GST audit is a review of a business’s GST returns and filings by a qualified auditor to ensure that they are in compliance with the GST laws and regulations. This helps businesses avoid any penalties or fines levied by the tax authorities for non-compliance.

GST audit means an examination of statements, records, returns and related documents furnished by the registered persons. GST Audit is conducted to verify whether the sales, output tax paid, input tax refund claimed, and ITC availed stated in his annual report are true and fair or not. GST audit is a reconciliation statement of audited financial statements with the annual return furnished. Further, a GST audit also assists in assessing whether the taxpayer is obedient with provisions of GST.

What are different Types of GST Audit?

1. Audit based on turnover

Every GST registered taxable person whose turnover during a financial year exceeds the prescribed limit of Rs.2 crore was subjected to a statutory audit under Section 35(5) of the Central Goods and Services Tax (CGST) Act*. Such businesses were to get their books of accounts audited by a chartered accountant or a cost accountant.

However, in Finance Act 2021, Section 35(5) of the CGST Act was amended to remove the statutory audit requirement under Section 35(5). This was further notified in CGST Notification No. 29/2021–Central Tax dated 30th July 2021 and came into effect from 1st August 2021. The audit requirement was instead replaced by a self-certified Form GSTR-9C statement. This must be filed on the GST portal or through a facilitation center by taxpayers whose turnover exceeds Rs.5 crore in a financial year, along with other documents such as a copy of the Audited Accounts and Annual Return in form GSTR-9.

The term ‘turnover’ is not defined under the GST Act. However, aggregate turnover is defined under section 2(6) of CGST Act. Accordingly, aggregate turnover refers to the value of all outward supplies (taxable + exempt + exports + inter-state) of a person with the same PAN. It excludes any taxes levied under the GST Act itself. Also, inward supplies on which RCM is applicable is not taken into account for calculating aggregate turnover.

Penalty - GST Act does not specify a specific penalty for not submitting GST audit report. However, as per general provisions, a general penalty of Rs 25,000 is applicable.

1. Audit by Tax Authorities under Section 65

The Commissioner of CGST/SGST (or any officer authorised by him) may conduct an audit of a taxpayer. The period of audit will be a financial year or part of a financial year (or multiple financial years). A notice will be sent to the auditee in FORM GST ADT-01 at least 15 working days prior. The audit will be completed within 3 months from the date of commencement of the audit. The Commissioner can extend the audit period for a further six months with reasons recorded in writing.

• The Commissioner of CGST/SGST (or any officer authorised by him) may conduct an audit of a taxpayer. The period of audit to will be a financial year or part of a financial year (or multiple financial years).
• A notice will be sent to the auditee in FORM GST ADT-01 at least 15 working days prior.
• The audit will be completed within 3 months from the date of commencement of the audit.
• The Commissioner can extend the audit period for a further six months with reasons recorded in writing.

1. Special Audit under section 66

• The Assistant Commissioner (with the prior approval of the Commissioner) can order for a special audit, in writing, if they are of the opinion during any stage of scrutiny/inquiry/investigation that the value has not been correctly declared or the credit has been wrongly availed.
• The officer referred to is required to issue a direction in FORM GST ADT-03 to the taxable person.
• The special audit will be carried out by a chartered accountant or a cost accountant nominated by the Commissioner, and they are required to submit a report, signed and certified by them, to the Assistant Commissioner within a period of 90 days.
• This period may be further extended by the Assistant Commissioner by another 90 days (if requested by the taxpayer or the Chartered Accountant/Cost Accountant in writing).
• The expenses of examination and audit, including the auditor’s remuneration, will be determined and paid by the Commissioner.
• A special audit can be conducted even if the taxpayer’s books have already been audited before.