GSTTaxation

How Does an Audit Work Under the GST Regime?

An audit involves the examination of financial records and documents maintained by an individual or company. To stay in accordance with the GST laws in India, such companies must have their accounts audited by competent chartered or cost accountants.An audit involves the examination of financial records and documents maintained by an individual or company. To stay in accordance with the GST laws in India, such companies must have their accounts audited by competent chartered or cost accountants.

The purpose of a GST audit is to verify the accuracy of a professional’s reported turnover, taxes paid, and input tax credit claimed. Previously, all businesses with an annual turnover of more than 2 crores had to file financial audit reports. Finance Bill 2021, however, repealed this requirement, and a mandatory audit is no longer necessary.

What Is an Audit Under GST?

As per Section 2(13) of the CGST Act, 2017, an audit is an examination of records and other documents maintained or furnished by a person or entity registered under this act or any other corresponding law in force. These include any regulations that help verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed. Therefore, such audits help assess the registered individual’s compliance with the provisions of this act or the rules made thereunder.

While mandatory auditing is no longer required, there are other types of audits under GST.

Can Tax Authorities Conduct GST Audits?

The GST regime entrusts business owners with the responsibility and accountability for maintaining tax compliance through self-assessment. However, to ensure businesses stay compliant, the system has various audit mechanisms in place. In certain cases, the assistant commissioner can ask a nominated chartered or cost accountant to perform an audit. In most cases, tax authorities request such an audit when they suspect a company has failed to report its profits or credit in a timely manner. Such special audits allow tax authorities to leverage the assistance of tax professionals in determining a company’s liability.

As per Section 65 of the CGST Act of 2017, the commissioner or any officer authorized by him through an order may undertake an audit of any registered person. The period and manner of the audit are determined by the authorities’ general or special order. These orders empower officers to perform audits at a registered person’s place of business or workplace. Individuals will be notified about such audits through a notification at least fifteen days before the start of the proceedings. During this audit, business owners must provide all necessary facilities to the authorities, including access to books of accounts and other records. Normally, such audits take three months to complete. However, if required, the Commissioner can extend it to six months by presenting a reason in writing.

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The registered person must provide the authorised officers access to their place of business to verify their financial documents. Additionally, businesses will have to make all their financial statements and books of accounts ready for inspection. During the audit, the officer will go through these financial documents and records to ensure they comply with the prescribed guidelines. They will also verify the correctness of the income, exemptions, refunds and deductions claimed, along with ITC availed and liabilities paid. If they find discrepancies, the officers will intimate the registered person and file the audit report within 30 days of its conclusion. If the registered person fails to take corrective action as per the notice, the authorities will initiate proceedings as per Section 73 and Section 74. 

GST Audits: What You Need to Know

  1. The audit must be done within three months from the date of commencement, in most cases. If the commissioner is satisfied that an audit cannot be completed within three months, he or she may, for reasons to be recorded in writing, extend the period by up to an additional six months
  2. The commencement of an audit refers to the date on which the registered individual makes available the required records and other documents or the actual institution of audit at the place of business, whichever is later
  3. During the audit, the authorized officer may require the registered person to provide the necessary facility to verify the book of accounts or other documents as required. Additionally, they may also require individuals to furnish information and render assistance for the timely completion of the audit
  4. After the audit, the officer shall inform the individual of the following details within 30 days:
  • Rights and obligations of the individual
  • If the audit results in a deduction of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed
  • As per Section 73 of CGST Act 2017, it will be determined whether the default was utilised for any reason other than fraud, willful misstatement or suppression of facts.

When Does an Officer Order a GST Audit?

If at any stage of scrutiny, any officer not below the rank of assistant commissioner suspects foul play, they may take the prior approval of the Commissioner and ask for an audit. In such cases, the office will direct the person in writing to get their records audit by a chartered accountant by the Commissioner. The nominated chartered or cost accountant will submit an audit report within 90 days to the Assistant Commissioner and mention all defaults. If the registered individual or nominated accountant asks for an extension, the Assistant Commissioner may grant an additional 90 days to complete the auditing.

The registered person will receive an opportunity to state their side of things regarding any material gathered during the special audit which may be used against them. Additionally, the expenses of such an examination and audit; including the remuneration of chartered accountants is the responsibility of the Commissioner. If such audits result in the detection of tax default, the proper officer will initiate action under Section 73 or Section 74.

How Can We Assist You?

All business owners need to be wary of the Goods and Services Tax to maintain compliance and remain on the right side of the law. Vakilsearch offers various GST-related services, including computation of liability and filing of GST returns. We also offer a GST rate finder service that lists out the GST rates of all goods and services available in India. 

An audit under GST needs to follow distinct norms and guidelines and must take only three months. Hence, business owners and individuals should reach out to legal experts to ensure they maintain compliance at all times. To receive further help regarding audits, reach out to us and schedule an appointment with our representative at the earliest!

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