent. An internal auditor cannot be appointed as the GST Auditor. 
  • A GST practitioner is not allowed to perform audits under the GST Act. Only a practising Cost Accountant or Chartered Accountant or an employee of a firm of a Cost Accountant or Chartered Accountant is empowered to perform an audit. Thus a Chartered Accountant issuing an audit report under the GST Act should not be a registered GST practitioner.
  • Suppose a business has registered multiple branches under the GST Act in various Union Territories/ States. The total branches aggregate turnover is used to calculate the threshold Rs. 2 Crores limit. (Those businesses having a 5Cr and less annual turnover have the FY 2018-2019 returns filing of GSTR-9C waived off). 
  • Thus, if all the branches' total turnover crosses the threshold limit of 2 Crores, then each of these branches must be audited. This audit is conducted irrespective of whether the branch itself has a turnover of less than 2 Cr or the threshold limit. 
  • You can appoint a separate auditor for each branch or a single dedicated auditor for all business branches. However, when using multiple auditors over the various branches, the SA 299 or Standards of Auditing, especially the sections applying to the ‘ Joint Auditors Responsibilities ‘, are applicable for the reporting involved in GST Audit Reporting and Observations. 

Also Read: GST State Code List and Jurisdiction

Performance And Issue Of GST Audit And Reporting:

GST Auditor Appointment:

The taxpayer who is the partner or proprietor and the Company's Board of Directors must appoint a GST Auditor at the start of the FY or financial year.

Accounts Reviewed By The GST Auditor:

The important records and accounts in a GST audit procedure reviewed by the GST Auditor are as below.

  • Register of Sales
  • Register of Stocks
  • Register of Purchase 
  • Ledger of Expenses 
  • ITC or tax credit utilised, accounted for and available.
  • Output tax paid or payable
  • The audit period-generated E-way bills and whether they comply with the GST rules.
  • Any communication, record, document etc., received from the authorised GST department relating to that particular financial year.

Forms for GST Audit and Annual returns:

Type of taxpayer

Forms applicable

Taxpayers Not Requiring A GST Audit

Taxpayers filing returns under GSTR 3B and GSTR 1 

GSTR-9

Taxpayer classified under the Composition Scheme

GSTR-9A

All E-commerce operators

GSTR-9B

Taxpayers Requiring A GST Audit

All taxpayers under GST audit limit, including those with branches whose turnover exceeds the threshold limit of Rs. 2 Cr in a financial year.

GSTR-9C

Review by GST Auditor:

How to conduct a GST audit

The GST Auditor has to file a report on all pending tax liabilities of the taxpayer, identified through the audit, observations and reconciliation exercises conducted in a GST audit. Based on this report, the taxpayer can settle pending taxes as per the auditor’s recommendations in Form DRC-03.

Submission of Annual Return and GST Audit report:

The Chartered Accountant who conducts the GST Audit can certify the final version of Form GSTR-9C. Alternatively, any other Chartered Accountant who has not done the GST Audit can also certify it. 

A GST Auditor Certifier must record and report all of the following factors in his GST audit report

  • Whether all records and requisite accounts are maintained as required under the GST Act.
  • Whether the Financial Statements reflect and are drawn from the account books maintained at the business’ principal place reported or at the taxpayer’s other place(s)of business.
  • Whether the information in Form GSTR-9C is accurate and certifiable.
  • Whether all audit reservations, observations, and comments are in accordance with the guidance note on GST audit.

Documents to be submitted:

 The taxpayer has to submit the following documents.

  • Audited PAN-based financial statements.
  • The Annual Form GSTR-9 returns for each GSTIN. 
  • Form GSTR-9C or the certified reconciliation statement, which shows the audited and reconciled values of tax amounts, supplies etc., declared in Form GSTR-9 compared to Part-A containing the audited financials and the Part-B Audit report.

Also Read: All About Reverse Charge Under GST

GST Audit report submission due dates:

The GST audit last date and GSTR Forms 9C and 9 are due on or before the 31st Dec of the following Financial Year. You can read up on the exceptions offered for the FYs 2017-2018, 2018-2019 returns filing for taxpayers with a turnover less than or up to Rs Cr. 

GST Audit report non-submission penalty:

Though there is no mention of a specific provision for a penalty for non-submission of the GST Audit report or an application for GST audit extension, a general penalty of Rs. 25,000 is generally levied. This does not apply to taxpayers with a turnover annually of less than Rs 5 Cr for whom the filing of returns in Form GSTR 9C for the financial year of 2018-2019 has been waived off. 

Conclusion:

We hope you understood the importance of compliance with GST returns and the GST Audit. You can prepare for the GST audit due date for FY 2020-21 by meeting, planning and appointing the GST auditors at the start of the FY. Remember that if an audit is mandatory, you have to appoint the auditor at the beginning of the financial year. Also, keep in mind that the audit report should be unbiased. GST practitioners or Chartered Accountants who are registered GST practitioners cannot perform the audit.

FAQs

1. What is the turnover limit for GST audit to be applicable?

The turnover limit is Rs 2 Cr for the applicability of a GST audit.

2. What is the GST audit due date?

The GST audit or GSTR-9/ 9C for FY 2019-2020 has been extended to 31st of March 2021 from the previous date of 28th February 2021. For FY 2018-2019, the due date was extended to 31st December 2020.

3. How is GST monitored?

Senior officers of the government monitor the GST implementation. The focus of their monitoring is to resolve consumer difficulties and ensure the proper billing in shops, display of tax rates in shops, registration of traders, awareness/publicity camps, smooth GSTN functioning etc.

4. Is the GST audit mandatory?

Smt Nirmala Sitharaman, the FM of India, in her Union budget 2021 speech, said that U/S 35(5) of the CGST Act, 2017 the GST audit with a Chartered/ Cost Accountant’s Reconciliation Statement in GSTR-9C is a mandatory requirement though it was omitted later. 

5. Who needs to file GSTR 9 and 9C?

The Form GSTR-9 is to be filled by each taxpayer irrespective of the turnover. Form GSTR-9C is applicable where a GST audit is required i.e. if the turnover exceeds Rs 2 Cr in the FY.

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