The Institute of Chartered Accountants of India (ICAI) has asked the government to reintroduce the audit and certification provisions for Goods and Services Tax (GST) annual returns by Chartered Accountants (CA).
In August 2021, the GST authorities abolished the requirement for a chartered or cost accountant to audit annual returns for businesses with sales of Rs 2 crore or more, and instead introduced self-certification of a reconciliation statement for businesses with sales of Rs 5 crore or more, replacing the requirement for certification by a chartered or cost accountant. The purpose of this self-certified statement is to reconcile the value of supplies declared in the financial year’s return with the audited annual financial statement.
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Self-certification requires taxpayers to provide true and accurate information in their annual return. The goal was to increase the ease of doing business by encouraging voluntary compliance. The change is applicable for FY21 and beyond. In a letter to the finance ministry, the ICAI suggested that the amendments to the Central GST Act made through the Finance Act last year be rescinded, and that the requirement of having annual accounts audited and reconciliation statements certified by a chartered accountant be reinstated in law because GST audit by a chartered accountant ensures taxpayer compliance and helps plug revenue leakages.
“Doing away with audit will lead to large scale disruption of compliance resulting in demand notices and the taxpayers will be burdened with tax, interest and penalties that could have been avoided had there been a system of audit to identify the lapses in time. Litigation would also increase due to errors that would be left unresolved until departmental audit is conducted,” ICAI cautioned in its proposal.
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Revenue is recognised differently in accounting and GST law, according to the ICAI. While financial statements are prepared using a ‘accrual system,’ GST is paid using a ‘time of supply’ based system. Depending on the nature of the entity, financial statements are prepared differently on the basis of applicable standards. “Thus, 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 ,” ICAI told the ministry.
A copy of the suggestions has been sent by ICAI in an email to the finance ministry seeking comment. Following the implementation of the GST, tax authorities gradually reduced the return filing requirements and offered an amnesty programme to defaulters who wanted to improve their compliance record. Simultaneously, provisions relating to tax credits have been gradually tightened in order to combat tax evasion.
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