GST Audit Applicability 2024-25: 7 Essential Rules & Turnover Limits

Navigating the labyrinth of Goods and Services Tax (GST) compliance is a critical task for businesses in India. Among the various compliances, understanding the gst audit applicability is perhaps the most significant for ensuring financial transparency and avoiding hefty penalties. In recent years, the government has introduced major amendments to simplify the process, specifically shifting the burden from Chartered Accountants to the taxpayers themselves via self-certification.

However, this simplification has led to confusion regarding who actually needs to file what. Does every business need to file an audit report? What are the current turnover thresholds? In this comprehensive guide, we will decode the rules surrounding gst audit applicability, break down the transition to self-certification, and help you determine your specific compliance obligations for the current financial year.

Understanding GST Audit Applicability Basics

Before diving into the numbers, it is essential to understand what a GST audit entails. In simple terms, a GST audit is the examination of records, returns, and other documents maintained by a registered person. The objective is to verify the correctness of turnover declared, taxes paid, refund claimed, and Input Tax Credit (ITC) availed, and to assess compliance with the provisions of the GST Act.

Historically, gst audit applicability was synonymous with Section 35(5) of the CGST Act, which mandated that registered persons with a turnover exceeding a specific limit must get their accounts audited by a Chartered Accountant or a Cost Accountant. However, the Finance Act of 2021 brought a paradigm shift by omitting Section 35(5), effectively removing the mandatory CA certification. Instead, the responsibility was shifted to the taxpayer to furnish a self-certified reconciliation statement in Form GSTR-9C.

Despite this change, the concept of gst audit applicability remains relevant because the requirement to file the reconciliation statement (GSTR-9C) is still dependent on aggregate turnover limits.

Current Rules for GST Audit Applicability (FY 2023-24 Onwards)

The rules governing gst audit applicability have evolved to ease the compliance burden on smaller taxpayers (MSMEs). For the financial years 2021-22 onwards, the government has notified specific turnover limits that dictate whether a business needs to file the Annual Return (GSTR-9) and the Reconciliation Statement (GSTR-9C).

It is vital to note that while the term “audit” is technically replaced by “self-certified reconciliation,” in common business parlance, checking gst audit applicability refers to determining whether you are liable to file Form GSTR-9C.

Threshold Limits Defining GST Audit Applicability

When calculating the turnover to determine gst audit applicability, businesses must consider the “Aggregate Turnover” on a PAN-India basis. This includes:

• Taxable supplies
• Exempt supplies
• Exports of goods or services
• Inter-state supplies between distinct persons having the same PAN

It excludes CGST, SGST, UTGST, IGST, and Compensation Cess. For businesses operating under multiple GSTINs with the same PAN, the turnover of all GSTINs is summed up to check the threshold.

GST Audit Applicability vs. Self-Certification

The transition from CA certification to self-certification was a move to trust the taxpayer. Previously, a Chartered Accountant had to certify that the reconciliation statement was true and correct. Now, the taxpayer (or the management) self-certifies this.

However, this does not mean the scrutiny is less. In fact, gst audit applicability rules now place a higher moral and legal responsibility on the business owner. Any discrepancy found later by the department during scrutiny or assessment can lead to penalties, as the taxpayer cannot shift the blame to a third-party auditor. Therefore, even though CA certification is not mandatory, many businesses still engage professionals to prepare the GSTR-9C to ensure accuracy before self-certifying.

For small businesses, understanding these limits is crucial for growth planning. If you are scaling up, you might want to look into MSME registration for small business to avail various government benefits while you manage your compliance costs.

Other Types of GST Audits

While the turnover-based audit (GSTR-9C) is the most common concern, gst audit applicability also extends to audits conducted by the tax authorities. It is important to distinguish between the annual compliance and departmental interventions.

1. Audit by Tax Authorities (Section 65)

The Commissioner or any officer authorized by him can undertake an audit of any registered person. This is not dependent on a specific turnover limit but is usually risk-based. The department issues a notice (ADT-01) at least 15 days prior to the conduct of the audit. This audit can verify your books of accounts, returns, and inventory.

2. Special Audit (Section 66)

If, during any scrutiny or investigation, an officer of the rank of Assistant Commissioner or above feels that the value has not been correctly declared or the credit availed is not within normal limits, they can direct a Special Audit. This audit is conducted by a Chartered Accountant or Cost Accountant nominated by the Commissioner.

How GST Audit Applicability Impacts Input Tax Credit

One of the primary reasons the government enforces strict gst audit applicability rules is to monitor Input Tax Credit (ITC). The reconciliation statement (GSTR-9C) specifically asks for a reconciliation of ITC declared in the Annual Return with the ITC availed in the audited financial statements.

If you have claimed excess ITC or ineligible ITC, the self-certification process is your last window to reverse it with interest (usually 18% or 24%) to avoid show-cause notices later. Conversely, if you missed claiming ITC, the time limit is usually the 30th of November of the following financial year, meaning GSTR-9C is often too late to claim new credit, but it is the right place to explain discrepancies.

Keeping up with recent changes is vital. For instance, decisions made in high-level meetings often tweak these rules. You can check the GST Council 54th meeting highlights to see if recent amendments affect your sector.

Penalties Related to GST Audit Applicability

Ignoring gst audit applicability is not an option. Failure to file the GSTR-9 (Annual Return) or GSTR-9C (Reconciliation Statement) by the due date attracts late fees.

• Late Fee for GSTR-9: Generally ₹200 per day (₹100 CGST + ₹100 SGST), subject to a maximum cap calculated as a percentage of turnover in the state (usually 0.25% or 0.5%).
• General Penalty: For GSTR-9C, while there isn’t a specific late fee provision in the portal like GSTR-3B, a general penalty under Section 125 of up to ₹25,000 for CGST and ₹25,000 for SGST can be levied for non-compliance.

Furthermore, if a departmental audit uncovers suppression of sales or fraud, penalties can escalate to 100% of the tax evaded.

Conclusion

Understanding gst audit applicability is the first line of defense for any business against tax litigation. While the removal of mandatory CA certification has streamlined the process, the rigorous requirement for self-certification for businesses with a turnover above ₹5 Crore ensures that the government keeps a close watch on financial integrity. Remember, the ₹2 Crore and ₹5 Crore limits are the golden thresholds.

Always maintain a robust trail of documentation. Whether you are a small startup or a large conglomerate, accurate bookkeeping is the key to stress-free GST compliance. If you fall within the ambit of gst audit applicability, ensure your GSTR-9 and GSTR-9C are filed accurately and on time to maintain a healthy compliance score.

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