Goods and Services Tax (GST) has proved to have its own pros and cons. Since its introduction it has left ambiguity in the minds of people as to how one should file the returns, what transactions need to be recorded, what all comes under the purview of GST, how much GST rate needs to be charged on what products and who all are required to get their financials audited, etc.
To obliterate uncertainty regarding GST audit, the following procedure should be followed:
- Filing of annual return: The annual return is an aggregation operation whereas the audit is reconciliation between annual return and audited financial statements. Though, both of them are due on the same date, the annual return becomes a pre-requisite for GST audit. For smooth compliance with GST audit, businesses often submit annual return earlier than the deadline. Submission of annual returns beforehand, may lead to disclosure in errors which in turn will be reconciled. That would require to be separately disclosed in the GST audit reports with specified reasons. The taxpayer would need to ensure the annual returns have accurate disclosures, with no room for errors.
- Reconciliation of financial statements: Form GSTR-9C solicits reconciliations of turnover or input tax credit (ITC) at the Goods and Services Tax Identification Number (GSTIN) level. It is requisite for taxpayers to maintain GSTIN-level distinction of audited financial statements. Where the organizations fail to maintain branch-wise financial statements, this could be an exhausting activity.
- Scrutinizing reasons for non-reconciliation of items:The GST audit not only requires reconciliation to be prepared but also mandates mentioning detailed reasons for non-reconciled items to be furnished in the form GSTR-9C. So, a taxpayer will not only prepare rupee-to-rupee reconciliation but also investigate the reasons for any non-reconciled items.
- Facility for rectification: No mechanism is made available to the taxpayers for rectifying errors made by them in their monthly compliances while filing annual return or undergoing GST audit. This is a setback for legacy laws, where annual return was filed after the submission of Value Added Tax (VAT) audit reports, after giving effect to all mismatches, errors, differentiating items.
- Awaiting IT facility:Though the procedure, forms and standards have been released to the public, the facility on the GST portal to submit the audit, as well as the annual return has not been made available. Clarity is also awaited on certain intricacies, such as whether physical submissions would be required.
- Selection of auditor:As per rules mentioned under GST Act, certifications by two different modes forms part of GST audit format as per form GSTR-9C. This includes:
- Reconciliation statement of books of accounts prepared and certified by statutory auditor; and
- GST records and documents other than reconciliation statement prepared and certified by a person other than statutory auditor.
Internal auditors are not allowed to be appointed as GST auditors, as per the latest Institute of Chartered Accountants of India (ICAI) announcement. Given the significance of the GST audit and amount of information required by the audit forms, business should select the GST auditors judiciously, as per the policies of relevant professional institutes.
What should you do?
It is highly recommended that businesses not only commence the activity of annual return filing but also simultaneously begin the GST audit process considering past experiences of facing last-minute technical glitches with GST filings as well as the volume of information requisite to be collected and prepared. Given the fact that the due dates for GST audit and GST annual return coincide, also going through the volume and type of data required to comply with both, it is likely that the days to come will be strenuous for businesses and tax professionals alike. To ensure smooth journey through the GST audit phase, a business should appoint the GST auditor well in time, prepare a project plan, start collating documents and information, controls for filing annual returns as well as devise internal checks.
So to ease your burden and make GST audit a piece of cake, our team can assist you in undergoing the whole audit procedure. To get in touch, please Contact us. We also offer services related to setting up business in India, company formation in India, taxation, accounting and bookkeeping and statutory audits.