Types of GST Audits in India: Understanding Section 355, 65, and 66 Audits

GST (Goods and Services Tax) is a crucial component of India's tax structure, designed to streamline and simplify indirect tax laws. Maintaining compliance with GST requirements is essential for businesses, especially those with a significant annual turnover. A robust audit system is in place to ensure that businesses adhere to these regulations. This article delves into the different types of GST audits: Section 355 audits by professionals, Section 65 audits by tax authorities, and the special Section 66 audits. Understanding these audits can help businesses navigate the complexities of GST compliance more effectively.

Mandatory GST Audit - Section 355 Audit by Professionals

Under Section 35A of the Central Goods and Services Tax Act, 2017, certain taxpayers are required to undergo a mandatory GST audit. This audit, commonly referred to as Section 355 audit, is performed by chartered accountants (CAs) or cost accountants (CMA) appointed by the business. The need for this audit arises when the annual turnover of a registered taxpayer exceeds 5 crore Indian rupees (Rs. 5 crore) for a financial year. This audit ensures that the taxpayer has accurately recorded their financial transactions and has filed the required returns and statements correctly.

Here are the key points to remember about Section 355 audits:

Threshold Requirement: Annual turnover exceeding Rs. 5 crore triggers the need for an audit. Audit Conducted by: Chartered accountants or cost accountants appointed by the business. Purpose: To verify the accuracy of financial records, tax payments, and compliance with GST norms. Frequency: Every financial year. Notification: The business must receive a notification 15 working days before the audit is conducted.

Departmental GST Audit - Section 65 Audit by Tax Authorities

Section 65 of the GST Act mandates that the tax authorities can conduct audits on registered taxpayers. This audit, often referred to as a departmental audit or a GST ADT-01 audit, can be initiated at the business premises or the tax office. The tax authorities are authorized to perform this audit to ensure that the businesses are complying with their GST obligations. The process involves a variety of steps, including scrutiny, inquiry, and investigation, to ensure that the businesses are maintaining accurate records and paying the correct taxes.

To initiate a Section 65 audit:

Notification: The registered person must be given a notification in the form of GST ADT-01, 15 working days before the audit. Duration: The audit is typically completed within 60 days from the date of the notification. Scope: The audit covers various aspects such as purchase and sales data, input tax credit, and tax payments. Follow-Up: If discrepancies are found, further inquiries may be conducted.

Special GST Audit - Section 66 Audit by Tax Authorities

Section 66 of the GST Act enables the tax authorities to direct a special audit. This type of audit involves a detailed examination of the records and books of accounts of the registered person. The audit is conducted by a chartered accountant or a cost accountant appointed by the tax authorities. This special audit is compulsory if there are reasonable grounds to believe that the taxpayer has not complied with GST laws. The commissioner or the assistant manager can issue an order for a special audit, and the CA who conducts the audit must inspect the records and ensure compliance with GST norms.

Key points about Section 66 audits:

Reason for Audit: To verify compliance with GST laws based on reasonable suspicion. Conducted by: Chartered accountants or cost accountants appointed by the tax authorities. Purpose: To investigate specific issues or conduct a more detailed review. Initiation: Issued by the commissioner or assistant manager based on an order. Scope: Extends to all records and associated financial documents.

Changes in GST Audit Requirements

As of the Finance Act 2021, the requirement for mandatory GST audits as per Section 35A and the submission of GSTR-9C as certified by a CA/CMA has been removed. The 43rd GST Council meeting held on 28th May 2021 recommends that taxpayers with an annual aggregate turnover of 5 crore or more can submit GSTR-9C as a self-certified statement. This was formally notified by the Central Board of Indirect Taxes and Customs (CBIC) with Notification No. 29/2021- Central Tax on 30th July 2021.

Despite the removal of mandatory audits, the need for audit processes remains to ensure business compliance with GST regulations. This ensures that taxpayers accurately adhere to their tax liabilities and maintain proper financial records. The audit system continues to be a critical tool for the government to monitor and enforce GST norms.

Need for GST Audit and Its Meaning

A GST audit involves a thorough examination of a business's records, returns, and other documents to verify that they are in compliance with GST regulations. The primary purpose of this audit is to ensure that the business has accurately assessed and declared its tax liability, paid the correct taxes, and filed all necessary returns.

India's GST regime operates on a trust-based system, where businesses are expected to assess their own tax liability, make payments, and file returns. In such a system, a strong audit mechanism is necessary to verify this trust. Audits help identify any discrepancies or non-compliance and ensure that businesses contribute to the national revenue as per the law.

Several measures are in place to facilitate proper implementation of GST, with audits being one of them. The constant review and refinement of these audit processes help in making the GST system more transparent and reliable for all stakeholders.