GST Checking in TAX Audit

GST Checking in TAX Audit


GST Checking in TAX Audit

 Now a day’s most of the person is busy to file their Income Tax Returns. I want to bring your attention on Audit under Section 44AB of Income Tax Act, 1961 (Commonly called as ‘Tax audit’) season will commence soon. Everyone have to care on this part also. Recently Central Board of Direct Taxes (CBDT) has issued Notification No. 33 dated 20.07.2018 amended Form 3CD with effect from 20.08.2018. & make the audit season (A.Y. 2018-19) interesting for both Professional as well as for Accountants.

In this audit, once again professional have required to remember pre GST regime compliance & post GST regime compliance’s. Following are the list of few challenges

  • Frequent Changes under GST Rates
  • Errors in GST Returns
  • No option of amendment of GST return and many more.
  • In initial stages there may be wrong classification in GST which may lead to changes in GST Rates.
  • Frequent Notification regarding GST

In this write up, I want to share the major challenges which may be common for all and also I am tried to provide its remedy. Hope this article will be help you while you making your planning regarding tax audit.

Some COMMON Challenges:

1) Turnover Reconciliation:

Here Auditor role is that, He is required to reconcile the turnover of Pre GST+ Post GST with the books of accounts. And have to ensure that both will be match. In this case, differences may arise on account of following:

  1. Mismatch between GSTR- 3B and GSTR -1.
  2. Transactions of B2C declared as B2B or vice versa and later rectified in next months.
  3. Many persons are not provided Exempted or Non GST supplies details at the time of GST Returns.
  4. Mismatch between GSTR-3B & GSTR-1.
  5. Sometimes Credit/Debit Notes are not considered in the returns.
  6. Non-Filing of GSTR-1.

2)Input Tax Credit:

Here Auditor role is that, He needs to ensure that balance in Electronic Credit ledger as on 31.03.2018 needs to be matched with ITC ledgers in the books. Even though GSTR 2A provides a proof of receipt of good or service from supplier, but still the same may undergo updating till the September month return of suppliers are filed.

 On following points one may focused for ITC:

  • Whether RCM credit is taken properly in the GST Returns?
  • Whether there is proper accounting entries are passed under transition period & its effect is taken properly in the books?
  • Whether any wrong ITC is availed on some items on which law is prohibited to take ITC?
  • Whether any ITC reversal is required?
  • Wrong availment of ITC in GST return though the same is not availed in Books
  • Errors in GST returns.

Some Challenges with to tax Audit Report:

Clauses under 3CD:

  1. Clause No 4 of Form 3CD: In this Clause, Tax auditor is required to mention various Registration Numbers of the Assessee.

Challenges with respect to GSTIN are during introduction of GST or during migration process, some assesses whose details as per VAT/Service Tax/Central Excise are improper have obtained new GSTIN without mentioning the old registration numbers for which auditor should ensure that the turnover declared in the old registration numbers have been carried forward to new GSTIN.

If Asseessee has different GST numbers according to Business vertical or on the basis of different states then one has to ensure that all registration numbers are disclosed.

  1. Clause No 44 of Form 3CD:

This clause is mainly focused on Input Tax credit. Here one have to report on whether the expenditure is from unregistered person or registered person & the required the tax is paid or payable.

For ease of understanding we can divided total expenditure in 2 broad categories:

  • Expenditure with respect to Registered entities
  • Expenditure with respect to unregistered entities

 A) Expenditure with respect to Registered entities.

Expenditure incurred by registered entities towards purchase of goods or services can also be further categories.

1)Pertains to Goods& Services which are exempt from GST:

Exempt supply means= Nil Rated Supplies + Exempted Supplies+ Non Taxable Supplies. Here auditor has to identity any such expenditure is incurred by the client which is a biggest challenge.

Some example which is fall under above category, Interest Expenses, Petrol Expenses, News expenses etc.

2)Relating to Goods& Services which are procured from composition dealer:

This is also a biggest challenge for the Auditor to identity how much expenditure is done from composition dealer for which he is required to check each and every bill of expenditure

3)Relating to Other than above:

 Here one has to report regarding expenditure pertaining to taxable inward supplies. Also required to point out expenditure on which assessee is liable to pay RCM under section 9(3) of CGST Act, 2017

 Formula is = Total Purchases from registered persons –exempt purchases composition purchase.

Challenge under this clause is that ITC will not be match with actual ITC availed as per GST returns. Some of the reason might be:

a) Non availment GST

b) Non filling of returns

c) Suppliers filled the returns but forget to add receipt’s GSTIN in his GSTR-1

d) Supplies on which ITC is Restricted.

B)Expenditure with respect

Here one has to report total expenditure incurred from unregistered person & have to report whether proper RCM is paid or not according to section 9 (4). If not paid then it is better to pay it along with interest. & take the credit also. Even though section 9(4) is deferred but still we have to check expenditure incurred between 01.07.2018 to 12.10.2017 & their respective RCM.

To conclude, I just want to say Happy Tax Audit Season.   

 -CA Monika N Rathi