Complete Guide to types of audit under GST

The Goods and Services Tax (GST), implemented on July 1, 2017, significantly transformed India's tax landscape. It ensured complete transparency in tax filing and collections, leading to simplification of the process. In addition, the GST regime also introduced several rules for audits, ensuring that the ventures meet compliance requirements. This blog outlines the different types of audits under GST and some other crucial details that help you make an informed approach.

What Are Audits Under GST?

Audits under GST involve the review of the records that taxpayers added when filing GST returns. It enhances the accuracy of the data entered in the form, minimising the chances of rejection of the GST returns filed.

Usually, tax authorities carry out these audits based on the documents and relevant information the taxpayers provide. Different types of audits are available under the GST Act, for different kinds of assessments of the GST returns filing, ensuring maximum accuracy.

Types of Audits under GST

Listed below are some of the popular types of audits available under the GST Act:

1. Departmental Audit

This is a type of routine audit by tax authorities that they conduct regularly to ensure appropriate calculation and discharge of tax liability. As per Section 65 and Rule 101(3) of GST Audit Rules, the commissioner, assistant commissioner or a person whom a registered person appoints is solely responsible for conducting this audit. Primarily, they review the books of account and records of the GST-registered person to ensure accuracy and compliance.

The Departmental GST Audit is usually conducted at the registered office or registered business place of the concerned person. The GST-registered person is notified 15 days before the date of audit and is completed within 3 months from the commencement date. However, tax officers are allowed to exceed this duration in certain cases but it should not go beyond six months of the audit period.

Once the examination of records is completed, the authorised officer needs to present their deductions to the concerned person within 30 days. If they conclude that the GST-registered taxpayer is at fault such as wrongly availing ITC, they can take strict action against the latter as per Section 73 and Section 74.

2. Statutory Audit

This is a special type of audit that taxpayers with an annual turnover of more than ₹2 crore need to go through. According to Section 35(5) of GST Audit Rules, they must hire a professional chartered accountant to audit their GST returns and account books. Once done, the taxpayer can submit the reconciliation details using the GSTR-9C form. Venture owners must conduct this audit type annually and file the same accordingly.

3. Special Audit

Any authorised officer can demand this audit type at any stage of scrutiny, inquiry or investigation. The officer can request this type of audit if they doubt the correctness of turnover declared or if taxpayers have availed credit beyond normal limits.

According to Rule 102 and Section 66 of the GST Audit Rule, the authorised officer hires a CA or CMA depending on the complexity of the business to conduct this investigation type. The registered dealer will have to fill out Form GST ADT-03, mentioning the direction of the audit.

Once the officer issues this type of audit, the venture owners must hand over the necessary documents to the CA to seamlessly conduct the examination. Once the scrutiny is done, they will need to present their findings to the commissioner in Form GST ADT-04.

Venture owners must conduct it within 90 days from the passing of such order as per the specified norms. However, they must note that the commissioner is responsible for paying the overall expenses for conducting special audits.

4. Limited Scrutiny

This is a very specific type of audit that tax officers instruct the venture owners to conduct when they suspect non-compliance with the provisions of GST. The primary objective of this audit type is to check if the owner is undertaking the entire process as per the GST norms. In this audit, the CA usually examines the accuracy of payment of tax, the correctness of the tax returns filed and compliance with other GST law provisions.

5. Taxpayer-Initiated Audit

This is another type of GST audit that a taxable person can initiate to verify if they are complying with all the provisions as per the GST laws. They check if the taxes are paid on time, the returns have been filed accurately and the provisions of GST are adhered to.

Taxpayers need to keep a thorough record of their business transactions in the form of receipts, invoices, and other documents. This helps them file tax returns on time to avoid the payment of hefty penalties.

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Importance and Benefits of Different Audits Under GST

The availability of different types of audits under GST offers various advantages to a taxable person as well as tax authorities. These benefits are as follows:

• Compliance Verification: Periodic GST audits guarantee that taxpayers are following the norms associated with fees, tax calculations and reporting.
• Accuracy in Transactions: Regularly auditing the GST transactions helps in establishing complete transparency in the records, making financial reports reliable and authentic.  
• Timely GST Payments: Audits ensure that the GST payments are made on time, keeping you from having to pay hefty penalties and ensuring efficiency in the taxation system.
• Maximising Profits and Efficiency: After auditing, GST-registered persons, as well as tax officers, can get a clear idea of the possible improvements to maximise profits.  
• Fraud Detection and Prevention: When auditing financial reports, tax authorities analyse the transactions, allowing them to instantly identify and prevent fraudulent practices of the venture owners. 
• Legal Compliance: Periodic GST audit ensures that the firm is not involved in any type of criminal activity. 

Threshold Limit for Audit Under GST by CA/CMA

A GST-registered person having a venture with an annual aggregate turnover limit exceeding ₹2 crore has to mandatorily go for GST audits. For this, they can hire an experienced cost accountant or chartered accountant.

The taxable person will have to electronically file GSTR-9 by December 31st of the next financial year as annual returns. Moreover, they will need to submit papers such as an audited copy of the annual accounts, self-certified reconciliation statement in GSTR-9C and so on.

Rectifications to Returns After GST Audit

There can be instances that after conducting tax audits you might come across incorrect details. In such scenarios, you can make rectifications in your return filing. However, it must be done within the due date of filing returns for the concerned month.

Documents Required for Audit Under GST

Following are some crucial documents that are required for auditing under the GST compliances:

• Financial records or books of accounts
• Form GSTR-9 which helps to file returns on an annual basis
• Self-certified reconciliation statement as Form GSTR-9C

What Are the Offences and Penalties Under GST?

There are various types of offences and penalties applicable under GST. These include:

• Fraudulent Activities: A minimum of ₹10,000 and up to 100% of the tax due.
• Delay in Filing GST Returns: A minimum of ₹100 per day to a maximum of ₹5,000 for CGST and SGST. However, there is no penalty for delayed IGST filing.
• Not Filing GST Returns: A penalty of ₹1,000 or up to 10% of the outstanding tax amount.
• Not Issuing Invoice for Transactions: From ₹10,000 to up to 100% of the outstanding tax amount.
• Availing GST Composite Scheme without Eligibility: For fraud cases, the amount ranges between ₹10,000 and 100% of the outstanding tax. However, for non-fraud cases, the amount ranges between ₹10,000 to 10% of the outstanding tax.
• Charging GST at an Incorrect Rate: Between 100% of the outstanding amount and ₹10,000.
• Mistakes in Invoicing: ₹25,000

Steps for Conducting GST Audit & Issue of GST Audit Report

There are numerous steps involved in the conduction of a GST audit and the issuing of a GST audit report. These are as follows:

Step 1: Appointing the GST Auditor

The first and foremost step is appointing a GST Auditor at the beginning of the financial year. Remember that they must be a Cost Accountant or a Chartered Accountant who is in practice or an employee of a reputed CA firm.

Step 2: Choosing the Accounts to be Reviewed

Next, you must choose the accounts that the CA needs to review. Some of the important accounts and records for review include the stock register, sales register, input tax credit availed and utilised, purchase register and expenses ledgers, e-invoices and IRN, e-way bills, output tax payable and paid and so on.

Step 3: Filling out the GST Audit and Annual Returns

Once you have chosen the account type, you can proceed with filing annual returns and GST audits. There are different GSTR forms such as 9, 9A, 9B and 9C, that you will need to fill accurately based on the conditions that you fulfil.

Step 4: Reviewing the Comments by GST Auditor

After filing the GSTR, the auditor will report if there are any pending tax liabilities by the taxpayer. This ensures that there is complete transparency and no discrepancies in the tax filing later on.

Step 5: Submitting the GST Audit and Annual Returns

After the CA certifies the accuracy of the GST audit, you can submit the GST returns. Meanwhile, you can wait for another CA to review the GST audits before submission.

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How to Be Ready for a GST Audit?

Following are some ways in which taxpayers can prepare themselves for GST audit:

• First, you will need to bring extra data along with the required documents to allow the auditors to scrutinize everything properly.
• You must be ready to pay 24% interest on that extra Input Tax Credit (ITC). In addition, the auditor will check the returns of your venture to see if you are eligible for the same.
• Check the accurate format available under GST to submit invoice information.
• You might need to make adjustments in case the auditor observes gaps when auditing your financial statements.
• Note that there might be some revised ITCs if you are unable to pay the amount within 180 days.
• You might have to remodel your business structure if during the audit the auditor finds it somewhat different from the one that you have mentioned.
• There must be a gap of 180 days or less between the invoices and the payment dates.
• You will have to address issues arising when comparing the E-way bills with the available invoices.
• You will have a window of up to 24 hours to resolve any anomalies arising between E-way bills and invoices.
• The payment amount and the invoice generated must be the same. Otherwise, the amount which is falling short will be deducted from your Input Tax Credit.
• You will have to pay a penalty in case of transporting your goods without an E-way bill.

Conclusion

Some of the common errors observed when filing GST include incorrect tax payments, wrong classification of goods and services, discrepancies in payment of taxes and so on. Hence, the different types of audits under GST ensure that you stay compliant with the laws of GST, helping you avoid penalties or punishments.

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