GST Audit in India Begins for FY2018: What Should Businesses Know

Posted by Written by Nishtha Yadav Reading Time: 2 minutes
  • Businesses in India must file their GST audit report for FY2017-18 by January 31, 2020.
  • For FY2018-19, the last date to file the GST audit report is March 31, 2020.
  • GST audits are necessary to check tax evasion and compliance with GST laws.

In a bid to improve goods and services tax (GST) compliance and increase GST revenue collection, the country’s tax authorities have started issuing notices for GST audit.

This will be the first ever GST audit after the taxation system rolled out in July 2017. Tax authorities are now seeking an audit of the accounts and records for the first year of GST implementation, that is, 2017-18 from businesses across India.

The notice asks taxpayers to furnish 12 documents for audit purposes, including detailed records of GST forms, income tax papers, input service invoices, electronic cash/credit ledger, and business agreements of purchase and sale, among others.

As reported by the media, the audit drive will be conducted throughout the country during the months of January and February. A detailed report is expected to be submitted to the central government with details about tax evaders, fake refunds, and credit claimants.

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Experts, however, believe that since large companies are registered in multiple states, it will be a mammoth task for authorities to conduct audits for all states within the stipulated time. Further, since this is the first ever GST audit, it is anticipated that officials might take longer to finish the process.

Businesses with foreign investment are, however, advised to pay close attention to the audit process as authorities might be stricter in monitoring their tax compliance.

As per the GST council, the penalty for not submitting the GST audit report is INR 25,000 (US$353).

Further action can be initiated by authorities if businesses have not paid their taxes, or short paid taxes, or wrongly availed or utilized input tax credit.

What should businesses do?

The last date to file audit returns for FY2017-18 has been extended to January 31, 2020. Therefore, it is advisable that businesses finish their GST audit at the earliest and file their audit report with authorities before the deadline.

It is also advisable to hire a GST auditor or seek local tax expertise as this is the first time such an exercise is being undertaken in the country; in other words, the risk exposure for businesses might be higher.

Tax authorities will be working through the multiple changes made through various GST amendments since the 2017 roll-out and will closely examine multiple documents submitted for the first time. Their assessments may be affected by various factors, which is why it is important for firms to stay on top of their record keeping and compliance.

Businesses that have filed their GST audit reports should keep information about the following documents handy: their return forms, registration certificates, copies of the annual report, directors audit report, income tax returns, any returns submitted to a financial institution or a bank, cost audit, tax and internal audit reports, electronic credit/cash ledger, abstract of output services invoices and input services, work order/purchase order/agreements, filled up forms as prescribed by the GST audit manual, and a copy of the last general audit report.

Those served with an audit notice need to provide the information sought and clarify all the concerns raised by the GST authorities.

India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for business support in India.