written by Khatabook | August 3, 2021

GST audit- When Are You Likely To Be Audited By Tax Officers?

GST (Goods & Services Tax) is a trust-based taxation system in which the registered dealer is expected to self-assess the returns and calculate their taxable income. The purpose of a GST audit is to verify the accuracy of the turnover and taxes paid and examine compliance with the GST Act's provisions.

The concept of auditing by a departmental authority is not new.  It was already incorporated in the current regulations. Under the GST Act, an Audit Mechanism was established to encourage and ensure taxable compliance with the legislation.

GST audits are sometimes necessary to keep track of and check whether the right GST is paid and the refund recovered, particularly for certain taxpayer groups.

What is a GST audit?

The review of records, returns and all other important reports/documents kept or given by the registered person under the Act is referred to as "audit."

The term "audit" refers to examining or inspecting numerous books of accounts kept by businesses. It is done to ensure adherence to the act's provisions.

GST audit refers to:

  • The review of records, GST Returns, and all other necessary documents maintained by the registered person.
  • The verification of the accuracy of turnover recorded, Goods & Service Tax refund claimed, taxes paid, and (ITC) input tax credit availed.

The Goods & Service Tax Law allows a registered taxpayer to self-assess the taxes owing and file a return for each tax period as required under Section 39 and Section 59 of the  ('CGST Act, 2017') Central GST Act, 2017.

Self-Assessment, on the other hand, can sometimes lead to inaccurate interpretations of statutes, resulting in lower tax deposits or claims of incorrect input tax credits and refunds, allowing the revenue authorities to participate.

As shown in the flowchart below, there are various types of GST audits:

1. Audit by CA (Chartered accountant)/CMA (Certified Management Accountant): 

Any registered taxable person whose yearly *aggregate turnover exceeds 2 crore INR will be audited during a financial year. Eligible taxpayers will have their records and accounts audited by a Chartered Accountant or a certified management accountant under this approach.

Along with the GST annual return (GSTR-9), you must submit a copy of an audited financial statement, a reconciliation statement, as well as other documentation.

In addition, GST calculates 'aggregate turnover' based on PAN (Permanent Account Number).

For instance, for a privately owned business in a state or union territory, an enterprise or registered person can do GSTIN registration who has an aggregate revenue of more than Rs. 2 Crore.

All GSTINs (tax registration number) issued for the PAN, on the other hand, will be subject to audit.

E.g., If your company has five GSTINs on a single PAN, you must submit five GST audits if your total revenue for the fiscal year exceeds Rs 2 crores on an all-India basis.

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

Aggregate Turnover for GST Audit is as follows:

The Value of all taxable supplies, inter-state or intra-state, plus exempt goods and supplies made in and outside India (export supply), but not the value of inward supplies on which reverse charge tax is payable.

Is there a penalty associated with this audit? 

There is no specific penalty under the provisions of the 2017 CGST Act if the person fails or refuses to comply with the clause specified above. However, if the registered person violates any provision of the 2017 CGST Act, a generic penalty of Rs.25,000 may be imposed per the act for each violation.

2. An audit conducted by Tax Authorities

A taxpayer's GST audit may be conducted by the Commissioner of GST or an official authorised for businesses with turnover more than Rs 2 Crore. The audit will occur at the taxpayer's place of business or the Commissioner office by the officer authorised by them.

Audit notice 

At least 15 days before the audit, the auditee will get a notification and within three months after the start of the audit, the audit will be completed. Commissioners can, however, extend the period for another six months if they provide written justifications.

Auditee's Obligations

The taxable person will be obliged to provide the essential facility for verifying the books of account and provide information and help ensure the audit is completed on time.

Conclusions of the Audit procedure

If the audit reveals unpaid tax, an incorrect refund, or an inaccurate input tax credit, the officer will notify the taxpayer within 30 days in Form GST ADT-02. Following that, demand and recovery actions will be implemented.

3. GST Special Audit:

After the deputy or assistant c ommissioner issues an order with the prior consent of the GST commissioner, a special audit is conducted. Based on the nature and complexity of the case and the interest of revenue, the audit will be initiated.

Even though the taxpayer's accounts have already been examined, a special audit may be performed in specific cases.

Within 90 days, the GST auditor  should submit their report. At the taxable person's or GST auditor's request, the tax officer may extend this period for an additional 90 days.

Points to remember:

In order to get an audit under GST, the taxpayer must examine the following points:

  • The taxpayer is responsible for ensuring that output and input tax is reconciled between the e-way bills issued, books of accounts and returns.
  • The regulations relating to the valuation of goods and services and free products and services must be considered by the taxpayer.
  • The taxpayer must analyse the tax positions he has taken and ensure that they are accurately documented in the records he maintains.

What documentation is needed for a GST audit?

  1. Financial Statements that have been audited.
  2. Form GSTR-9, Annual Return
  3. Reconciliations for GST1 and GST3B
  4. Statement of reconciliation- the value of supplies reported in the year's return and the audited yearly financial statement in the GSTR-9C form.

The documents that the GST auditor needs to audit are listed below:

  1. Sales Register
  2. Purchase Register
  3. Stock Register
  4. Ledgers of Expenses
  5. Claimed and used input tax credit (ITC)
  6. GST due and paid
  7. The total number of electronic waybills generated.

GST Audit Report Submission

Following the audit by the respective authorities of GSTR-9C, the below information must be disclosed by the CA/CMA.

  1. If proper transaction records are kept.
  2. Are the Financial Statements prepared following the books of accounts?
  3. To verify and certify for the accuracy of the information included in GSTR-9C.
  4. To make any further observations or to comment.

GST Audits Objective

Here are some audit objectives

  • To raise and measure a taxable person's degree of compliance with the act's provisions and rules.
  • To improve voluntary compliance among taxpayers and make it easier for the IRS to achieve its goal of collecting "the appropriate tax at the right time."
  • By omission or error, to discover unreported liabilities.

How is the GST audit procedure?

While conducting the audit, the below details are to be verified by the officer along with the officials accompanying him:

  1. Documents that serve as the foundation for keeping books of accounts and preparing returns and statements;
  2. The tax rate is applied to the supply of goods and services.
  3. The accuracy of the claimed turnover, deduction, and exemption.
  4. ITC utilised and availed.
  5. Refunds claimed and any other issues should be addressed, and the observation and results should be documented in audit notes.

GST Laws Assessment

Below are the numerous methods for the GST audit section that tax authorities can use to conduct assessments under the CGST Act, 2017:

  • Provisional Assessment - Section 60
  • Non-filers of returns assessment- Section 62
  • Unregistered evaluation of the persons - Section 63
  • Summary Assessment - Section 64

Provisional Assessment - Section 60

When a taxpayer cannot decide the value of goods or services, or both, or the applicable tax rate, a provisional evaluation is done. The taxpayer may then submit a written request to the proper officer justifying tax payment on a provisional basis. The officer will issue an order within 90 days of receiving the request, permitting tax payment on a provisional basis at a given rate or value as he may specify.

Non-filers of returns assessment- Section 62

Suppose any supplies of goods or services were made during the tax period specified in Section 39 of the 2017 CGST Act. In that case, every registered person is required to comply with the legislation by completing regular returns. Non-compliance will result in a notice being issued under section 46, 2017 CGST Act.

Unregistered persons assessment - Section 63

Any person who engages in the provision of goods or services is required by law to register. If a taxpayer fails to register, even though he is required to do so, actions will be taken by the GST tax officer. This can also happen when the taxpayer's registration is revoked; however, he is liable for tax; the proper officer will evaluate his tax liability for the required tax periods as per his ability and issue an audit plan within the 5 years date mentioned under section 44.

Summary Assessment - Section 64

This is only permitted in extreme instances. Only when the revenue interest is at risk of being jeopardised by a delay is a summary evaluation acceptable. With the prior consent of the Joint Commissioner, the proper officer will proceed to examine a person's taxable income based on any evidence demonstrating a tax liability that comes to his attention.

In addition, if the taxpayer against whom the tax duty is imposed is unknown, then the one in charge is responsible for paying the imposed tax and any additional dues.

Also Read: GSTIN Importance, Format & How to Apply for GST Number

Conclusion

GST audit is one of the most important tools for verifying returns filed and encouraging self-tax compliance by taxpayers. It is a review of taxpayers' self-assessment. A good auditing system has its own preventive benefits. The ultimate goal of the GST audit is to improve tax compliance.

We hope you found the GST audit overview helpful. You can also head over to Khatabook for more useful information. 

FAQs

Who has the authority to audit taxpayers?

The GST Act specifies three different types of audits

1.   Audit by CA (Chartered accountant) / CMA (certified management accountant)

2.   Audit conducted by Tax Authorities:

3.   GST Special Audit

Please go through the article for more details regarding the same.

What is the role of a proper officer once the audit is completed?

The proper officer must notify the taxable person of his findings, reasons for findings, and rights and obligations in relation to the findings within 30 days of completing the audit.

Is there a deadline for submitting the audit report?

The audit report must be submitted within 90 days.

Who will pay the costs for the special audit?

The Commissioner will determine and bear the costs of the examination and audit, including the auditor's fee.

How will the result of a special audit be conveyed to the taxable person, and in what form and manner will it be ordered?

While a special audit is necessary under section 66, the officer referred to in the section shall give a directive in Form GST ADT-03 to the taxable person directing him to have his records audited by a CA, and the results of the special audit will be reported in Form GST ADT-04.

What is assessment and audit under GST?

The review of records kept by a registered dealer is referred to as a GST audit. The goal is to evaluate the accuracy of the information reported, the taxes paid, and evaluate GST compliance.

When should a company conduct an assessment instead of an audit?

In general, the goal of an assessment is to gain a view of your company's current situation. The goal of an audit is to be more specific and compliance focused.

What is the GST audit turnover limit?

The turnover threshold is above Rs 2 Crores, according to the current stated GST Audit Rules. Any GST registered taxpayer whose turnover exceeds the specified limit within a financial year is subject to an audit.

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