GST Audit Checklist: Ensuring Compliance and Mitigating Risks
Introduction
In today’s dynamic business landscape, where the GST regime undergoes constant changes and digitalization of compliances is on the rise, it is crucial for businesses to have a comprehensive strategy to ensure compliance with indirect tax laws and mitigate potential risks. In this article, we will explore the concept of GST due diligence and its importance in assessing the impact of GST on a company’s operations.
Understanding GST Due Diligence
GST due diligence involves investigating and assessing the implications of GST on a company’s financial, operational, business, and strategic aspects. It encompasses reviewing contingencies, identifying risk areas, tax planning opportunities, and aggressive tax positions. This process facilitates a consistent diagnosis of GST risks and opportunities across multiple jurisdictions. Moreover, it helps in evaluating unutilized tax opportunities and identifying historical tax risks faced by the company.
The Complexity of GST Law in India
Given the complexity and occasional ambiguity of the GST law in India, businesses have faced challenges in complying with assessment and other regulatory requirements. Consequently, indirect tax due diligence is considered a value-added effort within the industry.
Focus Areas in GST Due Diligence
Under the GST laws, every taxpayer must maintain proper accounting records, issue accurate invoices, and fulfill monthly, quarterly, or annual compliance obligations. By conducting due diligence, businesses can identify compliance gaps and reassess their stance on key aspects such as taxability, availability of input tax credit, and valuation. Understanding a company’s operations and reviewing accounting records are crucial initial steps in the due diligence process. This review helps ensure that businesses are GST compliant and that taxes are correctly levied on invoices. With rampant cases of fake invoicing, it has become imperative to regularly review vendor invoices and compliance practices.
Revisiting Transactions and Legislative Updates
Due diligence should also involve reassessing transactions in terms of the place of supply to determine taxability and the time of supply, thus avoiding interest and penalty payments resulting from a contrary view to standard practice. In addition to compliance review, it is essential for management to stay updated on legislative changes and the consequences of non-compliance.
Mitigating Risk and Reducing Litigation
Apart from mitigating the risk of non-compliance, due diligence significantly reduces litigation risks and associated costs. For businesses with global reporting requirements, indirect tax diligence helps minimize tax exposure in their global reports.
Moving Beyond Identification of Problem Areas
GST due diligence doesn’t just highlight risks and problem areas; it also involves designing effective strategies to resolve identified issues. This allows company stakeholders to take corrective action before it’s too late. Considering that under the GST laws, registered buyers can be penalized for their supplier’s non-compliance, conducting regular GST due diligence becomes even more crucial to avoid such burdensome situations.
Enhancing Valuation through Indirect Tax Diligence
Given the increasing prevalence of mergers and acquisitions, it is crucial for companies to conduct periodic indirect tax diligence to improve valuation. The findings from this process serve to position the company favorably in front of potential buyers, resulting in enhanced value.
Informed Decision-Making and Future Planning
Effective GST due diligence enables companies to make informed decisions based on a comprehensive report. This report not only highlights risks but also provides solutions, empowering businesses to make better choices. The importance of due diligence has amplified over time, as even minor lapses in record-keeping or compliance can lead to fines, penalties, and reputation loss. The verification of goods and services classification and accurate maintenance of financial information and records under GST are vital components of GST due diligence.
Conclusion
Conducting GST due diligence is essential for businesses to ensure compliance with indirect tax laws, mitigate risks, and make well-informed decisions. With the ever-evolving nature of GST regulations, it is advisable for all businesses to prioritize indirect tax diligence to remain compliant and up-to-date.
Disclaimer:
The information provided in this article is based on the latest Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and other applicable material available at the time of compilation. We have diligently ensured the completeness and accuracy of the material. However, it is essential for users to consult the relevant legislation for specific guidance. Please note that the data provided may be subject to change without prior notice and should not be considered as professional advice. Estabizz Fintech holds no liability for any outcomes resulting from the use of this material.
Author
Kinjal Jain ( Legal Researcher )
Estabizz Fintech Private Limited
