Audit and Assessment
Audit
Basics
What is an audit?
An audit is a verification process used to validate a taxpayer’s financial records and legal documents.
Why are audits conducted?
Audits are carried out to verify the accuracy of GST turnover declarations, tax payments, and refunds claimed. They’re also used to check the returns filed by taxpayers and validate businesses’ compliance ratings.
What is the threshold for an audit under GST?
If a business’ turnover exceeds 1 crore in a fiscal year, the business owner will be liable for an audit session conducted by a chartered accountant or cost accountant.
What is a special audit?
The Assistant Commissioner can call for a special audit if the regular audit reveals disparities in the taxpayer’s records. These disparities could include inaccurate tax declarations or incorrect credits availed. A cost accountant or chartered accountant appointed by the Commissioner will conduct the special audit.
Timeline of an auditing session
Will I get any notification before the audit?
Yes, you will be notified at least 15 working days before the audit.
I’ve been sent an audit notice. What should I do?
Once the audit notice is sent, you should file a GSTR-9B and upload any documents requested in the audit notice, including a reconciliation statement and an audited copy of your annual accounts. More generally, you should provide the tax officials with the information they need and cooperate with them at the time of the audit.
What is the commencement of audit?
An audit has to be completed within a given time frame after the date of commencement. The commencement of the audit refers to later of the following:
a) the date on which the records and accounts were handed over to the audit authorities
b) the actual date the audit began at the place of business of the taxpayer
When should the auditing session be completed?
The audit should be completed within 3 months from the date of commencement. The Commissioner can extend this period for a maximum of 6 months.
What happens at the end of an auditing session?
At the end of an auditing session, the findings will be declared and the audit report will be submitted to the Assistant Commissioner. These findings include discrepancies in tax refunds, tax payments, or input tax credit between the audited financial statement and the information furnished by the taxpayer. After the findings are declared, the taxpayer will be given a chance to be heard by the tax officials.
When is the audit report submitted?
The auditor should submit the audit report within 90 days of completing the audit. or within the extended period of 90 days.
Demand and Recovery
What happens if there’s a mismatch between the tax that I owed the government and the actual tax amount that I paid?
If there is a discrepancy, you will be sent a notice by the tax officials demanding payment of the taxes owed. This can happen in the following cases:
- Unpaid or short paid tax or incorrect refund, where no fraudulent activities are involved.
- Unpaid or short paid tax or incorrect refund that involves fraudulent activities.
- Failure to deposit tax with the government, despite collecting the appropriate amount.
- Making payments for SGST transactions where IGST had to be paid, or vice versa.
- If the amount demanded is not paid, the Income Tax department will begin its recovery procedure.
What are the factors that could lead to a taxpayer’s conviction?
A taxpayer will be convicted under Section 73 (non-fraud case) or Section 74 (fraud case), if they are found guilty of the following:
- Tax not paid
- Short payment of tax
- Incorrect tax refunds
- Improper availing or utilizing of ITC
Assessment
Basics
What is an assessment?
An assessment is a process used to calculate a taxpayer’s tax liability (how much tax they should pay for a particular tax period).
Who performs assessments under GST?
All taxpayers perform their own self-assessments. Additional assessments are performed by tax officials.
What are the different types of assessments under the GST regime?
The types of assessments are:
- Self-assessment
- Scrutiny assessment
- Summary assessment
- Provisional assessment
- Best judgement assessment
Self-assessment
What is self-assessment?
Self-assessment refers to each taxpayer’s process of figuring out their own tax liability for a tax period and then filing the appropriate returns.
Scrutiny assessment
What is scrutiny assessment?
The tax officer can scrutinize a taxpayer’s returns and related information, and ask for explanation regarding any discrepancies. If the explanation is not satisfactory, corrective measures such as an audit or a special audit will be initiated.
Summary assessment
What is summary assessment?
Summary assessment is carried out by a tax official if they have a valid reason to believe that a delay in assessment would adversely affect the overall revenue of the Government, and they possess evidence of the taxpayer’s tax liability. If the order is found to be erroneous within 30 days of receipt, the Joint Commissioner or the Assistant Commissioner can withdraw it.
Is a summary assessment order always passed against the taxpayer?
No, the order is not always passed against the taxpayer. If the goods are being transported or stored in a warehouse, the taxpayer cannot be held responsible for them. In such cases, the order is passed against the person in charge of the goods at that point, per Section 64 of the CGST/SGST Act.
Can a summary assessment order be withdrawn?
A taxpayer who has received such an order can apply for its withdrawal within 30 days of receiving the order. The withdrawal request should be submitted to the Additional/Joint Commissioner. If they find the order to be erroneous, they will withdraw it and pass it on to the proper tax officer, who will then proceed with the determination of tax liability under Section 73/74 of the CGST/SGST Act.
Provisional assessment
How does provisional assessment work?
When the taxpayer is unable to accurately calculate their own tax rate, they can opt for provisional assessment, in which the tax official calculates the tax rate and notifies the taxpayer of the result. The taxpayer can then pay their taxes at the rate set by the tax official.
When can a taxpayer pay tax on a provisional basis?
Under the GST regime, the taxpayer normally pays tax on a self-assessment basis. If a taxpayer is unable to determine the value and tax rate applicable to the goods/services they supplied, they should raise a request for provisional assessment, citing the reasons why they need to pay tax on a provisional basis. This request will be processed by a tax officer.
Should I pay interest if my final tax liability exceeds the value of the provisional assessment?
Yes, you should pay interest from the date the tax was originally due until the date you actually pay the tax.
Best judgement assessment
What is best judgement assessment?
If scrutiny assessment fails, a tax official will assess the taxpayer’s records using the available evidence. This is likely to happen if:
- The necessary documents, financial records, or returns are not furnished.
- The furnished documents or records are rejected by the tax official due to inaccuracy.
- Any taxable person fails to pay taxes despite being eligible to pay taxes under GST.
When will a best judgement assessment order be withdrawn?
After a taxpayer receives a best judgement assessment order issued by a tax official, they have 30 days to file their returns for the tax period and pay the tax shown on the assessment. As soon as they have done so, the best judgement assessment order will be withdrawn.
What is the time limit to pass assessment orders under Section 62 and 63 (Best Judgement and Non-filers)?
Assessment orders under these sections must be passed within 5 years from the due date of the annual return (GSTR-9).