What is an audit under GST law?
An independent examination of books of accounts of an organization by an expert to provide a true and fair opinion on the same is referred to as audit in general terms. The definition of audit can vary from one law to another; however, the principle remains the same. Under GST law, there were three types of audits prescribed namely:
- Audit by Chartered Accountant/ Cost Management Accountant (CA/ CMA) u/s 35 of the CGST Act, 2017 – This was an annual audit was prescribed for taxpayers whose turnover exceeded the threshold prescribed under the law. Such audit was prescribed to be conducted by a CA or a CMA.
- Departmental audit u/s 65 of the CGST Act, 2017 – This audit is conducted by tax authorities as and when they deem fit. The regularity and the period of audit may vary. The audit reports are issued and the taxpayer is required to resolve the issues raised.
- Special audit u/s 77 of the CGST Act, 2017 – This audit is directed during an inquiry or scrutiny by the Assistant Commissioner after obtaining approval from Commissioner. However, this audit is conducted by the nominated CA or a CMA who is appointed by the Government. The CA or CMA, at the end of the audit, furnishes its audit report to the Government.
Amendments made vide Union Budget 2021
The Union Finance Budget 2021 proposed to omit sub-section 5 of Section 35 of the CGST Act, 2017. The said section pertained to the turnover audit done by CA or CMA on an annual basis. The Government proposed this change to reduce the compliance burden on the industry and businesses. Moreover, this move was said to be in lines with the Government’s ‘Ease of doing business.’ The reason being that removal of external audits would reduce the compliance costs, omit onerous compliance and make businesses self-sufficient.
The Finance Bill 2021 has received assent from the President. However, the Notifications notifying amendments in the law are still awaited.
What does this amendment mean to stakeholders?
GST is an ever-evolving regime. The frequency and quantum of amendments that have happened in the last four years are overwhelming. It is exceedingly difficult for a business to track such amendments, let alone understand their implications on their business. In such a volatile ecosystem of taxes, the withdrawal of the requirement of external audit certification may prove to be fatal. It is not a secret that the penal provisions under GST are rigorous. Even one slip-up could lead to high penalties.
The industry is mostly divided on their viewpoint in this regard. While a part of the industry feels that this move would provide a much-needed respite to the industry, another section believes that an external opinion on their GST compliances and positions helps them identify gaps promptly. Thus, saving interest costs and penalties. Nevertheless, the businesses would still need to maintain the maker-checker balance which was earlier done by way of GST audits. Lack of requisite checks could prove detrimental to the business in the long run from the perspective of penal consequences that may arise at the time of assessments when errors are discovered. One option available to the industry is the use of advanced technology solutions. There are various ASP, GSP solutions available in the market which can be helpful in such a situation. Some of the advanced features of these solutions resolve the most complex issues which include Input Tax Credit reconciliations, transaction-level matching, maintenance of audit trails, HSN mapping, three-way match, etc. Relying on technology can structure the data of organizations and provide the management a comfort that each transaction is being scrutinized in detail.
On the other hand, the government’s rationale to do away with the mandatory GST annual audit requirement by professionals could be to seek a balance between the ease of doing business and multiple compliances under GST by replacing audit with self-certification and thus helping over 10 million firms save audit fees worth about ₹30,000 crores annually. The introduction of self-certification in place of GST audit would eliminate the requirement of certification from professionals, ease annual compliance and save cost. It may be noted that though the mandatory GST audit has been removed, the companies would still be able to avail services from professionals for independent review or audit of reporting and compliances under GST. The decision to this effect was already taken by the GST Council in March last year, but could not be implemented due to the spread of the Covid-19 pandemic and subsequent lockdown
Conclusion and Way forward
Although various representations have been made to roll back this amendment, it appears that it may not happen. Therefore, from the perspective of businesses, their responsibility increases. This is because earlier any errors or mistakes were identified at the close of the year. However, now that the need for an audit is eliminated, it is important to ensure that things are done correctly, for the first time itself. In such cases, the importance of technology becomes evident. The right use of technology at the right place can bring down the number of errors substantially. The reconciliation tools, E-invoice and E-way Bill solution, GST compliance tool, and many more are already aiding the businesses to cope up with the everyday GST amendments and compliance woes. Technology has proven its mettle time and again, it is now the time for it to ensure maximum precision possible to safeguard industries from penalties. Contact us to book a demo.