GST Internal Review is a process designed to ensure tax compliance and prevent tax evasion. To avoid notices from GST authorities, the following checkpoints should be considered to ensure accurate data and reporting:
- Reconciling Total Summary Figures: Verify that the total summary figures in GSTR-3B (monthly summary return) align with the total outward invoices reported in GSTR-1 (monthly return for outward supplies) for a specific month.
- Outward Supplies: Review and reconcile the details of taxable outward supplies, excluding zero-rated, nil-rated, and exempted supplies.
- Zero-rated Outward Supplies: Verify the accuracy of zero-rated outward supplies, which are supplies eligible for a tax rate of 0%.
- Nil Rated and Exempted Outward Supplies: Ensure the proper reporting of supplies that are either nil rated (tax rate of 0%) or exempted from GST.
- Reverse Charge Mechanism: Check the inward supplies where the recipient is liable to pay GST under the reverse charge mechanism. Verify that the correct tax has been paid and reported.
- Input Tax Credit (ITC): Compare the input tax credit claimed in GSTR-3B with the details available in GSTR-2A (auto-populated statement of inward supplies). Businesses are eligible for ITC based on the availability of valid invoices in GSTR-2A.
- Credit and Debit Notes: Ensure that any credit notes and debit notes issued have been accurately recorded in GSTR-1 at the appropriate sections.
By performing an internal review based on these checkpoints, businesses can minimize data gaps, reduce the risk of non-compliance, and avoid potential notices or penalties from GST authorities.
The internal audit procedure involves a checklist that needs to be adhered to. According to this checklist, the internal audit procedure begins by checking the following:
GSTR 3B with GSTR 2A & GSTR 1
The Central Board of Excise and Customs developed the GSTR 3B as a GST monthly return form for July and August (CBEC).While GSTR 1 is a form for quarterly reports, GSTR 2A is a form for tax returns relating to purchases.
a) GSTR 2A: To reconcile the information on the two forms, the auditor compares form GSTR 3B with GSTR 2A. This enables the auditor to make sure that the company does not make additional input tax credit claims. If it is claimed, the company must also pay a penalty of tax and interest equal to 24% of GST every year.
b) GSTR 1: On comparison of GSTR 3B with GSTR 2A, the auditor sees the difference and recommends changes to be made in purchase invoices, and accordingly in the GSTR 1 form as well.
GST Compliant Invoices
Verifying the information on an invoice is the next step in the internal audit process. In accordance with the regulations outlined in the GST Registration statute, this is done to verify that the invoices used are GST compliant. The auditor checks the invoice and if the format differs, management is instructed to modify it in accordance with GST regulations.
Input Tax Credit vs Output Tax Liability
At this stage in the internal audit procedure, the GST auditor has to check:
- Date of issuance of invoice and date of payment of invoice, if payment date does not exceed 180 days
- If it exceeds 180 days, the recipient organisation’s input tax credit is reversed and becomes an output tax liability.
E-Way Bill With Invoices
Individuals and organisations that transfer taxable items (as defined by the GST) worth ₹ 50,000 or more using the E-way portal are issued E-way bills. To confirm that all products worth ₹ 50,000 or more have been transferred with the appropriate E-way bill, the auditor compares invoices to E-way bills.
If not, the auditor can notify the GST commissioner, who has the authority to levy fines or penalties on the relevant people or organizations.
The key deliverables in the context of the GST internal audit procedure may include:
- Audit Report: A comprehensive report summarizing the findings of the internal audit, including observations, recommendations, and areas of improvement. The report provides an overview of the audit process and serves as a reference for management and stakeholders.
- Reconciliation Statements: Detailed reconciliation statements that compare various GST-related forms and documents, such as GSTR 3B, GSTR 2A, and GSTR 1. These statements highlight any discrepancies, differences, or adjustments required in order to ensure accurate reporting and compliance.
- Compliance Recommendations: Recommendations and suggestions for addressing any identified non-compliance issues or gaps in GST compliance. These recommendations may include improvements in invoice formats, procedures, documentation, or training to enhance compliance practices.
- Corrective Actions Plan: A plan outlining the corrective actions to be taken by the organization to address the identified issues and improve GST compliance. This plan may include specific timelines, responsibilities, and steps to be followed in order to rectify any non-compliance and strengthen internal controls.
- Compliance Assurance: Assurance that the organization is adhering to GST regulations and fulfilling its compliance obligations. The internal audit procedure helps provide confidence to management and stakeholders that proper processes and controls are in place to meet GST requirements.
- Risk Assessment: Identification and assessment of potential risks and areas of vulnerability in the organization’s GST compliance. The audit may highlight areas where there is a higher risk of non-compliance or where additional controls or monitoring may be required.
These key deliverables help organizations improve their GST compliance, strengthen internal controls, and mitigate the risk of penalties or non-compliance. They also provide valuable insights and recommendations for continuous improvement in GST-related processes and procedures.