GST Audit: Types, Threshold Limits & Compliance for 2024

GST audits play a crucial role in ensuring tax compliance and accuracy in financial reporting. They help businesses maintain transparency in their operations and adhere to regulatory requirements. Understanding the threshold limits and different types of audits is essential for businesses to avoid penalties and ensure smooth operations. Recent updates in GST audit guidelines for 2024 have further emphasized the need for clarity in compliance.

What is Audit under GST?

A GST audit is an examination of records, returns, and other documents maintained by a taxable person to verify the correctness of turnover declared, taxes paid, refunds claimed, and input tax credits availed. The legal provisions for GST audits are outlined under the CGST Act, ensuring that businesses comply with GST regulations.

Types of GST Audits

GST audits can be categorized into three primary types:

1. Turnover-based Audit:
   • This audit is mandated for businesses whose annual turnover exceeds ₹2 crore.
   • The audit is performed by a CA or Cost Accountant chosen by the taxpayer.
   • The taxpayer must submit GSTR-9C, which includes an audit report and a reconciliation statement that aligns reported figures with actual financial records.
2. General Audit:
   • This type of audit is conducted by GST authorities to ensure compliance with GST regulations.
   • The process begins with a formal notification to the taxpayer at least 15 days before the audit date.
   • The auditors will review all relevant documentation, including tax returns and financial records, to assess compliance.
3. Special Audit:
   • Initiated when a GST officer suspects discrepancies in a taxpayer's filings.
   • A CA or Cost Accountant conducts this audit, appointed by the commissioner, following an order from the Deputy or Assistant Commissioner.
   • The auditor's role is crucial in identifying issues and ensuring that any discrepancies are addressed.

GST Audit Threshold Limit for 2024

As of 2024, the threshold limit for a turnover-based GST audit is set at ₹2 crores. This means that any business whose aggregate turnover exceeds this amount in a financial year is required to undergo a GST audit. Below are the key points regarding the threshold limits and how to calculate turnover:

Current Threshold Limit

• Turnover-based Audit: Businesses with an annual aggregate turnover exceeding ₹2 crores must get their accounts audited by a Chartered Accountant (CA) or Cost Accountant (CMA).
• Self-Certification: For businesses with turnover above ₹5 crores, the audit report (GSTR-9C) can be self-certified rather than requiring a CA's certification.

Regional Variations

While the national threshold is ₹2 crores, certain states may have specific thresholds based on local regulations or special categories. For example:

• Special Category States: States like Arunachal Pradesh and Assam may have different thresholds for GST registration and compliance requirements, often set lower than the national limit.

How to Calculate Aggregate Turnover

Aggregate turnover is calculated as follows:

Aggregate Turnover = Value of all taxable supplies +Exempt supplies+ Export supplies+ Inter state supplies − Inward supplies on which tax is paid under reverse charge

Key Components of Aggregate Turnover:

• Taxable Supplies: All sales of goods and services that are subject to GST.
• Exempt Supplies: Goods and services that are exempt from GST.
• Export Supplies: Goods and services exported outside India.
• Inter-state Supplies: Supplies made between different states in India.

Threshold Limits for Various Types of GST Registrations

The threshold limits vary depending on the type of goods or services provided:

• Goods: The limit is generally ₹40 lakhs for normal category states and ₹20 lakhs for special category states.
• Domestic Services: The threshold is typically ₹20 lakhs across most states.
• Export of Services: There is no threshold limit; all exporters must comply with GST regulations regardless of turnover.
• GST Composition Scheme: Businesses opting for this scheme have different limits, generally set at ₹1.5 crores.

Process of GST Audit: Step-by-Step Guide

Businesses should prepare thoroughly for a GST audit by following these steps:

1. Notification of Audit

• How and When a Business is Informed:
  • The GST authorities will send a formal notification to the business at least 15 days prior to the commencement of the audit. This notification is typically issued in Form GST ADT-01, informing the taxpayer about the audit's initiation and its scheduled date.

2. Submission of Documents

Businesses must prepare and submit various documents for the audit, including:

• GSTR-9: The annual return that summarizes all GST transactions for the financial year.
• GSTR-9C: The reconciliation statement that compares GSTR-9 with audited financial statements.
• Financial Records: Include profit and loss statements, balance sheets, and any other relevant financial documentation.
• Invoices and Purchase Records: Maintain records of all sales and purchases to verify transactions.
• E-Way Bills and E-Invoices: Documentation related to logistics and invoicing must be readily available.

 It’s advisable to organize these documents systematically to facilitate a smooth audit process.

       3. Audit Process

The audit process involves several key steps:

• Inspection of Books: Auditors will examine all relevant books of accounts, including ledgers for sales, purchases, and expenses.
• Verification of Compliance: The auditors will check compliance with GST laws, including verifying input tax credits claimed and taxes paid.
• Interviews/Discussions: Auditors may conduct interviews with key personnel to understand processes and clarify any discrepancies.

4. Audit Report

After completing the audit, the auditor will issue a report that includes:

• Findings: A summary of observations made during the audit regarding compliance or discrepancies.
• Corrections Required: Recommendations for correcting any identified issues or discrepancies in tax filings.
• Potential Penalties: Information regarding any penalties that may be applicable for non-compliance or errors found during the audit.

Documents Required for a GST Audit

When preparing for a GST audit, businesses should maintain and submit the following key documents:

1. GST Returns:
   • GSTR-1: Details of outward supplies made during the financial year.
   • GSTR-3B: Summary of monthly or quarterly returns filed, including details of tax paid.
   • GSTR-9: Annual return that summarizes all GST transactions for the financial year.
2. GSTR-9C:
   • This is the audit report and reconciliation statement that must be filed by businesses with a turnover exceeding ₹2 crores. It includes:
     • Part A: Reconciliation of turnover and tax amounts reported in GSTR-9 with audited financial statements.
     • Part B: The auditor's certification and comments on discrepancies.
3. Financial Records:
   • Profit and Loss Statement: To provide an overview of revenue, expenses, and profit or loss for the financial year.
   • Balance Sheet: To show the company’s financial position at the end of the financial year.
4. Invoices and Purchase Records:
   • Maintain all sales invoices issued and purchase invoices received to verify transactions and claims for input tax credit (ITC).
5. Additional Documentation:
   • Stock Registers: To track inventory levels throughout the year.
   • E-Way Bills: Documentation related to the transportation of goods.
   • E-Invoices: Records of electronic invoices generated for sales.

Tips for Organizing Documents for Smooth Audits

1. Create a Centralized Repository:
   • Use a digital storage solution (like cloud storage) to keep all documents in one place, making it easier to access during an audit.
2. Categorize Documents:
   • Organize documents by type (e.g., returns, financial records, invoices) and by month or quarter to streamline retrieval.
3. Maintain a Document Checklist:
   • Develop checklists based on the required documents to ensure nothing is overlooked during preparation.
4. Regular Updates:
   • Regularly update records and ensure that all documents are current and complete throughout the financial year.
5. Use Color Coding or Labels:
   • Implement color coding or labeling systems to quickly identify different categories of documents.

How TallyPrime Can Simplify the Process

TallyPrime is an effective tool that can assist businesses in managing their GST compliance and preparing for audits:

1. Automated GST Return Filing:
   • TallyPrime automates the filing of GSTR-1, GSTR-3B, and GSTR-9, reducing manual errors and saving time.
2. Seamless Generation of GSTR-9C Reports:
   • The software facilitates easy generation of GSTR-9C reports, including reconciliation statements, ensuring accuracy in submissions.
3. Comprehensive Record Keeping:
   • TallyPrime allows businesses to maintain all financial records, invoices, and purchase orders in one integrated system, making it easy to retrieve information during audits.
4. Reconciliation Features:
   • The software provides features for reconciling input tax credits with purchase invoices, helping identify discrepancies before an audit occurs.
5. Document Management System:
   • TallyPrime can help organize documents digitally, enabling quick access to necessary files during an audit.
6. User-Friendly Interface:
   • The intuitive interface makes it easy for users to navigate through various functions related to GST compliance and reporting.

What Happens if Discrepancies are Found in a GST Audit?

If discrepancies are identified during an audit:

1. Rectifications
   • Opportunity to Correct Errors: If discrepancies are found, the taxpayer is usually given an opportunity to rectify the errors or omissions identified during the audit. This means that businesses can correct any mistakes in their GST returns or financial records before further action is taken.
   • Time Frame for Rectification: The taxpayer must submit rectification requests within specific timelines. For example, under GST regulations, rectifications can be made before the due date for filing the return for the month of September following the end of the financial year or before the actual date of filing the relevant annual return, whichever is earlier.

2. Penalties

• Penalty Provisions: If discrepancies indicate non-compliance, there may be penalties imposed as per the provisions of the GST Act. The penalties can vary based on the severity of the non-compliance:

• • Failure to File Correct Returns: If a taxpayer fails to file correct returns or does not comply with GST regulations, they may face fines that can range from 10% to 100% of the tax due, depending on whether it was a willful default or not.
  • Interest on Short Payments: In addition to penalties, interest may be charged on any short payment of tax, calculated at a specified rate (currently 18% per annum) from the date when the tax was due until it is paid.

2. Show-Cause Notice
   • Issuance of Show-Cause Notices: In cases where significant discrepancies are found or if there is suspicion of tax evasion, the tax authorities may issue a show-cause notice to the taxpayer. This notice requires the taxpayer to explain why action should not be taken against them for non-compliance.
   • Response Requirement: The taxpayer must respond to this notice within a stipulated time frame, providing explanations and any supporting documentation to justify their position.
   • Consequences of Non-Response: Failure to respond adequately to a show-cause notice can lead to further legal action, including assessments and recovery proceedings.

How to Prepare Your Business for a GST Audit

Preparing for a GST audit is crucial for ensuring compliance and minimizing potential issues. Here are some actionable steps businesses can take:

1. Regularly Reconcile Returns and Invoices

• Consistent Reconciliation: Regularly compare your GST returns (GSTR-1, GSTR-3B) with your sales and purchase invoices. This helps identify discrepancies early and ensures that all transactions are accurately reported.
• Automated Tools: Utilize TallyPrime’s reconciliation features to automate this process, making it easier to spot inconsistencies between your financial records and GST filings.

2. Use Software Tools like TallyPrime to Maintain Accurate Records

• Comprehensive Record-Keeping: TallyPrime simplifies the management of financial records, including sales, purchases, and expenses. It ensures that all data is organized and easily accessible during an audit.
• GST Compliance Features: The software automates tax calculations, generates GST-compliant invoices, and prepares necessary reports like GSTR-9C, significantly reducing manual errors.

3. Stay Updated on Changes in GST Laws and Audit Thresholds

• Regular Updates: Keep abreast of any changes in GST regulations or audit thresholds by subscribing to relevant updates or using TallyPrime’s built-in notifications for compliance updates.
• Training Sessions: Conduct regular training sessions for your accounting team to ensure they understand the latest GST requirements and how to implement them effectively.

4. Maintain a Proactive Compliance Culture

• Encourage Transparency: Foster an organizational culture that prioritizes compliance and transparency. Encourage employees to report any discrepancies or uncertainties regarding GST compliance.
• Internal Audits: Conduct periodic internal audits to assess compliance with GST regulations. This proactive approach can help identify issues before they become significant problems during official audits.

5. Utilize TallyPrime for Efficient Audit Preparation

• Automated Reporting: Use TallyPrime to generate detailed GST reports that compile all relevant financial data accurately, ensuring no transaction is overlooked.
• Historical Data Access: TallyPrime provides easy access to historical data, which is essential for auditors to verify the accuracy of returns and detect discrepancies.
• Error Detection: The software continuously analyzes data for inconsistencies and suggests corrections, helping maintain accurate records that comply with GST laws.

How TallyPrime Can Simplify GST Audits

TallyPrime is designed to streamline GST compliance and audit processes for businesses. Here are some of the ways it assists in managing these critical tasks:

1. Automated Return Filing and Reconciliation Features

• Seamless Filing: TallyPrime allows businesses to file their GST returns, including GSTR-1, GSTR-3B, and GSTR-9C, directly from the software without needing to manually access the GST portal. This automation reduces the risk of errors and saves time.
• Real-Time Reconciliation: The software provides real-time reconciliation of GST returns with financial records, ensuring that any discrepancies are identified and corrected promptly. This continuous alignment helps maintain accurate records and reduces the likelihood of issues during audits.

2. Easy Generation of GSTR-9, GSTR-9C, and Other Reports Needed for Audit

• Comprehensive Reporting: TallyPrime simplifies the generation of essential audit reports such as GSTR-9 and GSTR-9C. Users can quickly compile all necessary data into these reports, ensuring they are complete and accurate.
• Customizable Reports: The software allows the customisation of reports based on specific business needs, making it easier to present information clearly during audits.

3. Simplified Bookkeeping and Error Detection

• Automated Error Detection: TallyPrime continuously analyzes data for inconsistencies or errors, providing suggestions for corrections. This proactive approach helps maintain data integrity and ensures that all financial records are accurate before an audit.
• User-Friendly Interface: The intuitive design of TallyPrime makes it easy for users to navigate through various features related to GST compliance and auditing, reducing the complexity often associated with these processes.

4. Historical Data Access

• Centralized Repository: TallyPrime maintains a centralized repository of all historical data related to GST transactions. This organization allows easy access to past records during audits, facilitating quick retrieval of necessary information.
• Traceable Records: Keeping accurate historical records is crucial for verifying compliance with tax regulations. TallyPrime ensures that all transactions are traceable, helping auditors validate the accuracy of returns.