GST Audit: Applicability, Rules and Procedure

GST Audit Applicability Rules

GST Audit Applicability Rules and Procedures

The earlier indirect tax laws restricted audit by a chartered accountant to State VAT and Central State Tax laws of certain states. Likewise, Special Audit was suggested in the Central Excise and Service Tax. This took place only in cases where there was a doubt regarding undervaluation or excessive credit by the taxpayer.

These cases leading to audit by Chartered Accountants apply to the current GST law as well. Thus, the focus of the GST regime on self assessment brings along multiple challenges. These challenges in the new GST law makes taxpayers prone to errors. This further leads to unintentional drain of the government’s revenue.

So, the numerous compliances and the challenging tax laws in India make auditing of records necessary under various laws. GST too necessitates audit beyond certain turnover limits by tax professionals.

So let’s understand the meaning of GST audit, types of audit and persons who are required to get their accounts audited under GST.

Meaning of Audit

According to section 2(13) of CGST Act, the term “Audit” refers to the examination of:

  • Records, returns, and other documents kept or filed by the registered person under the Act
  • Rules or guidelines under GST or any other law for the time being in force

This examination is undertaken to check the correctness of the turnover mentioned, taxes paid, refund claimed and ITC availed. Further, this scrutiny is undertaken to evaluate the taxpayer’s compliance with the provisions of the Act.

GST Audit Applicability Rules Procedure

Persons Liable For GST

Registered persons with an aggregate turnover exceeding the prescribed GST audit limit of Rs 2 Crore during a financial year are liable for GST Audit. These persons must get their accounts audited by a Chartered Accountant or a Cost Accountant.

Now, the term Aggregate Turnover is defined in section 2(6) as “All India PAN based turnover for a particular financial year”. This includes:

  • Exports
  • Inter-State Supplies
  • Exempt Supplies
  • Stock Transfers etc.

The above supplies of transfers forming a part of the Aggregate Turnover are exclusive of GST and Compensation CESS.

Further, the turnover limit of Rs 2 Crore is same for the registered tax persons across all States and UTs. Thus, no separate turnover limit is defined for Special Category States for GST Audit. In addition to this, each State GST Act provides appropriate provisions regarding GST Audit. Therefore, the GST Audit is undertaken state-wise. Further, separate audit is undertaken for each of the unique registrations under the same PAN.

Types of Audit

GST law provides three types of audits that can be undertaken. These include:

GST Audit Under Section 35(5)

A registered person with an aggregate turnover exceeding the prescribed limit of Rs 2 Crore needs to get his accounts audited by a Chartered Accountant or a Cost Accountant. This registered person needs to furnish electronically:

  • Annual Return as per section 44 of the GST Act
  • Copy of Audited Statement of Accounts
  • Reconciliation Statement that reconciles the value of supplies furnished in the annual return with the audited financial statements. The annual return, audited annual accounts and the reconciliation statement in Form GSTR 9C shall be furnished by the registered taxpayer. Further, the term turnover mentioned above relates to “Aggregate Turnover” and not turnover in State. As defined in the previous section, “Aggregate Turnover” is calculated on all India basis having the same PAN. Say a registered person is liable to get the accounts audited under section 35 of the GST Act. Hence, each registration acquired under the same PAN would also be liable for GST Audit in this case.
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