GST Audit Applicability in India

A GST audit is a critical process under India’s Goods and Services Tax regime, designed to ensure that registered taxpayers are accurately reporting their turnover, paying the correct amount of tax, and complying with all GST provisions. The audit involves a thorough examination of a taxpayer’s records, returns, and supporting documents to verify the correctness of reported figures, input tax credits claimed, and refunds received. GST audits help promote transparency, detect discrepancies, and maintain the integrity of the tax system. Let’s explore GST audit and its applicability in detail in this article. 

What is GST Audit?

A GST audit is the systematic review and verification of a taxpayer’s financial records, GST returns, and related documents to confirm compliance with GST laws. The primary objective is to ensure that the turnover declared, taxes paid, refunds claimed, and input tax credits availed are correct and in line with statutory requirements. The audit may be conducted by the taxpayer (self-certification) or by tax authorities in specific cases.

Types of GST Audits

Under the GST framework, audits are conducted to ensure that taxpayers are complying with the provisions of the law. There are three main types of GST audits, each with different initiation conditions and authorities involved:

1. Turnover-Based Audit

• Performed By: Chartered Accountant (CA) or Cost Accountant (CMA) appointed by the taxpayer.

• When Initiated: This audit was required if a taxpayer’s aggregate turnover exceeded ?2 crore in a financial year, as per the CGST Act.

• Note: The requirement to get accounts audited by a CA/CMA was removed starting from the financial year 2021–22 through the Finance Act, 2021. CBIC notified this change via Notification No. 29/2021 – Central Tax dated 30th July 2021. For businesses with turnover below ?5 crore, the filing of GSTR-9C was already waived for FY 2019–20.

2. Normal Audit (General Audit)

• Performed By: Commissioner of CGST/SGST or an officer authorized by the Commissioner.

• When Initiated: Initiated by the Commissioner through a formal order, with at least 15 days’ prior notice to the taxpayer.

3. Special Audit

• Performed By: Chartered Accountant or Cost Accountant nominated by the Commissioner.

• When Initiated: Ordered by the Deputy or Assistant Commissioner during scrutiny or investigation, but only with prior approval of the Commissioner. This audit is typically triggered when there’s a suspicion of incorrect valuation, excessive credit claims, or complex cases requiring expert analysis.

Applicability of GST Audit

Below, we have given the list of individuals and entities that fall under the GST audit applicability:

• Registered taxpayers whose aggregate turnover exceeds the prescribed threshold in a financial year.

• Taxpayers selected by GST authorities for audit based on risk parameters or random selection.

• Entities where discrepancies or inconsistencies are detected in returns or records.

Thresholds for GST Audit

The main thresholds for GST audit are:

• Taxpayers with annual aggregate turnover exceeding Rs. 5 crore must submit a self-certified reconciliation statement in Form GSTR-9C, along with the annual return (GSTR-9).

• The earlier statutory audit requirement by a CA/CMA for turnover above Rs.  2 crore was removed from August 2021; now, only self-certification is mandated.

• Departmental or special audits may be ordered by authorities irrespective of turnover, based on specific circumstances.

Aggregate Turnover Calculation for GST Audit

Aggregate turnover is a key criterion for determining the applicability of GST audit. It includes the total value of all supplies made by a taxpayer on a PAN India basis, irrespective of the state in which the business is registered.

Formula:

Aggregate Turnover = Value of all taxable supplies (both inter-state and intra-state) + exempted supplies + exported supplies of all goods and services

Note: Aggregate turnover is calculated on an all-India basis for a PAN, not per GSTIN. If the combined turnover of all business entities under a single PAN exceeds Rs. 2 crore in a financial year, a GST audit was applicable for that year (prior to 1st April 2021).

Items Included in Aggregate Turnover:

• All taxable supplies (excluding those under reverse charge).

• Supplies between distinct persons (i.e., different business verticals under the same PAN).

• Goods supplied to or received from job workers on a principal-to-principal basis.

• Export and zero-rated supplies.

• Supplies made by agents/job workers on behalf of the principal.

• Exempt supplies, including agricultural produce and specific food items.

• Non-GST taxes like entertainment tax, where applicable.

Items Excluded from Aggregate Turnover:

• Inward supplies liable to reverse charge.

• GST taxes like CGST, SGST, IGST, and compensation cess.

• Goods returned to or received back from job workers.

• Activities listed in Schedule III of the CGST Act (e.g., services by an employee to employer, sale of land or completed buildings), as they are neither a supply of goods nor services.

Documentation and Forms Involved in GST Audit

Below, we have listed the documents and forms involved in the GST Audit:

• Audited financial statements or books of accounts.

• Annual return in Form GSTR-9 for each GSTIN.

• Self-certified reconciliation statement in Form GSTR-9C.

• Copies of GST returns, invoices, agreements, and supporting documents.

• Audit plan, engagement letter, and audit checklist.

• Written representations from management and details of tax paid, credit availed, and sales made.

• Working papers and audit evidence in electronic or physical form

Procedure for Conducting the GST Audit

The GST audit process typically involves these steps:

• Appointment or identification of auditor (self, CA/CMA, or GST officer).

• Preparation and submission of required documents, including financial statements and GST returns.

• Detailed examination of records, reconciliation of turnover, tax paid, ITC claimed, and refunds.

• Identification and communication of discrepancies or deficiencies to management.

• Preparation of audit report and reconciliation statement (Form GSTR-9C).

• Submission of audit findings and required forms on the GST portal.

• Follow-up actions, if any, based on audit observations.

Due Dates to Submit GST Audit

The due date for submitting the GST annual return (GSTR-9) and the self-certified reconciliation statement (GSTR-9C) is typically 31st December following the end of the relevant financial year. The government may extend this deadline through notifications, so taxpayers should check the latest updates each year.

Penalty for Non-Submission of GST Audit

Failure to submit the required GST audit documents and forms within the prescribed timeline can result in penalties and legal consequences. The taxpayer may be liable for a general penalty of up to ?25,000 under Section 125 of the CGST Act, and additional penalties or prosecution may apply in cases of fraud, misreporting, or deliberate non-compliance.

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