Audit under GST

Last Update Date : July 08, 2019
Estimated Read Time: 7 min

audit under gst

As per section 2(13) of the CGST Act, 2017, “audit” is an examination of returns, records and other such documents furnished by you for verifying the correctness of taxes paid, Input Tax Credit (ITC) availed, refund claimed, turnover declared, and assessment  of your compliance under the provisions of this Act.

Types of GST Audit

There are three types of audit under GST:

  • Turnover based audit: If your turnover exceeds Rs 2 Crore in a given financial year, then you need to get your records, as well as accounts, audited every year by hiring either a chartered or cost accountant and submit a copy of it with your annual returns. It is the most common form of an audit.
  • Normal audit/Audit by tax authority: Under this, your audit is undertaken either by the Commissioner of CGST/SGST or any officer authorized by him with the frequency and manner of audit prescribed later.

15 days prior notice is given to you before initiating the audit and it is generally completed within 3 months from the date of start or extended to six months by the Commissioner with due reasons.

  • Special audit: This audit is conducted by a chartered accountant as per the instructions are given by the GST Officer who is not lower than the rank of Assistant Commissioner. If the officer finds out that you have not declared the values correctly or availed wrong input tax credit, then the special audit can be initiated.

GST Audit Preparation Requirements

The GST audit requires preparation both from the auditor as well as you. It requires:

  • Consideration of GST laws,
  • IT infrastructure,
  • Applicability of numerous circulars, notifications,
  • Classification of good and/ services,
  • Mentioning the nature of supplies,
  • The method through which input tax credit is availed,
  • Maintenance of documents and records specified.

Importance of an Internal Auditor

A show cause notice can be issued by GST authority to your business for compliance as per the GST norms. Therefore, an internal auditor is mandatory as he can bring relief to your business and run a check on the operating efficiency of internal financial controls, know about the main risk areas and implement required measures to mitigate those risks.

SIDE NOTE: The show cause notice is issued by the GST authority if they detect any fraudulent activities like availing excess ITC, suppression of facts, claimed the wrong refund, etc.

How to Prepare for Audit Under GST

The following steps require strict fulfilment to GST Audit and need to be taken both by the internal auditor and you.

  • Check your monthly or quarterly returns and identify if you have:
  • Claimed extra ITC for which you will have to pay interest at 24% on the excess tax amount, the auditor would need to reconcile the returns your organisation does not claim excess ITC
  • The auditor will recommend you to make amendments for any data gaps which he comes to know about
  • Checking invoice: You need to follow the rules related to details of the invoices otherwise if the format is different, the auditor might ask you to make changes of the invoices as per GST rules.
  • ITC Reversal for non-payment within 180 days: The auditor will check that
  • Difference between the date of invoice and payment does not exceed 180 days,
  • The payment amount is equal to the invoice amount including GST. Your ITC to the extent of short payment would get reversed if your payment amount is less than the amount of invoice plus GST
  • Evaluating the e-way bill and tallying with invoices: Any mismatch between the e-way bill can only be cancelled within 24 hours of generation as it cannot be edited or deleted. You can be fined for moving your goods without issuing an e-way bill or your goods can be withheld till you pay the tax or penalty.

The auditor needs to make sure that your business is complying with provisions of the e-way bill and suggest effective measures to avoid any legal complications.

  • The stocks/capital goods lying with job workers need to be received within one year/three years from the effective date.

Turnover Based Audit

You need to maintain values of the following in order to comply with GST Rules for turnover based audit in case your annual turnover exceeds Rs 2 Crore.

  • The production or manufacture of goods
  • Inward supply of goods or services or both
  • Outward supply of good or services or both
  • Stock of goods
  • Input tax credit availed
  • Output tax payable or already been paid
  • Books of accounts

Consequences of Not Getting Turnover Based GST Audit Done

There is no specific law which deals with not getting your accounts audited by a Chartered Accountant. Therefore, as per section 125 of CGST Act,2017 you are subjected to a penalty up to Rs 25,000.

Audit undertaken by a tax authority

Your audit can be conducted by the Commissioner of CGST/SGST (or an officer authorized by him) in frequency and manner as prescribed. The officer will audit the following:

  • ITC availed and used
  • Refund claimed
  • Rate of tax applied with respect to the supply of good and services
  • Correctness of turnover
  • The basis on which the documents were maintained and returns were filed as per the GST audit rules

Your obligations:

  • Provide assistance and necessary information
  • Provide required facility to validate books of accounts/ other documents required

Findings

Within 30 days of the audit the officer will inform you about:

  • Findings
  • Reason for the findings
  • Your obligations and rights

SIDE NOTE: If there is a detection of any unpaid/ short paid tax, wrong input tax credit, wrong refund, then a demand and recovery action will be initiated.

Special Audit

A special audit can be initiated by the Assistant Commissioner considering the complexity and nature of the instance and interest of revenue. If he finds out that during any step of investigation/ scrutiny/ inquiry that the figures have been declared incorrectly or you have availed wrong credit, then a special audit may be initiated.

Who Will Conduct the Special Audit?

The Assistant Commissioner can order for special audit (in writing) and is carried out by a chartered/ cost accountant who is nominated by the Commissioner.

Time Period for Special Audit

The auditor is required to submit the report in 90 days which can further be extended by the officer for another 90 days by an application made either by you or the auditor.

Expenses

The Commissioner will determine and pay the expenses for the examination and audit which will include auditor’s fee.

Findings

You will have an opportunity to be heard in respect of any material collected as per the basis of the special audit. If there is any unpaid/ short paid tax detected, wrong refund or ITC claimed, then a recovery and demand action will be initiated.

Rectification of Returns After GST Audit

If you discover that there are any details which are incorrect or omitted in the returns you furnished, you can rectify it subject to payment of interest. However, there will be no rectification allowed after filing a return for the second quarter or the month of September following the financial year end or the actual filing date of the annual return, whichever is earlier.

Example: You find out during the audit that you made an error in return of December 2017 and submitted the annual return on 31st August 2018 for FY 2017-18 with the audited accounts.

You can now rectify that error by:

20 October 2018 (Last due date for filing September return)

Or

31 August 2018 (the actual date of filing of relevant annual return)

Whichever comes earlier.

In this case, it is on 31 August 2018

SIDE NOTE: You cannot rectify results from scrutiny or an audit done by tax authorities.

 

GST audit is mandatory for your business having a turnover above Rs 2 Crore and the next step to take after getting the audit done is to file the GSTR-9C form which is a reconciliation statement before the due date.

Differences Between Departmental Audit (u/s 65) and Special Audit (u/s 66)

Components Section 65 Section 66
Nature of Audit In this section, we have a departmental audit In this section, we have a special audit
Conducted by It is conducted by officers of the department authorised by the commissioner It is conducted by Chartered accountant/cost accountant nominated by the commissioner
Prior Notice Prior notice of 15 days is required o such notice/intimation is required
Time for the conclusion of the audit The conclusion of the audit is given in 3 months, further extension of 6 months is allowed The conclusion of the audit is given in 90 days, further extension of 90 days is allowed
Audit Findings/Report Audit reports should be intimated soon upon completion of the audit Audit reports should be shown to deputy/assistant commissioner
The opportunity of being heard No specific provision Yes, where material gathered during the audit is to be used in any proceedings against the auditee
Action based on a report Yes, under section 73 by the issuance of SCN (Show Cause Notice) Yes, under section 73 by the issuance of SCN (Show Cause Notice)

Audit Challenges under GST

GST law has taken care of the strong audit mechanism, but some ambiguity is still unanswered:

  1. The assesses having multiple states should have a centralised audit or should undergo multiple audits, no clarity over the procedure.
  2. Manual audit should be conducted or e-audit.
  3. Taxable persons, the frequency at which audit should be conducted is not specified.
  4. Is the response to be submitted manually or electronically?

How can H&R Block Help you?

Saving taxes and e-filing of income tax return accurately is the very next step to take once one gets detailed knowledge of their salary slip.  This is where we come into the picture. You can either use our intuitive tax filing platform to easily file your tax return or let our tax experts file it for you. At H&R Block we have a team of in-house tax experts who can file your income tax returns accurately while giving you maximum tax benefits.

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CA Chetan Shinde
CA Chetan Shinde
Chetan is the Lead Tax Advisor at H&R Block (India) with an experience of almost half a decade in audit and taxation. His professional areas of interest are GST advisory and statutory audit. Apart from taxation, he is passionate about social causes and works extensively towards rural school development and literacy.