Demystifying GST Audits and Annual Returns under CGST Act

The Goods and Services Tax (GST) regime in India has brought about significant changes in the taxation landscape. It has streamlined the indirect taxation system by subsuming various taxes under one umbrella. Alongside these changes, there are essential compliance requirements that businesses and registered persons need to adhere to, including GST audits and annual return filings. These processes are critical in ensuring transparency and accountability within the GST system. In this comprehensive article, we’ll delve into the details of GST audits and annual return filings as per the Central Goods and Services Tax (CGST) Act of 2017.

Understanding GST Audits

A GST audit, as defined under Section 2(13) of the CGST Act, 2017, is the examination of records, returns, and other documents maintained or furnished by a registered person. The primary purpose of this audit is to verify the correctness of various aspects, including:

• Turnover declared
• Taxes paid
• Refund claimed
• Input tax credit availed

Furthermore, GST audits assess a registered person’s compliance with the provisions of the CGST Act and its associated rules. This process is crucial in ensuring that businesses and registered individuals are following the rules and fulfilling their tax obligations accurately.

Types of GST Audits

Under the GST regime, there are two primary types of audits:

1. Audit by the Registered Person: This type of audit is mandatory if the registered person’s turnover exceeds the specified threshold limits. Specifically, it applies to those with a turnover exceeding INR 2 crore for GSTR 9 and INR 5 crore for GSTR 9C. In this case, the registered person themselves conducts a self-audit.
2. Audit by GST Authorities: This type of audit is conducted by GST authorities and includes two subtypes:
   • General Audit: This audit is conducted by Deputy Commissioners, Assistant Commissioners, or authorized officers. It is a routine audit that aims to ensure compliance with GST rules and regulations.
   • Special Audit: Special audits are carried out by Chartered Accountants (CAs) nominated by Deputy Commissioners, Assistant Commissioners, or authorized officers. They are initiated when authorities suspect irregularities or complexities in a taxpayer’s financial records. Special audits often involve a more in-depth examination of the financial statements and transactions.

Key Points for Special Audits

Special audits, as the name suggests, are specific and initiated under certain circumstances. Here are some key points to note regarding special audits:

• Section 65(3): Intimation: The registered person is formally notified about a special audit through a notice. This notice must be provided at least 15 days in advance, and it is typically issued in Form GST ADT-01.
• Section 65(4): Period of Completion: Special audits are expected to be completed within a period of three months from the date of commencement. However, there is provision for extension by an additional period not exceeding six months if the Commissioner deems it necessary. In such cases, the reasons for the extension must be recorded in writing.
• Section 65(6): Audit Report: Upon the conclusion of the special audit, the proper officer is required to inform the registered person through Form GST ADT-02. This report summarizes the findings of the special audit.

Annual Return Filing under the CGST Act

Annual return filing is another essential compliance requirement under the CGST Act. As per Rule 80 of the CGST Rules, 2017, every registered person liable to file an annual return for every financial year is required to do so on or before the 31st of December of the subsequent financial year. The annual return is a comprehensive summary of a registered person’s activities, including their financial transactions and compliance with GST rules and regulations.

Forms for Annual Return and GST Audits

The specific form for annual return filing depends on the type of registration and the annual turnover. Here are the primary forms used for annual return and GST audits:

• GSTR 9: This form is used for annual return filing by individuals registered under any scheme with a turnover exceeding INR 2 crore.
• GSTR 9C: GSTR 9C is applicable to those registered under the Regular Scheme with a turnover exceeding INR 5 crore. It involves the submission of a reconciliation statement.
• GSTR 9A: Registered persons under the Composition Scheme, regardless of their annual turnover, are required to file GSTR 9A.
• GSTR 9B: GSTR 9B is necessary for e-commerce operators with annual turnovers exceeding INR 5 crore. This form also involves the submission of a reconciliation statement.

It’s important to note that a registered person who has opted in or out of the Composition Scheme may be required to file both GSTR 9 and GSTR 9A for the relevant period.

Persons Liable for Filing Annual Returns

Section 44 of the CGST Act, 2017, specifies that every registered person is required to file an annual return. However, there are some exceptions to this rule. The following persons or entities are exempt from filing an annual return:

1. Input Service Distributor: These are entities that distribute credit of input tax paid on services to their branches.
2. Persons Paying Tax Under Section 51 (TDS Deductors): Individuals or entities who are liable to deduct tax at source (TDS) under Section 51 of the CGST Act are not required to file an annual return.
3. Persons Paying Tax Under Section 52 (TCS Collectors): Those who are liable to collect tax at source (TCS) under Section 52 of the CGST Act are also exempt from annual return filing.
4. Casual Taxable Person: Individuals or entities registered under the casual taxable person category are not obligated to file an annual return.
5. Non-Residential Taxable Person: Non-residential taxable persons, who are registered for a limited period, are also exempt from annual return filing.

Levy of Late Fee

The timely filing of an annual return is crucial to avoid late fees. As per Section 47(2) of the CGST Act, 2017, any registered person who fails to furnish the annual return by the due date is liable to pay a late fee. The late fee is assessed as follows:

• INR 100 per day, subject to a maximum of 0.25% of the registered person’s turnover in the respective State or Union Territory.

When combined with the State Goods and Services Tax (SGST) or Integrated Goods and Services Tax (IGST), the late fee effectively amounts to INR 200 per day, subject to a maximum of 0.50% of the registered person’s turnover in the relevant State or Union Territory. These late fees can add up significantly, making it crucial for registered persons to adhere to the filing deadlines.

Conclusion

In conclusion, GST audits and annual return filings are integral aspects of the GST regime in India. They play a pivotal role in ensuring transparency, accountability, and compliance with GST rules and regulations. Understanding the nuances of these processes, such as the types of audits, the forms to be used, the liability for annual return filings, and the implications of late fees, is essential for businesses and registered persons.

Compliance with GST requirements not only avoids penalties but also contributes to the overall efficiency and effectiveness of the GST system