A well-prepared GST Audit Checklist acts as a road map, directing firms through the many requirements, documentation, and procedures involved in a GST audit. This post will describe the GST Audit Program in detail and provide valuable insights to help you streamline your audit preparations.
The GST audit procedure is integral to compliance for firms operating in India. As a taxpayer, you must maintain accurate financial records and follow GST laws and regulations.
The checklist is a detailed guide covering all the essential topics to be checked during an audit. It covers various issues, including financial records, input tax credit compliance, tax liability reconciliation, paperwork requirements, and GST rules and regulations.
What is GST Compliance?
The products and services tax (GST) is a uniform, destination-based tax applied to products and services purchased in an economy. As proposed by the Central Government, GST is a single, uniform indirect tax that will regard India as a single market. Compliance with GST Law has been a significant issue for corporate organizations since its beginning on July 1st, 2017.
GST needs a more broad blending of tax domain knowledge, skills, and technology as compliance has grown, become paperless, and data-driven, with sector-specific characteristics. The digitization has also generated a new paradigm for tax administration and compliance.
The GST Council has established guidelines for how we must maintain records, generate invoices, report our purchases and sales, and, ultimately, pay our taxes and file returns. GST compliance is defined simply as adhering to these laws and regulations.
Non-compliance can have severe consequences for a corporation. The legislation also prescribes stricter corrective measures in the event of errors that result in underpayment of taxes or inaccurate credit use.
The GST compliance rating is a score assigned by the government to a firm so that other businesses may determine how compliant it is with the tax department.
The new GST regime has introduced compliance instructions, which require firms to remain compliant. All firms must follow the GST compliance regulations established by the government. These compliance regulations can be divided into three categories:
- Registration compliance
- Tax Invoice compliance
- Return filing compliance
Additionally, compliance requirements vary depending on the type of firm.
GST Registration Compliance:
The registration of GST is the initial step towards compliance. The registration can be done online at www.gst.gov.in. GST Registration must be based on a company’s annual turnover.
- This applies to enterprises that supply items and have a revenue of more than ₹40 lakh in the previous fiscal year.
- This applies to enterprises that supply services and had a turnover of more than ₹20 lakhs in the previous fiscal year.
- Businesses with an annual turnover of more than a certain amount are required to register for GST and meet other GST compliance criteria. The CBIC (Central Board of Indirect Taxes and Customs) has imposed severe fines for non-compliance with GST registration.
Tax Invoice Compliance:
Businesses registered for GST must adhere to invoicing compliance to pass on the input tax credit. As part of their everyday business responsibilities, organizations must generate a proforma invoice for every sale of goods or services. These invoices must meet compliance guidelines and include the following necessary items:
- Invoice Number and Date
- Customer Name
- Shipping and billing addresses.
- Customers and taxpayers? GSTIN
- Place of supply: HSN code (Harmonized System of Nomenclature) or SAC code (Services Accounting Code).
- Item details: description, amount, unit, and total value.
- Taxable Value and Discounts
- Rate and quantity of taxes
- Signature of the Supplier
To meet invoicing compliance regulations, all items must be specified on the GST invoice. Non-compliance with GST invoicing would result in a penalty of up to Rs. 10,000 or 100% of the tax payable (whichever is greater) for failing to issue an invoice and Rs. 25,000 for inaccurate invoicing.
GST Return Compliance:
All registered enterprises must file returns on a monthly, quarterly, and yearly basis. The frequency of returns is mainly determined by the sort of economic activity. GST returns must be filed electronically at the Returns section of the GST website. The following are the forms required to file GST returns:
- The GSTR-1 is a sales return filed with the government. There is no tax to pay after filing this return.
- GSTR-3B is a simplified return used to declare summary GST liabilities for a specific tax period. It must be self-declared monthly to provide summary information on all outward supplies made, input tax credit claimed, tax liability determined, and taxes paid. It is filed by all GST-registered taxpayers.
- GSTR-9 returns are filed annually by GST taxpayers with a turnover of more than Rs. 2 Crores in the fiscal year. They contain data on outward sales supplies made, inward purchase supplies received during the previous year under various tax headings, and details of taxes payable and paid. It is a compilation of all the monthly or quarterly returns (GSTR-1, GSTR-2A, and GSTR-3B) filed that year.
GST Compliance Checklist Requirements
Before beginning the GST Audit method, it is essential that you understand the concept of auditing and the GST compliance checklist that goes along with it.
Audit based on turnover
This type of GST audit is undertaken when the taxpayer’s total turnover surpasses five crore INR. It is worth noting that formerly, the taxpayer was obliged to hire a Chartered Accountant (CA) or Cost Accountant (CMA) to conduct the turnover-based audit.
However, this requirement is no longer in effect. Instead, a self-certified reconciliation statement reconciling the value of supplies stated in the Annual Return (GSTR-9) submitted for the fiscal year with the audited annual financial statement for each fiscal year shall be filed online using Form GSTR 9C.
General Audit
A general GST audit happens when the GST Commissioner conducts an audit by delivering a notification to the taxpayer, Form GST ADT-01, 15 working days before the audit. The audit is carried out by either the CGST/SGST Commissioner or an authorized representative chosen by the GST Commissioner.
Special Audit
A special GST audit is conducted on the order of the Deputy or Assistant Commissioner, with prior approval from the GST Commissioner. In this scenario, the GST Commissioner has the ability to designate a CA or CMA as needed to undertake the special audit.
Essential Document Checklist for GST Audit
Here is a list of the documents required from the taxpayer to begin the GST Audit using ADT-01. Please be aware that, depending on the nature of the firm, extra papers may be asked for the GST Audit:
- The Financial Statements and earnings and losses Account, along with their respective schedules.
- The trial balance for the applicable GSTIN.
- For both inward and outward supply of goods or services, output tax is payable and paid. Input Tax Credit (ITC) can be broken down by invoice or bill of entry.
- GST returns include GSTR-1, GSTR-3B, GSTR-2A/2B, GSTR-9, and GSTR-9C.
- Income Tax Audit Report, containing Forms 3CA, 3CD, and so on.
- Statutory auditors’ report
- Cost audit report, if applicable.
Also Read: Learn About Types of GST Returns in India
GST Compliance Checklist For New Financial Year
Recalculation of FY 2023-2024. Aggregate turnover for compliance in FY 2024-2025
The aggregate turnover of enterprises is crucial in evaluating GST compliance based on the threshold limits established for various schemes and rules such as the Composition Scheme, GST registration, E-Invoicing, QRMP Scheme, Rule 86B, and others.
Outward and inward supplies. Year-End Reconciliation
Businesses must do the following year-end reconciliations:
- Turnover per book of accounts against turnover per GST returns.
- ITC Closing balance by books of accounts vs. GST portal
- Reconciliation of pending mismatched ITC with GSTR 2B and transfer into a separate ledger.
- Stock per book of accounts versus actual stock.
- Please keep in mind that if Suppliers mark an entry as RCM in GSTR 2B, one must ensure that the RCM liability has been paid off.
Annual ITC Reversal Calculation under Rule 42
Businesses must compute the annual reversal for any ITC reversal owing to exempted supply under Rule 42 after completing monthly reversals. They must then account for any excess or short reversal on their GST returns for March 2024. From April 1st, 2024, interest will be imposed for any delays in reporting additional reversals of common ITC for fiscal year 2023–2024.
Filing and renewal of zero-rated supplies LUTs for fiscal year 2024-2025
According to Rule 96A of the CGST Rule-2017, as indicated in Notification No. 16/2017 dated 07-07-2017, taxpayers who choose to furnish goods or services for export without paying IGST must submit a bond or a Letter of Undertaking (LUT) in Form GST RFD-11 before the export takes place.
Because an LUT is only valid for a fiscal year, a fresh LUT must be prepared and documented for all export sales and sales to SEZ (Special Economic Zone) units to ensure compliance with GST requirements.
The new LUT for FY 2024-25 should be ready before April 1st for exports on or after April 1st, 2024. Furthermore, businesses that use zero-rated materials or intend to do so must complete the LUT by March 31st, 2024, for fiscal year 2024-25.
Also Read: Export And Zero-Rated Supply: Taxation And Compliance Requirements
Opt-in/opt-out for the 2024-2024 QRMP
The government implemented the Quarterly Return Monthly Payment (QRMP) plan under GST to make it easier for taxpayers to comply. This scheme allows registered persons with an aggregate revenue of up to Rs 5 crore to submit their GST reports quarterly in addition to monthly tax payments. The deadline for opting in or out of the QRMP Scheme for FY 2024-25 is April 30th, 2023.
Sign up for the GST 2024-2025 Composition Scheme
The deadline to file CMP-02 to opt for the Composition Scheme for FY 2024-25 is March 31st, 2024, subject to achieving the criteria and circumstances mentioned.
Taxpayers who transition from the Normal to the Composition Scheme must reverse the ITC claimed on inputs in the form of inputs, work in progress, finished products stock as of March 31st, 2024, and capital goods (on a reduced percentage basis) by filing ITC-03 by May 30th, 2024.
Also Read: Small Businesses Registrations: GST Composition Scheme Explained
GTA Declaration for GST Payment with Forward Charge
Businesses should collect and preserve records of declarations submitted by the Goods Transport Agency (GTA) in order to pay GST under the Forward Charge for fiscal year 2024-25. These records provide reason for non-payment of GST under RCM.
Reset Invoice Number Series
According to the GST advice issued in 2019, GST taxpayers should start a new invoice series specific to the fiscal year at the start of the next fiscal year.
A similar provision exists in Rule 49 of the CGST Rules 2017 governing the issuance of Bills of Supply by registered taxpayers using the Composition Scheme, supplying exempted goods or services, or both.
Failure to follow the provisions of Rule 46 or Rule 49 may result in compliance challenges for taxpayers, including difficulties generating E-Way Bills on the E-way bill system, furnishing Form GSTR 1, or choosing for a refund, among other issues.
Apply for GST refunds
When taxpayers pay extra GST in certain instances, and the tax paid exceeds the GST liability, they can receive a GST refund using a streamlined GST process.
If taxpayers need to receive their GST refund in a timely manner, they must submit an application by completing the required papers. There is a GST refund procedure that must be followed, and the refund will be credited to their bank accounts accordingly.
Pay GST on reverse charges
GST is often charged by the Supplier of goods/services. The Supplier is required to collect tax from the recipient and pay the whole amount to the government. However, in some situations, the Recipient of Goods/Services is required to pay GST instead of the Supplier.
This is referred to as Reverse Charge under GST. Taxpayers sometimes fail to identify activities for which the recipient pays the Reverse Charge.
Amendments /Rectification
Please remember that the March 2022 return is the final opportunity to correct any errors or omissions in the GSTR-1 or GSTR 3B forms for FY 2019-20. The taxpayer must reconcile their books of account (Ledgers) with the uploaded returns.
Adjust the differences (if any) in form GSTR-3B. Also, any mistakes committed in GSTR-1, such as uploading the incorrect GSTIN, submitting B2B instead of B2C, omitting invoices, and so on, can be corrected now.
Physical Stock Checking
To prepare for an income tax and GST audit, make sure there is no mismatch between your physical stock and the entry in the books.
When reviewing the actual stock, you should also search for ITC reversals. Whether there is a disparity between the two, check to see whether any sales have been missed while in books.
Reversal of Block Credit
Suppose you write off inventory at the end of the year. Then, under Section 17(5) of the CGST Act 2017, it is necessary to reverse the ITC.
Checklist for Internal Documents
Profit and Loss Account
The consultant should examine the profit and loss account for the supply of goods and services to domestic and export markets, as well as other income such as scrap sales, miscellaneous income, insurance claims, fixed asset sales, and export incentives, to determine whether they are subject to GST and whether the appropriate GST has been discharged.
The consultant should evaluate the expenses side of the profit and loss account to calculate the input tax credit claimed on raw materials, packing materials, processing supplies, and store items, as well as verify the transactions covered by the reverse charge basis under section 9(3) of the CGST Act, 2017.
Trial Balance
- The consultant should review the trial balance of registered sites for the whole time of compliance. Trial balance statements reflect all debit and credit balances that were combined and transferred to the profit and loss account and balance sheet.
- The consultant must check that the data for the site for which he was selected is correct and that the trial balance was created using software such as Tally/SAP or Excel.
- In the case of the consultant, it was discovered that in the trial balance grouping, post-supply discounts were grouped/subtracted with sales turnover. The consultant should examine the conditions of discounts in accordance with section 15(3) of the CGST Act, 2017, for the admissibility of post-supply discounts that are not reflected in Selling & Distribution expenses in the trial balance.
- The consultant should examine the nature of uncommon or extraordinary transactions and choose them for detailed GST scrutiny. The consultant should investigate the extraordinary income/prior period income groupings in the trial balance under income to determine the impact of GST liability.
- The consultant should verify the nature of transactions, which are the types of income reflected on the credit side of the trial balance, such as job work income, interest income, recovery for transportation expenses, commission and recovery from employees, and penalties from contractors/vendors. The consultant must ensure that the correct GST liability was discharged on the transaction.
Notes of Accounts
The consultant should carefully review the Notes of Accounts to determine any GST liability that may arise under section 17(5), as well as the reversal of ITC for items used for non-business activities.
Consultants should carefully evaluate the Notes of Accounts relating to Share Capital to determine an entity’s holding/subsidiary company connection or vice versa, as well as the GST impact of the same on related party transactions under the Valuation Rules, 2017.
Wrapping It Up
The upcoming year marks the first GST year-end. Therefore, you must plan for both month-end and year-end deadlines. Following the checklist provided in this article will allow you to enter the new year with the confidence of someone who has a plan rather than hoping for the best.
Take the time to arrange your records, reconcile finances, and circle due dates on a calendar, preferably with a countdown. Enlist the assistance of your accounting coordinator (if you have one), controller, and/or CFO. If you don’t, it’s time to speak with a professional, if you haven’t already. Before you know it, the end of the year will have passed, and GST compliance will be a thing of the past.
FAQs
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What is GST compliance?
The GST compliance rating is a score assigned by the government to a firm so that other businesses may determine how compliant it is with the tax department.
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What constitutes a GST-compliant tax invoice?
Under the GST regime, an “invoice” or “tax invoice” refers to the tax invoice described in Section 31 of the CGST Act, 2017. This provision requires the issuing of an invoice or a bill of supply for any supply of goods, services, or both. It is required for a person who supplies goods or services to issue an invoice.
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Is GSTR 9 essential for everyone?
GSTR 9 is required for taxpayers with an annual revenue of more than Rs 2 crore.
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What are the downsides of GST?
The key downsides of GST are higher operational costs, increased tax liability, penalties, fines, and so on.
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What is the ITC benefit in GST?
Under the GST framework, taxpayers can benefit from the input tax credit (ITC) on capital items. It enables them to claim the GST paid on the acquisition or import of capital items, such as machinery, equipment, cars, and so on, utilized for business.
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What is GST non-compliance?
Not accounting for products on which a person must pay taxes.
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What is the penalty for GST compliance?
While the financial penalty with GST is 10% of the unpaid tax liability (if it exceeds Rs. 10,000), imprisonment is also imposed in cases of high-value fraud.
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Why is tax compliance necessary?
To allow the government to collect taxes, residents must follow the tax laws. If they do not, the country will have little tax revenue.
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Why is dual GST required?
The Dual GST approach seeks to eliminate the cascading effect of indirect taxes on final goods and services.
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Can I issue a bill without GST?
You may supply products or services, or both, on a bill of supply without stating GSTIN and/or ARN.
