GST is a dynamic taxation system that keeps on upgrading to help the taxpayers ease the efforts of return filing. However, frequently changing GST regulations can be a problem for businesses with multiple GST registrations. Complying with all the GST regulations is a challenging task as there is often a communication gap between the head office of such businesses and multiple sub-units like depots or branches in other states.
This erodes the revenue of the businesses in multiple ways in the form of GST Input Tax Credit leakages, heavy penalties and interest on pending GST liabilities.
In this short article, we will submit to you a few pointers that will allow large businesses to manage their GST compliance well with a GST Audit checklist.
Table of Contents
- GST Compliance requirements – Problems with large businesses
- GST Audit Checklist – Potential Threats that can be addressed with internal audit
- 1. Monthly & year-wise data analysis
- 2. Underutilization of eligible Input Tax Credit
- 3. Claiming of ineligible ITC
- 4. Getting ready for GST audit by department
- Benefits of using an internal GST audit tool
GST Compliance requirements – Problems with large businesses
When a business has multiple GST registrations in different states, it becomes challenging to comply with all the GST compliance requirements.
“Tell me, and I forget, teach me, and I may remember, involve me, and I learn.”
Benjamin Franklin
Staying true to the above maxim, let me indulge you in an example which will help you understand the actual problems faced by the businesses with multiple GST registrations to juggle between the regulatory compliance requirements of GST.
Consider a Plywood business ‘Roppo Traders’ with eight subunits in different states:
Headquarters – Pune, Maharashtra;
Three sub-units – Vapi, Gujarat;
Three sub-units– Ahmednagar, Maharashtra;
One sub-unit– Sirmaur, Himachal Pradesh
All the seven sub-units (& the head-quarter office in Pune, Maharashtra) are registered under GST. Every GST registered sub-unit is responsible for filing its GST return individually. Now consider that the decision-makers sitting in the headquarters need to get a complete overview of the GST return filing procedure.
So, do the decision-makers have any way to get a consolidated report showing the complete GST return filing pattern of the business?
Is there any way that the business management can find out any accumulated Input Tax Credit under GST in all the sub-units?
One option the decision-makers like CFOs, CAs, tax managers have is to go through each return filed by all the eight sub-units manually. Then reconcile each and every entry with the books of accounts and identify the errors in the GST return filings.
Doing this reconciliation manually is a Herculean task and shall take a considerable amount of time of the decision-makers.
So, is this an efficient way to do so?
Most probably, NOT!
In such cases, an internal GST audit will help the businesses to get a Bird’s Eye view on all the GST return filings and plan better to save on losses and improve their revenue.
GST Audit Checklist – Potential Threats that can be addressed with internal audit
An internal GST audit will act as a precursor to the GST audit by department and will make the businesses ready for any special audit under GST.
Following are some of the fundamental threats that an internal GST audit will address that is not possible when this audit is done manually by the accounting or the senior management team:
1. Monthly & year-wise data analysis
- The internal GST audit tool like GSTHero Third Eye will allow the businesses to analyze the GST returns monthly and year-wise.
- This will help the management to identify the errors at the very minute level and take corrective actions.
- This will allow the businesses to identify monthly details like pending GST liabilities, ITC accumulates, Cash accumulated, etc., in every single GST registered sub-unit.
- In short, the businesses will have a complete overview of the month-wise data of all the sub-units and depots of the company.
2. Underutilization of eligible Input Tax Credit
The business’s working capital can be hampered due to the non-availing of the ITC for a given month. This non-availed ITC gets piled up and lays un-utilized with the registered business.
How does it impact the business revenue?
When the GST Input Tax Credit remains unutilized, it simply means that the business is paying the outward GST liabilities in Cash.
Following are some of the reasons that your business is missing out on availing eligible ITC:
- Your supplier has not filed his GSTR-1 corresponding to the transaction you are missing out on.
- There has been an ITC reconciliation error that was not rectified.
- Your defaulting supplier was not informed about the discrepancy, and this error was never corrected.
3. Claiming of ineligible ITC
The businesses must claim eligible ITC only.
Recently, the officials of CGST, Delhi, have booked four businessmen for committing ITC fraud of ₹178 Crore, out of which ₹13 Crore involved availing of ineligible ITC based on fake invoices issued by the non-existing firm.
This is a serious issue which is being observed frequently these days. Claiming ineligible Input Tax Credit based on counterfeit invoices has landed many businesses and high profile tax professionals into trouble.
Hence, businesses are advised to scrutinize the ITC claimed for a given month or a year.
Hence, an internal GST audit becomes essential to identify such flaws and help businesses claim only the eligible Input Tax Credit under GST.
4. Getting ready for GST audit by department
A GST audit by department carries a reputational as well as monetary risk for the business.
However, not all departmental audits end on a negative note. For example, suppose a business is transparent with all its books and previous GST return filings records. In that case, it can easily sail through this audit without penalty or adverse action.
Hence, the departmental audit is not to be afraid of, but your business should be well-equipped and document-ready for such audits. You must understand the GST Audit Checklist and keep everything ready with you before doing Audit.
Benefits of using an internal GST audit tool
Following are some of the direct impacts that an Internal GST audit Tool will have on your business:
- Independent & third-party review of your business is essential that provides a comprehensive perspective of the financial health of your business.
- Bring all the units/depots of your business under review to check their GST compliance status.
- Identify the ITC leakages in all the business units.
- To give an account of the total eligible Input Tax Credit.
- Monitoring inward & outward monetary flow of your business in a single report.
- Granular level reporting of each & every aspect related to GST activity for the business.
- Calculating the impact on your business due to the non-compliance with GST regulations.
- Identifying & mitigating the risks that may invite departmental audits.
Synopsis
From the pointers mentioned in the article, it’s evident that businesses must have a robust internal GST audit system in place. This shall also include the senior management of the businesses to gain complete internal financial control on all the sub-units of the companies.
A super-auditing tool like GSTHero ThirdEye shall enable businesses to diagnose the company’s financial health based on the authentic GSTN data fetched directly from the GST server.
To get a free demo of the GSTHero ThirdEye, feel free to contact us at:
Email: info@gsthero.com | Phone: +918007700800
Stay updated; stay ahead!
Until the next time…..
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