7 Features To Look For In a Good GST Audit Tool

GSTR 9C filing is a few weeks away with the due date to file Annual Returns postponed to 31st of August 2019. GSTR 9C needs to be filed by all those registered taxpayers whose turnover exceeds Rs 2 Cr. This form needs to be filed after you file your GSTR 9 i.e. Annual Return for the financial year. Essentially GSTR 9C is a Reconciliation Statement and certificate duly signed and authorized by a qualified CA/CMA who conducts a thorough audit of the books and certifies that the records are true and correct.

GST is a taxation system based on trust where a taxpayer calculates his taxes, pays them and files his returns. Hence as a measure of caution the government has introduced GST Audit for large businesses to make sure that the taxes paid are accurate and that no excess ITC claims have been made, digging a hole in the government revenues.

Businesses liable for GST Audit are those whose turnover crosses the threshold of Rs 2 Cr and the manner of calculating this turnover has been defined in the act. For the first year of the Annual Return filing even the quarter before GST Act became applicable (i.e. April 2017 to June 2017) will be considered for calculating the limit of 2 Cr. There are further detailed rules as to what is included in the turnover and what is excluded.

GSTR 9C is basically a detailed account of the reconciliations that are prepared based on the gaps in the figures and amounts for sales and purchases as recorded in the books of accounts and those filed on the GSTN portal via various GST Returns. These include GSTR 1, GSTR 2A and GSTR 3B. GSTR 9 basically is the first step where all the monthly returns filed are summarized and total annual figures are auto-populated in the various fields. The taxpayer can edit these and modify after checking them for any changes and then proceed to prepare the Reconciliation Statement in GSTR 9C.
GST Audit has been mandated by the government for the following major reasons:

  1. To find out the data gaps between the data filed throughout the year on the GSTN portal and that recorded in the books of accounts
  2. To reveal any tax leaks and evasions that the taxpayer may have made by reporting erroneous data
  3. To make sure that all the data mismatches are adequately explained by the taxpayer through separate reconciliation statements and are filled through GSTR 9C Reconciliation Statement
  4. To ensure that all the tax credits and ITC claims are proper and backed by proper data and records that are duly audited by an independent party i.e. a Chartered Accountant/Cost and Management Accountant

The documents that need to be checked in GST Audit are as follows

  • Sales Register
  • Stock Register
  • Purchase Register and Expenses ledgers
  • Input tax credit availed and utilized
  • Output tax payable and paid
  • E-way bills generated during the period
  • Any documents of communications with the GST department

All these documents that form a part of the books of accounts are compared with the records filed on the GST Returns on the GSTN portal. The records that a taxpayer needs to produce in a GST Audit are Audited financial statements (which is PAN-based), Annual return in form GSTR-9 (for every GSTIN), Certified reconciliation statement in Form GSTR-9C, reflecting reconciled values of supplies and tax amounts declared in GSTR-9 compared to audited financials in Part-A, along with the Audit report in Part-B.

Hence, to compare and analyze 100% of these records for an entire year you require an automated solution considering that the volume of records will be high for a turnover of 2 Cr plus. In such a situation what are those factors that you must consider before you choose an automation solution to ease your audit process?

Here are a few factors that must be present in an audit tool software that automates the comparison between the books of accounts and GSTN records:

  1. Software that thinks like an auditor and provides a possible set of actions or suggestions, which assists the taxpayer or the Auditor/Chartered Accountant/Cost Accountant to carry out their GST certification process in a systematic and detailed manner.
  2. A software that is capable of integration with your existing system of accounting so that user can upload data in the format that is compliant or data can be extracted from the existing systems
  3. Software that compares and prepares various reconciliation statements that are required to be uploaded/filled in the GSTR 9C Form on the portal
  4. Software that can prepare dummy GSTR 1, GSTR 3B and GSTR 9 based on the books of accounts for comparison with the ones on the GSTN portal to reveal mismatches
  5. Software that compares sales and purchase registers and general ledger records with GSTN data to reveal any gaps and mismatches
  6. Software that can prepare reports like GST liability, missing invoices, ITC report for ITC availed and unavailed etc, tax trend analysis reverse charge mechanism report and more such reports
  7. A software that is fully automated to save time, enables full audit of data, provides an audit trail, acts as an internal check tool and provides for e-filing and storage of data for reference later.

These are broadly some features that can make for a perfect audit tool that will make sure that you are prepared well for the audit by a qualified CA/CMA. This will enable you to ensure that your account books and GSTN data are already checked internally and mismatches reduced before the external auditor checks and prepare his report.

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