GST Audit Limit Guide for Taxpayers with Turnover Above 2 Crores

GST Audit Limit Guide for Taxpayers with Turnover Above 2 Crores

The due date for filing GSTR-9 and GSTR-9C forms is December 31.

The Finance Act, 2021 brought significant changes to GST audit requirements, particularly impacting businesses with higher turnovers. While previously, taxpayers with an annual turnover of Rs. 2 crores or more had to submit GSTR-9C certified by a Chartered Accountant (CA) or Cost Accountant (CMA), this mandate was lifted, shifting to self-certification for turnovers above Rs. 5 crore, as confirmed by the 43rd GST Council meeting in May 2021. These updates were later notified by CBIC in Notification No. 29/2021 – Central Tax, dated 30th July 2021. Let’s explore the GST audit process and its various types, providing clarity for businesses navigating these regulations.

Understanding GST Audit and Its Importance

A GST audit entails a thorough examination of financial records, returns, and other documentation maintained by a GST-registered taxpayer. The purpose is to verify the accuracy of reported turnover, tax payments, refunds claimed, and input tax credit availed, ensuring compliance with the GST Act. As GST is a self-assessed tax system, a well-structured audit mechanism serves as a crucial check to verify the taxpayer’s self-assessed tax liability.

Types of GST Audit

GST audits fall into three main categories:

  1. Turnover-Based Audit:

    • Conducted by a Chartered Accountant or Cost Accountant appointed by the taxpayer.
    • Required for businesses with an annual turnover exceeding Rs. 2 crore as per Section 35(5) of the CGST Act.
    • Although the audit requirement was relaxed for turnovers above Rs. 5 crore in the Finance Act, 2021, the original threshold of Rs. 2 crore remains applicable for certain audits.
  2. General Audit:

    • Conducted by the Commissioner of CGST/SGST or an officer authorized by them.
    • Initiated by an official order, typically issued with a 15-day prior notice to the taxpayer.
  3. Special Audit:

    • Ordered by the Deputy/Assistant Commissioner with prior approval from the Commissioner.
    • Performed by a Chartered Accountant or Cost Accountant nominated by the Commissioner when a detailed, specialized examination is warranted.

Turnover-Based Audit Details

Under Section 35(5) of the CGST Act, businesses with an annual turnover exceeding Rs. 2 crore must have their accounts audited by a Chartered Accountant or Cost Accountant. This turnover is calculated on a PAN basis, covering the aggregate value of all taxable, exempt, and export supplies, excluding certain elements like reverse charge supplies. For businesses with multiple GST registrations across states, the cumulative turnover across all branches under a single PAN is considered.

Key Elements in Aggregate Turnover Calculation:

  • Includes all taxable supplies, exempt supplies, and exports.
  • Excludes reverse charge inward supplies, GST-related taxes (CGST, SGST, IGST), and certain non-taxable activities under Schedule III of the CGST Act.

GST Audit Eligibility and Auditor Qualifications

Only Chartered Accountants or Cost Accountants are authorized to perform GST audits. Notably, an internal auditor of a company cannot serve as its GST auditor, and GST practitioners are not permitted to conduct GST audits. If an organization operates multiple branches across states, the aggregate turnover across these branches determines GST audit applicability, regardless of individual branch turnover.

Conducting the GST Audit: Essential Documentation and Process

To conduct a comprehensive GST audit, an auditor reviews critical records, including:

  • Sales and stock registers
  • Purchase records and expense ledgers
  • Input tax credit (ITC) records
  • Output tax details
  • e-Way bills and e-Invoices, where applicable

The auditor also verifies communications with the GST department and reconciles the values in GSTR-9 with audited financials.

Annual Return and GSTR-9C Filing

For taxpayers above the specified turnover threshold, GSTR-9C must accompany the annual return (GSTR-9). Although GSTR-9C self-certification is permitted for turnovers above Rs. 5 crore post-2021, it still plays an important role in ensuring compliance.

Filing Requirements:

  • Regular taxpayers: GSTR-9 and GSTR-9C (if turnover exceeds Rs. 2 crore).
  • Composition scheme taxpayers: GSTR-9A.
  • E-commerce operators: GSTR-9B (pending implementation).

Timeline for Submission

The GSTR-9 and GSTR-9C forms are generally due by 31st December of the subsequent financial year. However, this deadline may be extended by CBIC notification as needed.

Navigating GST audit requirements, especially for businesses with turnovers exceeding Rs. 2 crore, requires understanding the latest regulations and staying compliant with statutory obligations. By familiarizing yourself with the GST audit process and compliance requirements, businesses can avoid penalties and ensure accuracy in their GST filings.

For more detailed guidance, consult Certicom Group’s expert team, experienced in helping businesses manage GST audits and related financial requirements efficiently

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New GST Rules: Key Self-Invoicing Updates for RCM – Effective Nov 1, 2024

New GST Rules: Key Self-Invoicing Updates for RCM – Effective Nov 1, 2024

The Central Board of Indirect Taxes and Customs (CBIC) recently issued Notification No. 20/2024 – Central Tax on October 8, 2024, which introduces significant amendments to the Central Goods and Services Tax (CGST) Rules, 2017. Taking effect from November 1, 2024, these changes aim to streamline the invoicing process, particularly for transactions under the Reverse Charge Mechanism (RCM).

Below, we break down these regulatory updates, their implications, and how businesses can maintain compliance.

Key Changes in Self-Invoicing Rules Under RCM

Introduction of Rule 47A: Timely Issuance of Self-Invoices

Rule 47A is a new addition mandating that self-invoices must be generated within 30 days from the date of receipt of goods or services when dealing with unregistered suppliers. This change ensures that businesses comply with the GST framework promptly and reinforces timely tax documentation.

Amendments to Rule 46

The CBIC has made two amendments to Rule 46 to simplify invoicing procedures:

  • Omission of the Second Proviso: The second proviso following clause (s) of Rule 46 has been removed to simplify compliance requirements.
  • Modification to the Third Proviso: The wording in the third proviso has been updated, changing “Provided also that in the case of” to “Provided further that in the case of” to clarify the phrasing of invoicing requirements.

Revised Time of Supply for Services (Finance Act No. 2, 2024)

Amendments to Section 13(3) establish clear guidelines for the time of supply in services. Under reverse charge, the time of supply will now be determined based on specific dates, depending on whether the supplier is registered or unregistered:

  • For Services from Unregistered Suppliers: The time of supply will be the earlier of (a) the date of payment as recorded in the recipient’s books or bank account, or (c) the date the recipient issues the self-invoice.
  • For Services from Registered Suppliers: The time of supply will be the earlier of (a) the date of payment recorded by the recipient or debited from their bank account, or (b) 60 days after the supplier’s invoice date.

What is Self-Invoicing?

Self-invoicing is required when a business purchases goods or services from an unregistered supplier and the transaction falls under reverse charge. Since unregistered suppliers cannot issue GST-compliant invoices, the purchaser becomes responsible for generating the invoice and paying the tax. The introduction of Rule 47A now mandates that this self-invoice must be generated within 30 days of receiving the goods or services, streamlining the process and encouraging timely tax compliance.

Summary of the Regulatory Updates

  • Introduction of Rule 47A: Self-invoices must be issued within 30 days of receiving goods or services from an unregistered supplier.
  • Changes to Rule 46: The second proviso is omitted, and adjustments to the third proviso clarify invoicing obligations.
  • Revised Time of Supply for Services: The time of supply is determined based on the type of supplier (registered or unregistered) and relevant payment or invoice issuance dates.

How Businesses Can Ensure Compliance

Implement Prompt Invoicing Systems: Ensuring self-invoices are generated within the new 30-day deadline for RCM transactions.

    • Monitor Payment Dates: For services, accurately tracking payment or invoice issuance dates is crucial for determining the correct time of supply.
    • Stay Informed on Updates: Keeping up-to-date with future regulatory changes will help businesses stay compliant with evolving tax laws.

      To avoid penalties and maintain compliance, businesses should:

These updates, effective from November 1, 2024, represent a step towards simplifying GST compliance, particularly for self-invoicing under the Reverse Charge Mechanism. By embracing these regulatory changes, businesses can improve operational efficiency, enhance their compliance framework, and foster a positive relationship with tax authorities.

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In October 2024, the Goods and Services Tax Network (GSTN) released several key advisories designed to streamline compliance and enhance the GST portal’s functionality. These updates address various compliance areas, including e-way bill (EWB) traceability, metal scrap transaction requirements, input tax credit (ITC) reconciliation, and bank detail validations. Let’s explore these updates in detail:

Integration of Indian Railways Parcel Management with EWB

On October 4, 2024, GSTN introduced the integration of the Indian Railways’ Parcel Management System (PMS) with the e-way bill system. This integration aims to improve traceability and compliance by automating data entry for RR and Parcel Way Bill (PWB) numbers directly from the railways into the EWB portal. Taxpayers involved in rail transportation are advised to follow the specific guidelines for correctly entering PWB numbers, updating Part-B of the EWB, and ensuring accurate data entry for validation purposes.

New GST Compliance for Metal Scrap Transactions

Following the GST amendment issued in Notification No. 25/2024 – Central Tax on October 9, 2024, GSTN released an advisory on October 13 requiring metal scrap dealers to register via Form GST REG-07. This form, tailored for metal scrap businesses, mandates that taxpayers select “Others” under the “Constitution of Business” section and specify “Metal Scrap Dealers.” This advisory highlights the government’s focus on improving tax compliance within the metal scrap industry, emphasizing the importance of accurate categorization for proper GST compliance.

Introduction of the Invoice Management System (IMS)

Effective October 14, 2024, the new Invoice Management System (IMS) enables taxpayers to reconcile their invoices with supplier records, facilitating accurate ITC claims. Taxpayers can use the IMS dashboard to match, accept, reject, or defer invoices, providing a streamlined approach to ITC management. The first GSTR-2B report using IMS will be generated on November 14, 2024, for October’s return period. Notably, using the IMS is optional for GSTR-2B generation, but it provides valuable functionality for accurate ITC handling.

GSTR-9/9C Auto-Population Based on GSTR-2B Data

As of October 15, 2024, GSTN has enabled auto-population of eligible ITC for domestic supplies in GSTR-9 based on GSTR-2B data. This automated process excludes ITC under reverse charge and imports, facilitating a more accurate annual return filing process for taxpayers. The system is progressively implementing validation utilities to ensure smooth and reliable ITC entry for FY 2023-24.

Anticipated Hard Lock on Pre-Filled Tax Liability in GSTR-3B

Starting January 2025, GSTN is set to implement a “hard lock” on the auto-populated tax liability in GSTR-3B, making adjustments through GSTR-3B itself restricted. Taxpayers needing to correct their outward supplies will do so through GSTR-1A. This advisory underscores GSTN’s ongoing efforts to minimize filing errors and boost accuracy through automated entries, helping taxpayers streamline their filing processes with minimal human intervention.

Enhanced Bank Account Validation for Non-Core Amendments

GSTN’s latest update also includes a new validation procedure for adding bank account details as a non-core amendment. Taxpayers are now required to click the “VALIDATE ACCOUNT DETAILS” button before saving changes. This additional step ensures that updated bank information is accurate and validated, reducing the likelihood of errors in taxpayer records.

Additional FAQs on IMS

To assist taxpayers, GSTN has issued FAQs on the Invoice Management System, clarifying its features, functions, and best practices. The IMS allows taxpayers to accept, reject, or keep invoices pending, optimizing ITC claims and providing a new level of control over invoice reconciliation.

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