Introduction to Audit under GST

Audit under GST involves an examination of records, returns, and other documents maintained by a GST registered person. It also ensures the correctness of turnover declared, taxes paid, refund claimed, input tax credit availed, and assesses other such compliances under GST Act to be checked by an authorized expert.

Since GST is self -an assessment tax regime, an audit of the records of taxpayers is the bedrock for the proper functioning of a self-assessment-based tax system to ensure the accuracy of self-assessed tax liability, the tax paid, amount of refund claimed and input tax credit availed.

Important: From the Financial year 2020-21 onwards, the compulsory GST audit requirement by a CA/CMA with turnover exceeding Rs.2 crore has been removed. Now, Form GSTR 9C has to be self-certified and submitted by the taxpayers having an aggregate annual turnover exceeding Rs.5 crore.

Who is liable for GST Audit?

As per section 35(5) of the GST Act, every registered person whose turnover during the financial year exceeds the prescribed limit is eligible for GST audit and shall get his accounts audited by a Chartered Accountant or Cost Accountant and shall submit a copy of the financial statement and such other document as may be prescribed.

However, nothing contained in this section shall apply to any department under state or central government or any local authority which is subject to audit by the comptroller and auditor general.

Important Amendment: In the presentation of Finance Bill 2021, section 35(5) has been omitted and hence removing the mandatory requirement of getting annual accounts audited by specified professionals.

Clause 102 has been inserted wherein every registered person, other than Input tax distributor, a person paying tax under section 51 or 52 shall furnish an annual return which shall be self-certified and may include self-certified reconciliation statement reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial year electronically, within such time and in such form and in such manner as may be prescribed.

How to prepare for GST Audit?

Since GST was rolled out in 2017, there have been frequent amendments in law from time to time, so it demands significant preparation from the auditor as well as the auditee. GST audit gathers information and understanding of not only GST Laws but also the method in which the GST portal operates, the applicability of the various notifications and circulars, and the maintenance of records and documents. It also involves taking a deep understanding of the auditee's IT infrastructure and the type of business the auditee carries on, the nature of supplies or services, and the procedure of availing of input tax.

To begin with the preparation, the following points can guide the auditor:

1. Intimate the auditee about the applicability of the GST audit.

2. Confirm the eligibility to become GST auditor of the concerned auditee as per the guidelines issued by the ICAI.

3. Confirm the appointment via issuing quotations and thereupon the engagement letter.




4. Once appointed, start gathering information relating to the auditee nature of business, products, and services offered, and advise the auditee to maintain proper books and accounts, and records beforehand.

5. Prepare a questionnaire to focus on key areas, and activities. It not only ensures that no area is left out but also guides throughout the audit process.

6. Prepare a proper audit program to determine the nature, timing, and extent of the audit.

7. Prepare the list of records to be verified and also intimate the auditee to keep them ready for the use of the audit.

8. Obtain all the necessary reconciliations.

The following points can guide the auditee:

1. he client shall keep all the documents in a complete and accurate manner.

2. The supporting documents should be preserved properly.

3. The auditor will suggest any data gaps that come to his notice while performing the audit.

4. There are various rules prescribed by the GST authority with regard to the manner of preparation and issuance of the invoice. The client should rule and guidelines. In case your invoice format requires any changes, keeping in mind the nature of your business, the auditor shall recommend those changes.

5. Be extra cautious while claiming input tax credit (ITC), since any excess amount claimed shall be chargeable to interest at the rate of 24 percent.

6. There are various timelines as regards the filing of returns, issuance of invoices, and e-way bills. The client shall perform the work keeping in mind such time limits, to avoid any interest charges or penalties.

7. The difference between the invoice and payment date should not exceed 180 days.

8. The auditor shall also verify that the ITC reversal has been made for non-payment within 180 days.

9. E-way bills should be generated with due care, there should not be any mismatch between the original invoice and the e-way bill. If there is any mismatch, the E-way bill can only be canceled up to 24 hours after its generation.

Conclusion

GST audit places a huge responsibility on the auditor, and hence the auditor must keep himself at all the time updated on all the changes in the act, shall gather a proper understanding of the auditee's business. The auditor shall apply his expertise and knowledge of the law while auditing.

Types of Audits under GST

There are the following types of audits under GST:

1. Section 65- Audit by tax authorities

2. Section 66- Special Audit

Audit by tax authorities under section 65:

1. Audit under this section is not mandatory and shall be only applicable in cases where the appropriate authorities authorize the same. It shall be conducted by the commissioner or any officer authorized on this behalf.

2. The registered person shall be given a notice, at least 15 days prior to the conduct of the audit.

3. The audit shall be completed within a period of three months from its commencement date. Can be extended by a further period not exceeding 6 months.

1. The registered person shall provide all the assistance to the commissioner conducting the audit under this section by providing him the necessary facility required to verify the books and accounts and other documents

2. Furnish all the necessary information up to the completion of the audit.

The proper officer shall, on the conclusion of the audit, within 30 days, inform the registered person of the findings, discrepancies noticed, and his rights and obligations.

Special audit under section 66

1. If at any stage of the scrutiny or investigation, any officer not below the rank of assistant officer, having regard to the nature of complexity and interest of revenue is of the opinion that the value has not been correctly declared or credit has not been availed as per the act, he may direct such registered person to get his accounts examined and audited by a Chartered Accountant or Cost Accountant as may be nominated by the commissioner.

2. The audit report has to be submitted to the commissioner within a period of 90 days. The assistant commissioner can also extend the period over 90 days for the application person for any sufficient reason.

3. Audit under this section can be conducted even if the accounts of the concerned person are audited under any other act.

4. The expenses of the audit and remuneration of the professional shall be determined by the commissioner.

At the conclusion of the audit, the registered person shall be informed of the findings and any discrepancies. The taxable person shall be given an opportunity of being heard.