Addressing discrepancies between taxes paid and owed under GST: FAQs

What procedures are followed when there are differences between taxes paid and owed?

There are a few procedures which are followed under GST in case there are any dissimilarities between the tax owed by a customer and the tax paid by them:

• Audit
• Assessment
• Demand and Recovery
• Advance Ruling

Auditing

What is an audit?

An audit is an examination of documents and records maintained by a GST registered business owner. The purpose of an audit is to verify the legitimacy of the turnover declared, the taxes paid, ITC availed, and refund claimed, and also to determine the extent to which the taxpayer has followed the GST Rules and Acts.

When will I be audited? 

• If your business’ turnover crosses the threshold of Rs. 1 crore, you will be audited. If you have opted for the presumptive income scheme, then you will be audited if your turnover is under Rs. 2 crore. 

• The presumptive income scheme is a scheme meant to help SMEs reduce the burden of maintaining accounts and getting them audited. 

What are the types of audits?

There are three different types of audits under GST. 

• The first type of audit is to be conducted by a chartered or cost accountant for every business whose turnover exceeds Rs. 2 crore. The business owner must be able to provide a certified copy of the audited annual accounts and a reconciliation statement along with Form GSTR-9C once an audit notice has been sent to them. 

• The second type of audit is called a normal audit. It is conducted by the Commissioner or any officer authorised by them for the particular business. The Commissioner decides the duration, frequency and manner of the audit.

• The third type of audit is called a special audit. The Commissioner can call for a special audit when a normal audit reveals discrepancies in the taxpayer’s documents or records.

What are the results of an audit and what consequences do they bring?

• After the end of an audit session, the findings of the auditor are declared to the taxpayer within 30 days. These include any differences found between the information provided by the taxpayer and the financial statement drawn by the auditor. If there are discrepancies, then the taxpayer is first allowed to be heard by the tax officials. This is an attempt at clarifying and avoiding any misunderstandings.

• However, if further investigation proves the taxpayer guilty of non-payment, short payment, incorrect refunds or improper utilisation of ITC, they will be convicted under Sections 73 and 74 for non-fraud and fraud cases respectively. 

Advance Ruling

What is advance ruling under GST?

• When individuals and businesses require further clarification of information provided by the GST Acts, they can request an advance ruling.

• An advance ruling is a simple explanation of the rules given under GST.

Where can advance ruling be implemented?

An advance ruling can be requested by taxpayers when the provisions mentioned by GST Acts are unclear. The following are situations for which an advance ruling can be requested:  

• When businesses are having trouble classifying goods and services.

• When a taxpayer is sent an unclear notification related to applicable GST.

• When determining the time and place of a supply which will influence the amount of payable tax for it.

• When determining the amount of tax owed by a taxpayer for a supply.

• When checking if ITC is applicable for the amount of tax paid or to be paid. 

• When checking whether a taxpayer is required to be GST registered or not.

• When determining whether an activity carried out by the taxpayer would result in a supply of goods and services or not.

What are the objectives of advance ruling?

• Advance ruling is used to provide simple and clear explanations of rules and acts under GST, when businesses find them difficult to understand. 

• Advance ruling helps taxpayers know exactly how much tax they owe.

• Advance ruling provides answers for all questions related to GST, which attracts foreign firms and increases Foreign Direct Investment (FDI).