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Published on:

February 16, 2025

Viraaj Vashishth

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Explore GST

Basics of GST

GST Audit: Types, Objective and Applicability

Goods and Services Tax (GST) audits in India are more than an assessment of compliance. It is an examination of the taxpayer’s records, returns, and relevant documents to ascertain the accuracy of declared turnover, taxes paid, refunds sought, plus input tax credit. The aim of the GST audit is to determine a taxpayer’s compliance with the GST Act and its rules and regulations.

Objectives of GST Audit Meaning

The GST audit serves several key purposes:

1. Verification of Turnover: The claimed turnover of the taxpayer is measured against the data from sales and purchases.

2. Assessment of Tax Liability: The taxpayer is evaluated to determine if the appropriate tax amount was remitted based on current applicable tax rates.

3. Validation of Refund Claims: This audits the refund claims made by the taxpayer to confirm that they are correct.

4. Examination of Input Tax Credit (ITC): The claimed ITC needs to be evaluated to confirm that it was legally acquired under the GST regulations.

5. Compliance Evaluation: Overall compliance with the respect to the GST Act and rules are checked at this stage.

You Should Also Read: GST Audit Time Limit under Section 65 of CGST Act

Types of Audit Under GST

Within the realm of GST, there are many types of audit under GST. These are mainly split into three primary categories:

1. Turnover Audit aka Statutory Audit: As mentioned in Section 35(5) of the CGST Act, if a registered taxpayer has a cumulative turnover exceeding Rs.5 crore during a financial year, it is mandatory for the registered taxpayer to get the accounts audited by a chartered accountant or a cost accountant. This involves submission of audited annual accounts supported by a reconciliation statement that is filled in the Form GSTR-9C.

2. Department Audit: Prescribed in Section 65 of the CGST Act, this audit is done by a department of the tax authorities. The Commissioner or an authorised officer can initiate this audit on his/her own by serving a notice of 15 days to the taxpayer. This audit should be completed within three months from the date of beginning, but may be extended for and additional six months if need be.

3. Special Audit: Section 66 of the CGST Act, enables a Senior Officer, who, while conducting an inquiry believes that the value declared is far less than the actual value, to direct the taxpayer to carry out a Special Audit. This audit has to be carried out by a Chartered Accountant or a Cost Accountant of the Bureau’s choosing. The auditor has to submit the report within 30 days, although this can be extended by an additional 30 days.

GST Audit Applicability

Determination of the applicability of GST audit is based on the taxpayer's aggregate turnover. In this regard, the application of GST audit procedures would rest with the taxpayer's total earnings over the year.

1. Turnover-Based Audit: Taxpayers, whose total aggregate turnover exceeds Rs.5 crore in a financial year, would mandatorily be required to conduct a GST audit.

2. Departmental and Special Audit: tax authorities are permitted to commence these audits at their discretion and judgement based on their findings whilst reviewing assessments or investigations.

It should be clarified that the person's aggregate turnover means the total sum of all taxable supplies made by the person excluding tax free supplies, goods, or service exports, and inter-state supply of services. In other words, the person’s aggregate turnover is determined on a PAN-India basis. Stakeholders such as the auditors need to understand the basis and procedure of GST audit.

You Should Also Read: Income Tax Audit Deadline Extended to October 7

GST Audit Procedure

The audit procedure entails an entire process to ensure that the taxpayer’s accountability and compliance with the rules are met.

1. Appointment of Auditor: It is the liability of the taxpayer in case of audits based on turnover to choose a private firm chartered accountant or an independent cost accountant. The person responsible in a position of tax authority will elect the chartered accountant and cost accountant for all other types of audits.

2. Notice Issuance: For departmental audits notice should be served at least 2 weeks preceding the audit rehearsals.

3. Document Examination: The auditor will inspect books of accounts such as the financial statements for the general ledger, statutory returns, GST documentation, the journal purchase and sale registers and other prescribed records.

4. Verification Process: This includes verification of the turnover amount declared, taxes paid, refunds claimed, and ITC availed.

5. Audit Report: The auditor at completion has to prepare an audit report giving details of the findings which he must submit to the appropriate bodies or the taxpayer himself where relevant.

Overview of GST Audit Types

The below table attempts to give a summary of different types of GST audits.

Type of Audit	Conducted By	Applicability	Reference
Turnover-Based Audit	Chartered Accountant or Cost Accountant	Mandatory for taxpayers with annual turnover exceeding Rs.5 crore	Section 35(5) of CGST Act
Departmental Audit	Tax Authorities (Commissioner or authorized officer)	Initiated by tax authorities with prior notice; applicable as deemed necessary	Section 65 of CGST Act
Special Audit	Chartered Accountant or Cost Accountant (nominated by Commissioner)	Directed during scrutiny or investigation if discrepancies are found	Section 66 of CGST Act

Conclusion

Conducting audits on GST should not be considered burdensome because they provide guidance and control over compliance with the law. With the understanding of types, goals, and applications of GST audits, businesses will be ready for the GST audit. Maintaining proper records is one way to ensure one's compliance with the law. Many businesses are now prepared to deeply examine internal processes and information pertaining to GST inshore of maintaining compliance. It is recommended that audits are done internally regularly and compliance to portions of GST rules adhered to, in order to reduce exposure to contraventions non-compliance may bring about.

FAQs

1. What is the meaning of the GST audit?

The meaning of a GST audit is the review of the information, documents, and returns submitted by a taxpayer in respect to laws and regulations of GST to determine the level of compliance.

2. What are the types of audits under GST?

There are different types of audits under GST. These are turnover-based audit, departmental audit, and special audit, which aim to achieve compliance in different ways.

3. Which persons are obligated to attend a GST audit?

A GST audit has to be conducted for businesses whose annual aggregate turnover is above the limit of 5 crores as is set in the GST audit limit.

4. What guidelines set the GST audit standards for small businesses?

Those small businesses whose turnover is below 5 crores are usually exempt from GST audit compliance unless there are due departmental or special investigations audits.

5. What are the steps involved in conducting a GST audit?

The steps in conducting a GST audit involves verification of documents, compliance testing, and filing of audit report by a Chartered Accountant or designated tax officer.

6. Explain how a special audit is conducted under GST?

A special audit under GST is how tax authorities conduct audits when they find variances within a tax return or discrepancies involving claims for Input Tax Credit by the taxpayer and there is the need for an independent CA examination.

7. A GST tax audit must meet certain objectives. What is the objective of a tax audit?

The objectives of tax audits include confirming revenue, assessing the correct tax liability, reviewing ITC claims, and non-compliance detection.

8. Does every taxpayer have to undergo a GST audit?

No, the GST audit is only applicable based on defined turnover ranges and certain instances where the tax office has noted discrepancies.

9. What happens if a taxpayer does not comply with a group audit of a particular entity exercise?

Penalties, fines, or additional audits from the tax authorities can be imposed for breaching GST compliance audit guidelines.

10. Is there a way for taxpayers to contest the results of the GST audit?

Yes, a taxpayer can file the grievance before the relevant appellate authority if they are not in agreement with any conclusion taken in the audit report.