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GST audit process

GST audit or Audit, as defined under section 2(13) of the Central Goods and Services Tax Act, simply means an examination of returns; records; and relevant other documents.

There are following two types of audits under GST-

Type of GST audit

Governing section

Remarks

Audit based on threshold limit (popularly known as GST audit)

Section 35(5) of the CGST Act

The registered person having an aggregate turnover above INR 2 Crores requires to get their accounts audited by the professionals.

Please note the provisions are amended vide Budget 2021.

Departmental audit

Section 65 – General audit

Based on the order of the Commissioner, the audit will be conducted by the tax authorities.

Departmental audit

Section 66 – Special audit

Based on the order of the Deputy/ Assistant Commissioner, the audit will be conducted by the CA/ CMA nominated by the Commissioner.

In the present article, we will be discussing only about the audit based on threshold limit (i.e., GST audit) and amendments to the same done vide the Finance Act, 2021.

Interestingly, audit provisions under GST (i.e., audit based on threshold limit) has undergone a wide variation, notably in favour of the taxpayer, with the enactment of the Finance Act, 2021.

The present article covers the complete details and explanation of budget changes with regard to GST audit based on the threshold limit.

Provisions governing GST audit prior to Budget, 2021

audit under GST
The following three provisions of the Central Goods and Services Tax Act, 2017 and rules made thereunder, covers the entire situation of GST audit-
  • Section 35(5) of the CGST Act;
  • Section 44(2) of the CGST Act; and
  • Rule 80(3) of the CGST Rules.

Combine reading of all the above three provisions results into the following outcome-

  • GST audit is applicable to the registered person having an aggregate turnover above INR 2 Crores [rule 80(3)];
  • Such registered persons are required to get their accounts audited by either the Chartered Accountant or the Cost Accountant [section 35(5)]; and
  • While filing the GST annual return, as per section 44(2), such specified registered persons are required to submit the following-
    • Copy of audited annual accounts; and
    • Reconciliation statement in Form GSTR-9C duly certified by the Chartered Accountant or the Cost Accountant.

It is important to note that the above provisions are completely amended with the enactment of Budget 2021.

Amendments in GST audit provisions vide Finance Act, 2021

audit under GST

With regard to the GST audit, vide the Finance Act, 2021, two major amendments are undertaken in the Central Goods and Services Tax Act, 2017.

Both the budget amendments are highlighted hereunder-

  1. Omission of sub-section (5) to section 35; and
  2. Substitution of section 44.

Importantly, both the above amendments will come into force from the date yet to be notified by the Government.

Impact of Budget 2021 amendments on GST audit

gst audit procedure

With the introduction of the above two amendments, the entire GST audit requirements are turned upside-down. Let us understand how-

Effect of omission of sub-section (5) to section 35

With the deletion of section 35(5), the requirement of getting the books of accounts audited by the professionals (i.e. either Chartered Accountant or Cost Accountant) is completely scrapped.

In nut-shell, once the amendment comes into force, the registered person is no more required to get their GST accounts audited by the professionals.

The outcome of substitution of section 44

As per newly substituted section 44, every registered person is required to-

  • Furnish an annual return;
  • Documents to be submitted with an annual return are-
    • A self-certified reconciliation statement; and
    • Audited annual financial statement.

Following categories of registered person are not required to file an annual return under section 44-

  1. An Input Service Distributor;
  2. A non-resident taxable person;
  3. A casual taxable person;
  4. The person deducting tax at source (section 51); and
  5. The person collecting tax at source (section 52).

Additionally, the provisions of section 44 will not apply to any of the department of Central or State Government or local authority. Provided the books of accounts of such departments are audited by the Comptroller and Auditor General of India or an appointed auditor.

In short, the newly substituted provisions of section 44 has removed the mandatory requirement of furnishing a reconciliation statement duly certified by the Chartered Accountant or a Cost Accountant.

Probable reasons behind the removal of GST audit

As seen above, Budget 2021 removes the requirement of getting a GST audit as well as the reconciliation statement done/ certified by the professional. Hence, it is important to understand the reason behind such removal.

We can summarize the following probable reasons for removal of GST audit as per minutes of one of the GST council meeting-

Receipt of a lot of negative feedback with regard to the filing of an GST annual return and reconciliation statement for the Financial Year 2017-2018.

Continuous extension of due date for filing of an annual return and reconciliation statement for the Financial Year 2017-2018. Notably, the same was extended seven times.

Increase in cost of compliance for smaller taxpayers as filing of reconciliation statement required certification from the Chartered Accountant or a Cost Accountant.

Finally, and majorly, the collection of additional revenue based on the Auditor’s recommendation (Form GSTR-9C) is relatively very low.

Takeaways-

Following are the important summary of the entire article-
  1. Mandatory requirement of getting books of accounts audited (i.e., GST audit) by the professional based on threshold limit is removed.
  2. The mandatory requirement of filing a reconciliation statement in Form GSTR-9C duly certified by the professional is also removed.
  3. Now, for every financial year, the normal registered person will have to-
    1. Furnish an annual return;
    2. Submit a self-certified reconciliation statement; and
    3. Submit the audited annual financial statement.

About the author

Poonam Gandhi is a Chartered Accountant and a Lawyer. She is a Professional Freelance Content Writer/ Editor and an Educator.She masters in creating result-oriented as well as Search Engine Oriented Content. Currently, she is associated with some of the topmost leading sites of India.She holds more than 3 years of experience in the content field. Before entering the content writing field, she possessed a wide practice experience of more than 9 years, specifically, in the field of Indirect Taxation.

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