The conduct of an audit under GST (Goods and Services Tax) laws is a process where businesses’ financial records are examined to ensure compliance with the provisions of the GST Act. GST audits are crucial for businesses to verify the correctness of their tax payments and input tax credits, and ensure there are no discrepancies.

Types of GST Audits

1. GST Audit under Section 35(5) (For taxpayers having turnover exceeding ₹2 crores):

   • This audit is mandatory for businesses whose aggregate turnover exceeds ₹2 crores in a financial year.
   • A Chartered Accountant (CA) or a Cost Accountant must conduct the audit.
   • The taxpayer must file GST Audit Report in GSTR-9C.

2. GST Audit under Section 44(2):

   • It requires a taxpayer to file an Annual Return (GSTR-9) and the Reconciliation Statement (GSTR-9C).
   • This applies to taxpayers with turnover exceeding ₹5 crores in a financial year.

3. Special Audit under Section 66:

   • The tax authorities may order a special audit if they believe that there is any discrepancy or misstatement in a taxpayer’s records. This audit can be ordered by the GST Commissioner if:
     • A taxpayer has not been maintaining proper records.
     • There are concerns regarding the accuracy of tax payment or input tax credit.

Steps Involved in Conducting a GST Audit

1. Preparation of Records and Documents:

   • The business must gather all relevant documents such as purchase and sale invoices, GST returns, financial statements, and any other documents related to the supply of goods/services.

2. Verification of Turnover:

   • The auditor will verify the total turnover of the business to ensure it is accurate and aligns with the details in the GST returns.
   • This involves reviewing GSTR-1 (outward supply), GSTR-3B (summary of outward and inward supplies), GSTR-9 (annual return), and GSTR-9C (reconciliation statement).

3. Reconciliation of Data:

   • The auditor will compare and reconcile the data in GST returns with the company’s books of accounts.
   • Any discrepancies between the books of accounts and GST filings need to be identified and addressed.
   • This includes reconciling sales, purchases, output tax, input tax credit (ITC), and GST payments.

4. Review of Compliance with GST Provisions:

   • Ensure that all the applicable GST provisions have been followed, including the GST registration, filing of returns, payment of tax, and issuance of tax invoices.
   • Check the correctness of input tax credit claims and ensure no ineligible credits have been taken.

5. Audit Report Preparation:

   • The auditor prepares the GST Audit Report (GSTR-9C), which includes a detailed analysis of the financial statements and GST returns.
   • The report should include:
     • Reconciliation of turnover declared in the returns and the books of accounts.
     • Details of input tax credit, including any discrepancies or unclaimed credits.
     • Verification of taxes paid and any pending liabilities.

6. Submission of Audit Report:

   • The business must file the GSTR-9 (Annual Return) and GSTR-9C (Audit Report) before the due date (usually 31st December following the end of the financial year).
   • Both the taxpayer and the auditor must sign the report.

7. Rectification of Errors:

   • If the auditor identifies any errors, omissions, or discrepancies during the audit, the business is required to correct them before filing the returns.

Key Considerations for GST Audits

• Document and Record Maintenance: The business should ensure that proper records are maintained for at least 6 years as required by GST law, as the authorities may request access to these during audits.
• Timing of Audit: An audit must be conducted for each financial year, and the reports are typically due by December 31 of the subsequent year.
• Penalties for Non-Compliance: Failing to conduct a proper GST audit or file the necessary returns can lead to penalties, fines, or even cancellation of GST registration.
• Input Tax Credit (ITC) Verification: One of the most common areas of concern during GST audits is the improper claim of ITC. Auditors will scrutinize the credit claims to ensure they align with the supplier’s filings and are legally eligible.