INTRODUCTION: A lot of legal considerations have to be kept in kind before finalizing books of accounts for the auditor to give a reasonable assurance that the financial statements of the client give a true and fair view. One of such legal considerations involve compliance with GST Act. In this article we shall learn the GST considerations with respect to balance sheet items w.r.t what all needs to be ensured and verified by the auditor.

GST Checklist W.R.T Profit and Loss Items (PART-II)

PRELIMINARY CHECK: Ensure that the client registered has added HSN for all its products and services in its GST certificate it is dealing in, subject to a maximum limit of 5. The HSN aids taxpayers to search the GST rate by just entering the HSN code of the goods after which the system automatically shows the applicable tax rate on the commodity. The GST rate applicable to the commodity or service is correct as per the HSN classification and if there is any differential liability then the same is paid along with the interest. The auditor also needs to check if the client carries out business related activities within the State, in addition to the Principal Place of Business. Then the additional place of business I.e., Godowns, offices have been added in GST registration.



  • If assets have a GST Component on which ITC is taken then auditor should ensure that depreciation has not been claimed on the ITC component as per Section-16(3) of CGST Act, 2017.
  • Ineligible or blocked credit has been considered as a part of cost of asset and has not been taken as an input tax credit.
  • Capital assets might be in the custody of the third party for e.g., say Job worker. Here if the capital assets are not returned within a stipulated period of 1 year or 3 years (other than Moulds, dies, jigs, fixtures) the auditor should verify whether the same has been accounted for as deemed supply.
  • GST has been paid on removal or disposal of capital assets where ITC has been claimed on the purchase of such capital assets as per Section-18(6) of CGST Act,2017.
  • Auditor should ensure that ITC of repairs and maintenance has been taken only if charged to revenue account and satisfies the business test and not blocked under Section 17(5) of CGST Act,2017.


  • Auditor should ensure that the ITC has been availed on the goods which the client is in possession with as it is one of the conditions for availing of ITC under Section-16 of CGST Act,2017. The auditor should verify the goods-in-transit to ensure that the input tax credit is availed in the books only when the goods are received by the business entity.
  • In case goods are sent on “Sale on approval basis”, the auditor should verify the compliance in terms of GST provisions. If the goods are not returned within 6 months, it should be treated as deemed supply.
  • ITC to be reversed in case of goods stolen, destroyed or written off. The auditor should verify the same.


  • The creditors need to be paid the value of supply along with tax payable there upon within a period of 180 days from the date of invoice as per the provisions of Section16(2) of CGST Act,2017. The auditor needs to ensure the reversal of ITC and payment of interest on such reversal by the client. Auditor must also ensure that ITC so reversed is reclaimed when the payment is made to the creditor.
  • If there are any transactions with the related parties, the valuation rules to be adhered to for the transaction price. The auditor shall verify the same.


  • The auditor should verify whether the export of services criteria is met in terms of receivables in foreign currency and whether the same is received within the stipulated period (one year from the issuance of invoice).
  • If there are any transactions with the related parties, the valuation rules to be adhered to for the transaction price. The auditor shall verify the same.


  • The excess of input credit over output payables shall be disclosed as part of other current assets and excess of output liability over input credits shall be disclosed as other current liabilities. The auditor should ensure that the same have been shown at gross numbers and have not been set off against each other.

NOTE: This is not an exhaustive list of checking. The auditor needs to apply his judgement and professional skepticism and remain alert to all the statutory compliances including GST.

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April 2021