With the end of the 1st (First) Financial Year of Goods & Service Tax Act being implemented in India, we would certainly be trying to avoid errors on the GST Compliance Part. Errors like Non-payment / Short Payment of Output liability, Excess claim of Input Tax Credit (ITC) / Non-reversal of Input Claim, failure (willingly/unwillingly) to correctly read, understand, check the applicability, and applying the provisions such as Place of Supply, Time of Supply, taxability of goods & services, payment of respective taxes (IGST, CGST, SGST), matching of Electronic Cash & Credit ledger with the books, etc can have huge financial impacts on our business. Many of such errors can result in payment of Interest & Penalties under the GST Act and can burn deep pockets for the business houses.
Audits, however can largely reduce or remove such errors and thus save the businesses from Interest and penalty burdens. An Audit is basically undertaken to check if:
1. Business Accounts are in compliance with the applicable laws.
2. Any shortcomings or leakages can be found out and thus done way with in future.
3. Have a clear overall picture of the business and decide future course of plan and action
4. Any deviation with the laws can be identified and corrected, if correction or rectification is possible.
Audit within the scope of GST Act can largely help businesses to find out errors, rectify them, devise a mechanism to avoid it in future and also train their current GST Team to be more careful and extra-vigilant in accounting of transactions and filing of returns.
1. Audit by a CA / CMA if turnover exceeds Rs. 2 Crores
2. Normal Audit by the Commissioner
3. Special Audit by CA / CMA (on orders of Commissioner)
While there are lot of articles and law on the mandatory audits under GST, the objective of this article is to detail out the benefits of a Voluntary Audit undertaken by a Business through a Professional CA / other Experts.
1. Correct Time of Supply can be known, so that taxes are never prepaid (i.e. paid before it is due) or post-paid (i.e. paid later than it was due) and thus paid on time. This also results in saving of interest cost (both on pre-payment and post-payment) and penalties (in case of post-payment). For eg: tax liability on advance receipts from Customers,etc.
2. Correct Place of Supply so that the respective taxes are correctly collected and paid (IGST, CGST, SGST) because wrong but full payment of taxes is no excuse and the taxes under the respective supplies have to paid correctly. For eg: A marketing consultant providing technical sales service to a Foreign Company in respect of sales to be done in India – is an intra-state supply (since the recipient of service is Outside India and therefore the Supplier’s place of business is taken as place of supply).
3. Taxes are charged and paid on the goods & services @ correct gst rates since the year has witnessed many revision in tax rates of various goods.
4. Any tax over-collected has to be paid to the Government since it will result in profiteering, and thus huge penalties. Similarly, any under-collection of tax has to be paid out of pocket of the supplier/seller.
5. HSN Codes for the goods and services have been correctly ascertained and filed in the GSTR 1 return.
6. Books of Accounts have been maintained as per the manner laid down under the ACT.
7. Invoices have been raised correctly (i.e. with complete information as is necessary).
8. Matching of GST Returns with the Books of Accounts.
9. Matching of GST Electronic Credit & Cash ledger with the Credit reflected in the books.
10. Finding out any unclaimed GST Input Tax Credit. Eg: on bank charges, sundry expenses bills like printing & stationery,etc.
11. Recording of Fixed Assests purchased on Taxable Value and availing the required GST Input Tax Credit so that GST ITC can be availed correctly and fully and also depreciation be calculated on the taxable value.
12. Claiming of correct refunds for the Exporters, for the tax paid on inputs.
13. Reversing of any ITC that was wrongly claimed or was liable to be reversed.
14. Tax to be paid under Reverse Charge for few particular services.
The above are few of the very common benefits of a thorough GST Audit for 2017-18 for the businesses. The Businesses also gains from the observations of the auditors for doing away with any errors in the subsequent years i.e 2018-19 & onwards and also getting authenticity to their financial records and results by way of getting it audited. This further helps business to prepare before-hand the results of F.Y. 2017-18 for tax audit and return filing purposes under the Income Tax Act, 1961 and avoid last minute rush and newly inserted penalty on late filing of ITR u/s 234F (up to Rs. 10,000/-). This is also important since this is the first Financial Year end after the implementation of GST and yet there are many practical issues coming up every day and the frequent changes brought in by the GST Council meetings in the law.
Thus, to conclude the Businesses which aim to be clear on compliances, results, returns, accounts and avoid any sort of litigations will largely opt for Audits (whether mandatorily or voluntarily). This benefit which seems immeasurable right now far outweighs the cost associated to it. (since even a single transaction can identified can save much more than the cost of audit).
Wishing you easy & complete Compliances and rewarding audits. Readers are welcome to comment and let us know any other benefit which a taxpayer can have from GST Audit.