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January 8, 2022

ICAI request to reinstate GST Audit

by CA Shivam Jaiswal in GST, ICAI

ICAI request to reinstate GST Audit

The Institute of Chartered Accountants of India, in its pre-budget memorandum has made the recommendations to reinstate the audit and certification of the reconciliation statement (GSTR-9C) by the Chartered Accountants instead of self-certification by the management.

The Institute of Chartered Accountants of India Pre-Budget Memorandum, 2022 — GST


A. Suggestions on substantive law

1. Audit by Chartered Accountants under GST

Section 35(5) and section 44 of the CGST Act, 2017 have been amended vide the Finance Act, 2021 to remove the mandatory requirement of getting annual accounts audited and reconciliation statement certified by a Chartered Accountant.

GST Audit by a Chartered Accountant ensures maker checker concept thereby detecting inconsistencies, lapses, errors and ambiguities, if any, in complying with the provisions of GST law. Thus, audit helps in plugging revenue leakages and ensures that the Government gets its dues well within time. As auditors, Chartered Accountants use their competencies to ensure that a taxpayer claims legitimate input tax credit, reports all taxable supplies made by him with correct value, determines correct nature of tax, applies the appropriate rate of tax and timely discharges his tax liabilities.

Further, the Government also benefits from audit in as much as it gets the structured data from reconciliation statement prepared and certified by Chartered Accountants. A reconciliation statement certified by a Chartered Accountant helps the officers in completing the departmental scrutiny and audit within the prescribed time limit.

It may be noted that the income-tax law also mandates audit by Chartered Accountant beyond a specified threshold turnover limit. The success of tax audit (Form 3CD) by a Chartered Accountant under the income-tax law, which is in addition to the statutory audit prescribed under the Companies Act, especially needs a mention here as it has been facilitating the Department in selecting limited scrutiny cases, processing cases under section 143(3) and plugging revenue leakages.

The consequences from dispensing with the certification of reconciliation statement by a Chartered Accountant will be prohibitive and probably result in large-scale disruption of compliance. The lapses discovered from such exercise will result in notices demanding tax, interest and penalties. Further, the taxpayer would be burdened with legal expenses as there would be increase in litigation due to errors that would be left unresolved until departmental audit is conducted.While accounting standards are mandatory for some taxpayers, IndAS are applicable for other taxpayers and for non-corporates both these standards are not applicable. Further, income-tax law requires taxpayers to compute income chargeable to tax by following another set of standards viz., ICDS. Chartered Accountants are well conversant with most of the essential standards and thus, GST audit of all taxpayers by Chartered Accountants helps ensure compliance. Some of the examples where Chartered Accountant makes use of his professional expertise are in ensuring (i) matching concept so that all revenues are reported only in the year in which costs are reported (ii) reporting of accrued cost so that the same are not deferred to years of poor performance or arbitrarily capitalized (iii) benefits-in-kind given to customers and employees are identified and reported as outward supplies or as perquisites for correct tax compliance (iv) reporting of accrued income, whether billed or unbilled for purposes of time of supply.

Revenue is recognised differently in accounting and GST law. Whereas financial statements are prepared on ‘accrual system, GST follows a vastly different ‘time of supply’ based system of tax payment. For this reason, it is essential that the reconciliation statement be certified by a Chartered Accountant who is proficient in both accounting aspects as well as GST law.


The amendment ‘node in sections 35(5) and 44 of the CGST Act, 2017 vide the Finance Act, 2021 be withdrawn and requirement of getting annual accounts audited and reconciliation statement certified by a Chartered Accountant be reinstated in GST law.

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