The Goods and Services Tax (GST) was implemented in India from 1st July 2017 as a unified indirect tax system, subsuming multiple central and state taxes. The GST audit mechanism was also introduced under the GST laws to verify taxpayer compliance and ensure correct reporting.
After over 6 years of GST implementation, the audit regime has evolved with focus on education and voluntary compliance. This blog post explains the GST audit framework, rights of taxpayers, and principles guiding GST audits.
Objectives of GST Audit
The primary objectives of GST audit are to:
– Measure compliance levels of taxpayers with GST laws and procedures
– Verify correctness of taxes paid, input tax credits claimed, and refunds filed
– Assess adherence to GST provisions for levy of tax, timely reporting and documentation
Essentially, GST audit verifies the fulfillment of tax obligations by the taxpayer based on a systematic examination of records.
Basic Principles of GST Audit
GST audits follow certain basic principles:
– Systematic and comprehensive audit conduct
– Risk-based approach targeting identified risk areas
– Materiality-focused checks based on risk levels
– Extensive documentation of audit observations and findings
– Identifying new areas for compliance verification
– Educate taxpayers for voluntary compliance
The focus is on minimizing taxpayer inconvenience during GST audits.
Rights and Benefits for Taxpayers Under GST Audit
Certain rights and benefits are provided to taxpayers under the GST audit framework:
i) Advance Intimation: 15 days advance notice for audit date
ii) Discussion of Findings: Preliminary findings discussed with taxpayer
iii) Payment Option: Pay short-paid tax with waiver of notice
iv) Written Communication: Final findings communicated in 30 days
v) Timebound Completion: Audit to complete in 3 months, extendable by 6 months
This ensures transparency and fair play during GST audits.
GST Audit Process
The step-by-step process followed for GST audits is:
i) Intimation Letter: Informing taxpayer about audit
ii) Desk Review: Evaluating taxpayer data provided to GST department
iii) Audit Plan: Developing plan based on desk review findings
iv) Audit Verification: Conducting checks as per audit plan
v) Preliminary Findings: Discussing findings with taxpayer and recording response
vi) Draft Audit Report: Preparing draft report for departmental monitoring committee
vii) Final Audit Report: Communicating final report to taxpayer in prescribed format
viii) Contested Findings: Informing taxpayer about further actions for disputed observations
Thus, the audit process has structured information sharing and discussion steps inbuilt.
Commencement of GST Audits
GST audits were commenced from 1st July 2019, 2 years after GST implementation, to allow familiarization of taxpayers with the new tax regime.
The audits are being conducted by GST Audit Commissionerates with minimal disruption to business operations of taxpayers.
Special Considerations in GST Audits
Certain special considerations are kept in view for GST audits:
– Minimum inconvenience to taxpayers
– Extra care for taxpayers new to tax audits
– Avoiding litigation due to bonafide mistakes
– Desk audits for smaller taxpayers
– Making taxpayer data available to reduce information requests
This approach ensures fairness and facilitates voluntary compliance.
Legal Framework for GST Audits
The legal framework for GST audits comprises:
i) Audit definition: Examination of records, returns and documents of taxpayer
ii) Audit authorization: GST officers authorized to conduct GST audit
iii) Audit location: Business premises or office of taxpayer
iv) Audit period: 3 months, extendable by 6 months
v) Information access: Access to business premises and relevant records
vi) Audit process: Intimation, conduct, reporting and timelines prescribed
Thus, adequate legal backing and structure is provided for GST audits.
Conclusion
The GST audit mechanism emphasizes voluntary compliance through a transparent and well-defined process focused on education of taxpayers. The risk-based approach and minimum business disruption demonstrate the progressive nature of GST audit regime.
CBIC Information Brochure on GST Audits Regime (Nov. 2023)