Repeal of annual GST audit can help businesses save up to Rs.30,000 crore

GST audit requirement has been removed from the CGST Act by an amendment through the Finance Act, 2021. Two officials from the Ministry of Finance have recently remarked that the move saves audit fees of approximately Rs.30,000 crore currently spent by about 10 million business firms, as per unconfirmed sources. 

The comment has come in when the tax professionals have expressed their discontent about the Union Budget 2021 announcement for removing the GST audit. The Institute of Chartered Accountants of India (ICAI), the Chartered Accountants’ professional body (CA) in India, has approached the Ministry represented by Nihar N. Jambusaria, the newly elected President. Accordingly, the press quoted him saying, “We are of the view that provisions on GST audit and reconciliation statement certification by a CA must be retained in the GST law. An audit is not avoidable compliance, but is a preventive necessity.”

On the other hand, these officials further stated that the GST audit had been removed to reduce the compliance burden. They were quoted by media reports that “The Finance Bill, 2021 will revise the current GST law, and the CBIC will notify this sooner or later. The fundamental intention was to expand the GST base by reducing compliance burden and assist businesses, specifically small firms, save money by not paying audit fees to professionals.”

The Union Budget 2021 proposed an amendment to Sections 35 and 44 of the CGST Act. Section 35(5) has been wholly omitted to remove the GST audit’s mandatory requirement and submission of the certified reconciliation statement in Form GSTR-9C. Whereas Section 44 has been replaced to remove compulsory furnishing of the audited reconciliation statement. 

Instead, it allows the filing of Form GSTR-9 (GST annual return) on a self-certification basis. The move is yet to take effect as the CBIC is yet to notify the same. Subsequently, the CBIC has clarified that GSTR-9 and GSTR-9C submission will continue to apply for FY 2019-20, currently due by 31st March 2021.

Industry experts maintained that while removing the GST audit eases the compliance burden, it is likely to have a ripple effect in other checks. Henceforth, the businesses must become vigilant about whether data going in the GSTR-1 and GSTR-3B while filing matches with books of accounts. They must also have yearly checks to ensure that the GST returns’ turnover is reconciled with the audited financial statements. 

The independent tax professionals would have looked into these matters with the GST audit and reported any tax shortfall and the computation of penalties and interest levy. Self-certification may not be effective in detecting these mismatches and fulfilling the tax obligations. It may cause revenue leakage to the government.

While the tax officers can call for special audits as per the GST provisions, that may not be as effective as GST audits. Further, President Jambusaria added, “Revenue recognition for accounting, when compared to GST law, is done differently. Therefore, the reconciliation statement must be approved by a CA who is well-versed in both accounting and GST. GST audit carried out by CAs will uphold the concept of maker-checker. It will thereby detect deviations and errors in GST compliance.” 

He further pointed out that as of 12th February 2020, around 12 lakh taxpayers had to submit GSTR-9C. The audit should not be assumed as a cost to the business. Instead, it must be considered as an investment with the benefits reaped over time.

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