Audit Under GST – Types, Applicability and Process

Audit Under GST – Types, Applicability and Process. A GST audit ensures that taxpayers registered under the Goods and Services Tax (GST) are complying with all GST-related rules and obligations. As part of this self-assessment taxation system, businesses are required to evaluate their tax liabilities, pay applicable taxes, and file returns. Post these filings, a GST audit may be conducted either by a government-appointed auditor or through a self-audit for entities with an annual turnover exceeding Rs.5 crores. Adhering to GST regulations is essential to avoid penalties or fines.
Who Needs a GST Audit?
As per the GST Act, 2017, all registered taxpayers in India with an annual turnover of more than Rs.5 crores are required to undergo a GST audit. The audit must be conducted by an authorized professional, such as a Chartered Accountant (CA) or Cost Management Accountant (CMA).
Types of GST Audits
1. Turnover-based Audit (Section 35(5)):
-Mandatory for businesses with an annual turnover exceeding Rs.2 crore.
-Conducted by a Chartered Accountant (CA) or Cost Accountant (CMA).
-Requires submission of GSTR-9C, including an audit report and reconciliation statement.
2. General Audit (Section 65):
-Conducted by GST authorities to ensure compliance.
-Taxpayers receive prior notification at least 15 days before the audit.
-Covers all relevant records, returns, and documents.\
3. Special Audit (Section 66):
-Initiated if discrepancies are suspected in the taxpayer’s filings.
-Conducted by a CA or CMA appointed by the commissioner upon approval from a Deputy or Assistant Commissioner. 
Thresholds for Various GST Registrations
-Goods: Rs.40 lakhs for most states; Rs.20 lakhs for special category states.
-Services: Rs.20 lakhs for most states.
-Export Services: No threshold; compliance is mandatory.
-Composition Scheme: Limits up to Rs.1.5 crore. 
Step-by-Step GST Audit Process
1. Notification of Audit:
-Tax authorities notify the taxpayer at least 15 days before the audit using Form GST ADT-01.
2. Submission of Documents:
-Key submissions include GSTR-9, GSTR-9C, financial records, invoices, e-way bills, and e-invoices.
3. Audit Execution:
-Inspect books of accounts.
-Verify GST compliance, including input tax credits and taxes paid.
-Conduct interviews for clarification of discrepancies.
4. Audit Report:
-Summarizes findings, highlights discrepancies, and recommends corrective actions.
-May specify penalties for non-compliance. 
Essential Documents for GST Audit
1. GST Returns:
-GSTR-1: Outward supplies details.
-GSTR-3B: Monthly/quarterly tax summary.
-GSTR-9: Annual summary of GST transactions.
-GSTR-9C: Reconciliation and audit report.
2. Financial Records:
-Profit and loss statements.
-Balance sheets.
3. Invoices and Purchase Records:
-Sales and purchase records for transaction verification.
4. Additional Documentation:
-Stock registers, e-way bills, and e-invoices. 
Applicability for GST Audit and Turnover Limits for FY 2023-24
Under Section 35(5) of the CGST Act, a GST audit is mandatory for any registered taxpayer whose total turnover in a financial year exceeds Rs.5 crores. Such taxpayers are required to submit a reconciliation statement certified in Form GSTR-9C along with their GSTR-9C filing. Filing of Form GSTR-9 is mandatory for turnovers above Rs.2 crores, while Form GSTR-9C is required for turnovers exceeding Rs.5 crores. Taxpayers with an annual turnover of up to Rs.2 crores are exempt from filing Form GSTR-9 as per the exemption provided by the Central Board of Indirect Taxes and Customs (CBIC).
Calculating Aggregate Turnover
1. Formula: Aggregate Turnover = Taxable supplies + Exempt supplies + Export supplies + Inter-state supplies − Reverse charge inward supplies
2. Key components:
-Taxable Supplies: Subject to GST.
-Exempt Supplies: Excluded from GST.
-Export Supplies: Goods/services sent outside India.
3. Inter-state Supplies: Transactions across states. 
Threshold Limits for Different Types of GST Registrations
The GST Registration threshold varies based on the nature of goods or services provided:
-For Goods: Rs.40 lakhs in normal category states, and Rs.20 lakhs in special category states.
-For Domestic Services: A uniform threshold of Rs.20 lakhs applies across most states.
-For Export Services: No threshold limit is applicable; all exporters must register under GST irrespective of turnover.
-Under the GST Composition Scheme: The turnover limit is generally capped at Rs.1.5 crores for businesses availing of this scheme. 
Penalty for Non-Compliance with GST Audit
The GST Act mandates the submission of annual returns and audit reports by December 31 of the subsequent fiscal year. Although no specific penalties are outlined for non-compliance, a general penalty of Rs.25,000 applies in such cases.
Conclusion
GST audits play an important role in ensuring that businesses comply with GST regulations. By being aware of their responsibilities, understanding the audit process, and focusing on critical aspects, businesses can effectively prepare for audits and reduce the chances of non-compliance. Maintaining accurate records, adhering to GST rules, and consulting professionals when necessary are key to successfully managing the GST audit process.
FAQs
Q1: What is a GST audit, and why is it conducted?
A1: A GST audit is a process to ensure that taxpayers comply with the rules and obligations under the Goods and Services Tax (GST) system. It involves examining records to confirm accurate tax liability determination, timely tax payment, and proper return filing. It helps detect discrepancies, ensuring adherence to GST regulations and avoiding penalties.
Q2: Who is required to undergo a GST audit as per the GST Act, 2017?
A2: All taxpayers registered under GST with an annual turnover exceeding Rs.5 crores are mandated to undergo a GST audit. This audit must be conducted by an authorized professional, such as a Chartered Accountant (CA) or Cost Management Accountant (CMA).
Q3: What is the threshold turnover limit for a GST audit?
A3: The three-true turnover limit for a GST audit is Rs.5 crores. Registered taxpayers exceeding this annual turnover must get their books audited by an authorized professional.
Q4: What is a special GST audit, and when is it required?
A4: A special GST audit is initiated during any inquiry, investigation, or proceedings when the tax authorities find the case complex. In such instances, they direct the taxpayer to have their records examined by a nominated Chartered Accountant (CA) or Cost Accountant.
Q5: Who conducts a GST audit for taxpayers?
A5: A GST audit is conducted either by a government-appointed auditor or an authorized professional such as a Chartered Accountant (CA), Cost Accountant (CMA), or Certified Management Accountant, depending on the nature of the audit.
Q6: What happens if a taxpayer fails to comply with GST audit requirements?
A6: Non-compliance with GST audit requirements can lead to penalties, fines, or additional scrutiny from the tax authorities. It is crucial for taxpayers to adhere to the regulations to avoid such consequences.

A GST audit ensures that taxpayers registered under the Goods and Services Tax (GST) are complying with all GST-related rules and obligations. As part of this self-assessment taxation system, businesses are required to evaluate their tax liabilities, pay applicable taxes, and file returns. Post these filings, a GST audit may be conducted either by a government-appointed auditor or through a self-audit for entities with an annual turnover exceeding Rs.5 crores. Adhering to GST regulations is essential to avoid penalties or fines.

Who Needs a GST Audit?

As per the GST Act, 2017, all registered taxpayers in India with an annual turnover of more than Rs.5 crores are required to undergo a GST audit. The audit must be conducted by an authorized professional, such as a Chartered Accountant (CA) or Cost Management Accountant (CMA).

Types of GST Audits

1. Turnover-based Audit (Section 35(5)):

-Mandatory for businesses with an annual turnover exceeding Rs.2 crore.

-Conducted by a Chartered Accountant (CA) or Cost Accountant (CMA).

-Requires submission of GSTR-9C, including an audit report and reconciliation statement.

2. General Audit (Section 65):

-Conducted by GST authorities to ensure compliance.

-Taxpayers receive prior notification at least 15 days before the audit.

-Covers all relevant records, returns, and documents.\

3. Special Audit (Section 66):

-Initiated if discrepancies are suspected in the taxpayer’s filings.

-Conducted by a CA or CMA appointed by the commissioner upon approval from a Deputy or Assistant Commissioner.

Thresholds for Various GST Registrations

-Goods: Rs.40 lakhs for most states; Rs.20 lakhs for special category states.

-Services: Rs.20 lakhs for most states.

-Export Services: No threshold; compliance is mandatory.

-Composition Scheme: Limits up to Rs.1.5 crore.

Step-by-Step GST Audit Process

1. Notification of Audit:

-Tax authorities notify the taxpayer at least 15 days before the audit using Form GST ADT-01.

2. Submission of Documents:

-Key submissions include GSTR-9, GSTR-9C, financial records, invoices, e-way bills, and e-invoices.

3. Audit Execution:

-Inspect books of accounts.

-Verify GST compliance, including input tax credits and taxes paid.

-Conduct interviews for clarification of discrepancies.

4. Audit Report:

-Summarizes findings, highlights discrepancies, and recommends corrective actions.

-May specify penalties for non-compliance.

Essential Documents for GST Audit

1. GST Returns:

-GSTR-1: Outward supplies details.

-GSTR-3B: Monthly/quarterly tax summary.

-GSTR-9: Annual summary of GST transactions.

-GSTR-9C: Reconciliation and audit report.

2. Financial Records:

-Profit and loss statements.

-Balance sheets.

3. Invoices and Purchase Records:

-Sales and purchase records for transaction verification.

4. Additional Documentation:

-Stock registers, e-way bills, and e-invoices.

Applicability for GST Audit and Turnover Limits for FY 2023-24

Under Section 35(5) of the CGST Act, a GST audit is mandatory for any registered taxpayer whose total turnover in a financial year exceeds Rs.5 crores. Such taxpayers are required to submit a reconciliation statement certified in Form GSTR-9C along with their GSTR-9C filing. Filing of Form GSTR-9 is mandatory for turnovers above Rs.2 crores, while Form GSTR-9C is required for turnovers exceeding Rs.5 crores. Taxpayers with an annual turnover of up to Rs.2 crores are exempt from filing Form GSTR-9 as per the exemption provided by the Central Board of Indirect Taxes and Customs (CBIC).

Calculating Aggregate Turnover

1. Formula: Aggregate Turnover = Taxable supplies + Exempt supplies + Export supplies + Inter-state supplies − Reverse charge inward supplies

2. Key components:

-Taxable Supplies: Subject to GST.

-Exempt Supplies: Excluded from GST.

-Export Supplies: Goods/services sent outside India.

3. Inter-state Supplies: Transactions across states.

Threshold Limits for Different Types of GST Registrations

The GST Registration threshold varies based on the nature of goods or services provided:

-For Goods: Rs.40 lakhs in normal category states, and Rs.20 lakhs in special category states.

-For Domestic Services: A uniform threshold of Rs.20 lakhs applies across most states.

-For Export Services: No threshold limit is applicable; all exporters must register under GST irrespective of turnover.

-Under the GST Composition Scheme: The turnover limit is generally capped at Rs.1.5 crores for businesses availing of this scheme.

Penalty for Non-Compliance with GST Audit

The GST Act mandates the submission of annual returns and audit reports by December 31 of the subsequent fiscal year. Although no specific penalties are outlined for non-compliance, a general penalty of Rs.25,000 applies in such cases.

Conclusion

GST audits play an important role in ensuring that businesses comply with GST regulations. By being aware of their responsibilities, understanding the audit process, and focusing on critical aspects, businesses can effectively prepare for audits and reduce the chances of non-compliance. Maintaining accurate records, adhering to GST rules, and consulting professionals when necessary are key to successfully managing the GST audit process.

FAQs

Q1: What is a GST audit, and why is it conducted?

A1: A GST audit is a process to ensure that taxpayers comply with the rules and obligations under the Goods and Services Tax (GST) system. It involves examining records to confirm accurate tax liability determination, timely tax payment, and proper return filing. It helps detect discrepancies, ensuring adherence to GST regulations and avoiding penalties.

Q2: Who is required to undergo a GST audit as per the GST Act, 2017?

A2: All taxpayers registered under GST with an annual turnover exceeding Rs.5 crores are mandated to undergo a GST audit. This audit must be conducted by an authorized professional, such as a Chartered Accountant (CA) or Cost Management Accountant (CMA).

Q3: What is the threshold turnover limit for a GST audit?

A3: The three-true turnover limit for a GST audit is Rs.5 crores. Registered taxpayers exceeding this annual turnover must get their books audited by an authorized professional.

Q4: What is a special GST audit, and when is it required?

A4: A special GST audit is initiated during any inquiry, investigation, or proceedings when the tax authorities find the case complex. In such instances, they direct the taxpayer to have their records examined by a nominated Chartered Accountant (CA) or Cost Accountant.

Q5: Who conducts a GST audit for taxpayers?

A5: A GST audit is conducted either by a government-appointed auditor or an authorized professional such as a Chartered Accountant (CA), Cost Accountant (CMA), or Certified Management Accountant, depending on the nature of the audit.

Q6: What happens if a taxpayer fails to comply with GST audit requirements?

A6: Non-compliance with GST audit requirements can lead to penalties, fines, or additional scrutiny from the tax authorities. It is crucial for taxpayers to adhere to the regulations to avoid such consequences.