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Audit by GST Department and steps Consultants must take:

After four years of GST implementation, department is gearing up to conduct the audit of taxpayers. Based upon certain risk parameters and Computer enabled techniques, department is choosing the taxpayers to be audited by them. We are sure that even your clients would have received the notices for audit or are undergoing an audit. Here are few precautions we would suggest that you must take as a consultant:

Detailed Scrutiny of Trial Balance:

A trial balance of a taxpayer gives the holistic view of the operations. It helps the consultant understand various heads of income and expenditures including items parked under assets and liability. Although one can rely on the balance sheet and Profit and loss statement, the Trial Balance becomes crucial to detect certain adjustment which might have been made in a head which has been reflected net in the financial statements. For example: Discounts received, and discounts paid have separate treatment as far as GST is concerned but at times, they are net off in Balance sheet. Similarly, Freight is also adjusted most of the time in the profit and loss statements which leads to wrong calculation of GST payable under Reverse Charge Mechanism. Detailed scrutiny helps in revealing the inter-head adjustments. Therefore, it is advised that Trial Balance including opening balances, transactions during the year and closing balances must be minutely scrutinized. 

Preparation of Reconciliation Statement:

Although, most of the reconciliation statements are prepared at the time of filing GSTR 9C, but still it is advised that before putting the papers before the GST Department, a consultant must ensure that the reconciliations are available and are handy. Some reconciliations which Unitax shall advise you to go through are:

  1. Reconciliation between taxable value, tax declared in GSTR 3B and GSTR 1.
  2. Reconciliation between Input Tax Credit claimed in GSTR 3B and that reflected in GSTR 2B
  3. Reconciliation of Taxes paid under Import of Goods and ITC Claimed in return and that reflected in GSTR 2B.
  4. Reconciliation of Taxable value as per GSTR 9C/9 with that in the Trial Balance.
  5. Ask for any specific adjustments made in books of accounts which you may not be aware of.

Tax paid under Reverse Charge Mechanism (RCM):

It is strongly recommended that before filing the documents before the department for audit, consultants must go through various heads of expenditures and incomes to assess the tax payable under RCM. It would be preferred to prepare a rate wise reconciliation of RCM payable and paid by the taxpayer. Where there is any deficiency, the same may be discharged before department initiates its proceedings. It will help the taxpayer claiming the said amount back as input tax credit. For example, in most of the case one would find that RCM on government fees is missed out or even in case of freight the client has not discharged the tax liability properly. These small checks can help you save your clients from the embarrassment during department audit. In case you face any difficulty in understanding RCM, consultants may approach Unitax for support.

Quantitative Stock statement:

 Usually as a matter of practice, most of taxpayer do not maintain quantity level HSN wise stock and to adjust their profits for income tax purposes they use stock as the tool to reduce Gross Profit. As far as GST is concerned, it is mandatory to maintain quantity wise and HSN wise stock. That may be the first thing, departmental auditor might call for. To avoid any difficulty at later stage, Unitax advise the consultants to get the stock prepared beforehand. If there is any deviation or manipulation, the same may be declared voluntarily to avoid any penalty which department may levy at a later stage.

HSN and rate of tax:

A very basic and crucial aspect to check before putting the file forward is whether your client has paid the taxes under correct HSN Codes and at correct rate of taxes. There had been a confusion around classification of goods/services. Before moving ahead, as a consultant, you must recheck whether correct HSN codes have been used by the client or not. If it is found that the wrong HSN has been used, please check whether there is any difference of rate of tax. If there is no difference of rate of tax, Unitax would advise you to voluntarily disclose the use of wrong of HSN Code as it will make your client bonafide and save him from the embarrassment. Where there is difference of rate of tax, the difference of tax either should be voluntarily paid to avoid penalties or if excess tax has been paid, the same should be claimed as refund. Unitax has a hand on experience of helping consultants with correct classification of HSN Codes. If you are a consultant, you may also take support from Unitax to get the correct classification and getting the replies prepared from our experts.

Composite and Mixed Supplies:

As a consultant, you must ensure whether the concept of Composite and mixed supply as per Section 8 of CGST Act 2017 has been rightly implemented by the client or not. For example, where your client has charged freight along with sale of goods having tax rate 18%, whether the client has paid 18% on freight or not needs to be checked. As a consultant, you must check whether tax has been correctly discharged or not. You must draw the difference between various number of supplies being shown in an invoice, whether they are naturally bundled or are mixed in nature. Depending upon the nomenclature, you may advise the client about the tax he should have discharged. Or you can take a help of experts like Unitax, in understanding the concept and implementing it correctly before department does something.

Check and balances on Compliances:

This is something, we at Unitax believe that you would certainly check as a consultant whether there is any lapse in the compliances by the client. Major lapse which we usually find is that most of the taxpayer has not filed GST ITC-04 despite getting the work done from a job worker. You must check whether client has paid taxes in time and within due dates. If there is any delay, whether interest has been correctly discharged. All these checks and balances are advisable and in case any short payment is found, the same may be done voluntarily to avoid penal consequence. If you face any difficulty, you may approach Unitax for help.

Above are few checks and balances which the consultants must take care of when proceeding with department audit. Alternatively, it is recommended that the help of subject experts like Unitax must be taken to get the financials pre-audited before moving to department. This will make the entire process of audit smooth without facing any difficulty. As a consultant, you very well understand, that when department audit goes well, there is sudden spike in credibility and faith amongst the clients. Hence, it becomes essential to take help of experts who can assist you during the cumbersome process. You may reach out to Unitax at +91-708-790-3328 or write email at support@unitax.in. It is an online integrated GST solution for the Chartered Accountants, Bookkeepers, Legal Advisers, and other professionals. Call us now, we would be more than pleased to help.

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