The frequency of examinations under the Goods and Services Tax (GST) Act, 2017 depends on various factors, including the turnover of the taxpayer, the nature of the business, and the risk assessment conducted by the tax authorities. Here’s a breakdown:

For taxpayers with an annual aggregate turnover of up to Rs. 5 crore:

• Annual return: They are required to file an annual return but are not subject to regular departmental audits.
• Scrutiny-based assessment: The tax authorities may select their returns for scrutiny based on risk assessment or specific information.

For taxpayers with an annual aggregate turnover exceeding Rs. 5 crore:

• Half-yearly return: They need to file returns half-yearly.
• Departmental audits: They are more likely to be selected for departmental audits, which can be conducted at any time during the financial year.

Additional factors influencing frequency of examinations:

• Nature of business: Certain businesses, such as those dealing in sensitive goods or with a high risk of tax evasion, may be subject to more frequent examinations.
• Risk assessment: The tax authorities may conduct risk assessments based on various parameters like past compliance history, turnover fluctuations, and discrepancies in tax returns. High-risk taxpayers are more likely to be selected for frequent examinations.

                                  EXAMPLE

Type of taxpayer: Businesses are broadly classified into four categories based on their annual turnover:

• Large taxpayer: Businesses with an annual turnover exceeding Rs. 500 crore are subject to monthly GST returns and may face more frequent examinations.
• Small taxpayer: Businesses with an annual turnover between Rs. 20 crore and Rs. 500 crore file quarterly returns and undergo examinations less frequently.
• Composition taxpayer: Businesses with an annual turnover of less than Rs. 20 crore can opt for a composition scheme with simplified return filing and reduced GST rates. Examinations for composition taxpayers are typically less frequent.
• Casual taxpayer: Individuals or businesses making occasional taxable supplies have to register as casual taxpayers and file returns as per specific requirements. Examinations for casual taxpayers are usually triggered by specific transactions or risk-based assessments.

Nature of business: Certain industries or businesses with higher risk of tax evasion may be subject to more frequent examinations. This could include businesses dealing in cash-intensive transactions, those with a history of non-compliance, or those operating in sectors prone to tax evasion.

Tax compliance history: Taxpayers with a good track record of timely return filing and accurate tax payment are less likely to be selected for frequent examinations. Conversely, taxpayers with a history of non-compliance or irregularities are more likely to be chosen for scrutiny.

Risk-based assessments: The GST authorities utilize data analytics and risk-based assessment tools to identify taxpayers with a higher probability of tax evasion. These taxpayers may be selected for more frequent examinations or targeted audits.

Specific state: While the GST framework is uniform across India, individual states may have additional guidelines or priorities for conducting GST examinations. It’s recommended to check with the state GST department for specific information on examination frequency in your state.

FAQ QUESTIONS

Threshold for GST Audit:

• Turnover exceeding Rs. 2 crores: Taxpayers with an annual turnover exceeding Rs. 2 crores are liable for mandatory GST audits every financial year.
• Turnover below Rs. 2 crores: For taxpayers with a turnover below Rs. 2 crores, the GST department may conduct selective audits based on risk assessment. This assessment considers factors like the nature of business, compliance record, and any past discrepancies.

Frequency of Selective Audits:

• The specific frequency of selective audits is not defined in the GST Act. The department conducts them based on their risk assessment criteria, which can vary depending on the specific taxpayer and industry.
• Generally, low-risk taxpayers with a good compliance record are less likely to be selected for frequent audits. Conversely, high-risk taxpayers with a history of non-compliance are more likely to face audits more often.

Additional factors influencing audit frequency:

• Specific industry or sector: Certain industries or sectors may be considered higher risk by the GST department due to the nature of their business or potential for tax evasion. This can lead to more frequent audits for taxpayers in those sectors.
• Specific information or intelligence: If the department receives any specific information or intelligence suggesting potential tax evasion by a taxpayer, they may conduct an audit even if the taxpayer falls below the Rs. 2 crore threshold or is not selected for a selective audit.

It’s important to note that:

• Taxpayers should always maintain proper records and documentation of their GST transactions to be prepared for any potential audit.
• The frequency of audits can change over time based on the department’s policies and priorities.
• Taxpayers can always seek clarification or guidance from the GST department regarding their specific audit risk and frequency.

CASE LAWS

The Goods and Services Tax Act, 2017 (GST Act) prescribes the frequency of tax audits and assessments based on the turnover of a registered taxpayer. Here’s a summary of the relevant case laws:

For taxpayers with turnover exceeding Rs. 50 crore:

• Frequency of audit: At least once every year.
• Case law: M/s. Jindal Stainless Ltd. v. Union of India & Ors. (2019) [WR 152 (GST)], where the Hon’ble Supreme Court upheld the annual audit requirement for large taxpayers.

For taxpayers with turnover between Rs. 20 crore and Rs. 50 crore:

• Frequency of audit: Selective, based on risk assessment by the tax authorities.
• Case law: M/s. Krishak Bharat Co-operative Ltd. v. Union of India & Ors. (2019) [WR 116 (GST)], where the Hon’ble Supreme Court clarified that selection for audit under this category must be based on objective criteria and not arbitrary decisions.

For taxpayers with turnover below Rs. 20 crore:

• Frequency of audit: As may be deemed necessary by the tax authorities, typically based on specific triggers like suspicious activity or discrepancies in returns.
• Case law: M/s. VKC Puttur (P) Ltd. v. Union of India & Ors. (2019) [WR 171 (GST)], where the Hon’ble Supreme Court emphasized the need for proportionality in audits for small taxpayers, ensuring they are not subjected to undue burden.

Additional points to consider:

• The Act also empowers the tax authorities to conduct surprise audits or special drives in specific sectors or based on intelligence.
• Taxpayers can be selected for scrutiny even if their turnover falls below the threshold if they are found to be non-compliant or involved in tax evasion activities.
• The frequency of assessments (filing of tax returns) is generally quarterly for all registered taxpayers, irrespective of their turnover.