Indirect taxation in India has revolutionized with Goods and Services Tax (GST) system that has established a common taxation system. Although GST has made taxation much easier in most aspects, it has also brought about the need to exercise precision in terms of record-keeping and compliance.

Businesses registered by GST are expected to have proper records, file returns appropriately and make sure all the transactions are reported appropriately. In order to confirm that, GST audit can be carried out by tax authorities.

The concept of a GST audit may be threatening to most businesses. Nevertheless, it can be easily handled with the help of the well-prepared records and the process can be viewed as effective.

What Is a GST Audit?

A GST audit is an analysis of the financial records of a business, GST returns, invoices and other supporting documents to ensure that the right amount of tax has been paid.

The audit will be conducted to ensure that:

• GST which has been collected is duly reported.
• The ability to claim input tax credit has been done properly.
• There is accuracy in returns and completeness.
• The company has adhered to the GST legislation.

Tax authorities or in some respects individuals contracted by the business, may conduct GST audits.

Even though the requirement of GST audit has evolved over the last few years, the businesses can still be picked up and audited by the GST department in case of any inconsistencies in the files.It explains the reasons why the businesses are chosen to be audited under GST.

There are several factors that can lead to a Business Being Subjected to a GST audit.

Typical factors that prompt an audit include:

• Differences in GST and financial statements.
• The huge or abnormal input tax credit claims.
• Dramatic discrepancies between GSTR-1 and GSTR-3B.
• Late or unbalanced filing of returns.
• High-value transactions
• Suspicious activity or complaint.

In most instances, the businesses are chosen due to mere reporting mistakes as opposed to non-compliance.

Documentation required for the conduct of a GST audit.

A GST audit is generally considered to go through different records and supporting documents.

The following should be maintained and easily accessible by the businesses:

• GST registration certificate
• GST returns are the ones submitted in the year.
• Invoices of sales and purchase.
• Note of credit and debit.
• E-way bills
• Bank statements
• Financial statements
• Records of input tax credit.
• Stock and inventory records.
• Contracts and agreements

The maintenance of such documents in order and up to date can help a great deal to relieve stress in an audit.

Reconcile GST Returns on a Regular Basis.

Regular reconciliation is one of the most crucial procedures used to plan a GST audit.

Businesses are advised to make periodic comparisons of:

• GSTR-1 with GSTR-3B
• Purchase books of GSTR-2B.
• Books of accounts are submitted by GST.

Turnover in financial statements in which turnover is reported under GST.The difference should be detected and rectified as soon as possible.

Indicatively, when the sales that are reported in the GST return are different from that which are reflected in the financial statements, the tax department might require an explanation.Frequent reconciliation will also assist in realizing the mistakes before they are a problem.

Verify Input Tax Credit (ITC) Claims

Input tax credit is one of the most closely examined components during a GST audit. To ensure compliance, businesses should verify the following:

• ITC is claimed only for eligible business expenses.
• All necessary supporting invoices are available and on file.
• Supplier invoices have been accurately uploaded to the system.
• The total credit claimed aligns with the data in GSTR-2B.

Discrepancies or overestimations of ITC can result in penalties, interest charges, and disputes with tax authorities. These risks can be mitigated by conducting a thorough review of ITC records before an audit begins.

Input tax credit is one of the most closely examined components during a GST audit.

Businesses ought to make it so that:

• Only the eligible expenses are subject to input tax credit.
• Invoices that are supported are present.
• The invoices of suppliers are uploaded correctly.
• The credit that is claimed equals GSTR-2B.

Wrong or overstatement of input tax credit may lead to penalties, interests and conflict with the tax department.

These problems can be avoided by reviewing records of input tax credit attentively prior to an audit.

Ensure Efficient Invoice Management

The basis of GST compliance is the invoices.

Business should make sure that all invoices:

• All the information required is provided.
• Displays the right GST rate.
• Provides GSTIN of both, where necessary.
• Is issued in a timely manner.

Lost or wrong invoices can cause problems in the course of an audit, as well as impact the claim of input tax credit.

Digital invoice management systems may be used to make invoices more efficient in storing and retrieving.

React Timely to Announcements.

Businesses need to respond in time and correctly in case the GST department sends a notice or requests information.The failure to pay attention to the notices or procrastination can lead to the threat of more fines and additional investigation.

In responding to a notice, businesses should:

• Consider the matter critically.
• Prepare all supporting documents.
• Be able to explain clearly.
• Consult a professional where necessary.

Small problems can be solved so fast in most situations provided that the business reacts in a timely and well-planned fashion.

Conduct Internal Reviews

Businesses must not delay to be audited on GST before they can go through their records.

Regular GST review within the company may assist in the identification of:

• Errors in filings
• Missing invoices
• Incorrect tax rates
• Unutilized or unused input tax credit.

In-house audit will enable the company to rectify its errors before they can be noticed by the taxation department.

Final Thoughts

The GST audit cannot be regarded as a crisis. It is just a procedure that is aimed at making businesses in line with the laws of taxation as well as keeping proper records.

Companies with well-maintained records, which reconcile their returns on a regular basis and have the relevant documentation are usually ready to have their accounts audited by GST.

The most important thing in ensuring compliance is to make GST a continuous exercise and not an annual exercise.

 At Badami & Kamath Chartered Accountants, we assist the businesses to enhance their GST compliance, audit preparation and respond to the tax notices with confidence by providing practical guidance and proactive response.