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Prime Minister of India Mr. Narendra Modiji at the time of launching, India’s biggest tax reform, Goods and Service Tax, introduced it as ‘Good and Simple Tax’, however with the passing of days and further completion of a year of its introduction, it has been proved that the same is not at all ‘Good and Simple Tax’.

Goods and service tax is based on self-assessment process, however, it is simply not at all easy to compute the total taxable turnover, exempted turnover, tax payable / paid, refund claimed and, over and above it, the correct input tax credit availed. In order to ensure effective compliance of all the GST provisions and the rules made thereunder, the concept of ‘GST audit’ has been introduced.

The present article helps to figure out the compulsory audit provisions as applicable to the registered person under the Goods and Service Tax.

Cases Wherein Compulsory GST Audit Is Applicable –

The basic provisions of the compulsory audit are contained under sub-section (5) of section 35 of the Central Goods and Service Tax Act, 2017. The said section states as under –

  • The compulsory audit is required to be done by every registered person whose turnover exceeds the prescribed limit;
  • Accounts need to be audited by either a Chartered Accountant or a Cost Accountant;
  • Following documents are required to be submitted –
    • Copy of audited annual accounts;
    • Reconciliation statement as prescribed under section 44 (2); and
    • Any other prescribed documents.

Going through the above provisions of section 35 (5), the obvious question that would arise in anyone’s mind is that what is the prescribed limit exceeding which the audit becomes compulsory?

The answer to the above referred question lays within sub-rule (3) of rule 80 of the Central Goods and Service Tax Rules, 2017. The gist of said sub-rule (3) of rule 80 is summarized hereunder –

  • The compulsory audit is required to be done by every registered person whose aggregate turnover exceeds INR 2 Crore during a financial year;
  • Such registered person, who is required to get his accounts audited, is required to furnish a copy of audited annual accounts and a reconciliation statement in FORM GSTR-9C duly certified;
  • The registered person is required to submit the above documents electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.

Referring to the above provisions of rule 80 (3) it is pretty clear that compulsory audit is required only in case the aggregate turnover of the registered person exceeds INR 2 Crore during a financial year.

Now it is very important to understand the term ‘aggregate turnover’ in order to correctly analyze the applicability of audit provisions under GST. The definition of term ‘aggregate turnover’ is provided under section 2 (6) of the Central Goods and Service Tax Act, 2017. In order to ease up the understanding of the term ‘aggregate turnover’, the formula of the same is provided hereunder –

Value of all taxable supplies (A) XXX
Add: Value of exempt supplies (B) XXX
Add: Value of exports (C) XXX
Add: Value of Inter-state supplies (D) XXX
Sub.: Central Tax, State Tax, Union Territory tax, Integrated tax and cess (E) (XXX)
Sub.: Value of inward supplies (F) (XXX)
Sub.: Value of supplies on which tax is payable under reverse charge (G) (XXX)
Sub. : Value of non-taxable supplies (H) (XXX)
Aggregate turnover (A+B+C+D-E-F-G-H) XXXX

It must be taken care that the above turnover figures needs to be computed on all India basis. That means the value includes the value of all transaction of the person having same Permanent Account Number (PAN) across all his business entities in India.

Applicability Of GST Audit Provisions In Case The Business Has Been Undertaken Only For Part Of The Year

Audit provisions as provided in section 35 (5) of the Central Goods and Service Tax Act, 2017 is applicable even in case the business has been undertaken only for the part of the year and the turnover of the said conducted business is more than INR 2 Crore.

Penalty Provisions For Not Complying With Compulsory GST Audit Provisions –

The penalty for not conducting Goods and Service Tax audit is INR 100 per day, however, the maximum amount of penalty leviable cannot exceed 0.25% of the turnover.

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  1. Sp says:

    Kindly clarify what will be the aggregate turnover in case inward supplies are more thanthe value of all taxable export and any kind of outward supplies. the formula of aggregate turnover as given by you will give negative value if inward supplies are more than the outward supplies. The practicality of formula is highly doubtful

  2. Mehul Sanghvi says:

    Earlier had heard news for threshold turnover limit to increase from 2 crore to 5 crore.
    Are their any chances for the same or just rumours ?

  3. Birinder singh says:

    I am a old man born 1930
    this your I am not doing any busness my turnover this year will not be even about 50000/-(fifty thousand) do I have to get aduit done
    kindly guide me
    Birinder singh

  4. Uday Malya says:

    Need a clarification. In definition of aggregate turnover, F is given as Value of Inward Supplies and G is given as Value of Supplies on which tax is payable under reverse charge, and it is stated that both F and G are to be subtracted. However Section 2(6) of CGST Act defines this as (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis). In my opinion, this means F and G are linked and not independent of each other. Also, it is mentioned above that exempt supplies are included (B) and non taxable supplies are excluded (H), However while defining exempt supply in Section 2(47), it is mentioned that exempt supply includes non taxable supply. So, in my opinion, non taxable supply does not get subtracted.

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June 2024