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Input Tax Credit Checkpoints under GST Audit

33 Input Tax Credit Check-points under GST Audit

Input Tax Credit is one of the curtail aspect under GST as chances of errors, mistakes and frauds under this are very high, so, it is the responsibility of auditor to verify the ITC. Here we have given a list of 33 checkpoints which may assist you in reviewing the Input Tax Credit while conducting GST Audit.

  1. Check the Invoices from vendors like Bill of Entry, Tax Invoice, Debit Note, Self-Invoice, ISD Invoice on which Input Tax Credit has been claimed.

  2. Check entries of Inward supplies records for input tax and reconcile the same with Invoices from the vendors.

  3. Check the inward supplies records with Monthly return and ascertained reasons for variations.

  4. Make a list of restricted input tax credit items as per the GST law and tally the same with records.

  5. Check adjustment of tax set-off by relevant journal entries.

  6. Check whether input tax credit on capital goods is correctly availed.

  7. Check whether ITC in case of Inward Supply liable for RCM has been claimed only after paying the same. 

  8. Check the foreign transactions to ascertain RCM liability and ITC on same.

  9. Check whether Input Tax credit is reversed for the sale of capital goods as specified in GST law.

  10. Check whether reversal of input tax credit has been for the goods sent for job work.

  11. Check whether payment of invoices on which ITC has been claimed is made within 180 days from date of Invoice.

  12. Check whether input tax credit availed is debited to recoverable account for availing re-credit.

  13. Check whether the supplier has not availed benefits of depreciation as well as input tax credit.

  14. Check whether the documents (tax invoice/ debit note) on the basis on which input tax credit is claimed contains the mandatory details of the recipient such as Name, GSTIN, Address and all other particulars as prescribed.

  15. Check whether Input tax credit is reversed against the receipt of Credit Note

  16. Check whether input tax credit is bifurcated in to eligible, ineligible, blocked and common credits.

  17. Check Whether the common credits are reversed as per Rule 42 of the CGST Rules.

  18. Check whether input tax credit is availed on capital goods? If yes, whether credit is reversed as per Rule 43 of the CGST Rules.

  19. Check whether reconciliation of input tax credit between GSTR 3B and GSTR 2A is done.

  20. Confirm if invoices are addressed properly for goods / services received at different locations (Branches or Business Verticals). Ensure that credit capture system and reconciliation is available in all branches within and outside the State. If expenses incurred at other than branches registered in the State, confirm that an input service distributor registration exists.

  21. Review terms of purchase orders vis a vis purchase invoices. Defective invoices can lead to disputes at a later date. They can however be rectified once identified.

  22. Review if discounts agreed and valuation adopted by vendors: Ensure that they are in line with law and do not lead to loss of credits or double taxation There is a time limit for payment to vendors within 180- days. If it exceeds, ITC needs to be reversed with interest, however an amendment for without interest reversal has been proposed for amendment in the CGST Bill. On payment to the vendor is made, the credit can be claimed back. System to capture such reversals in recoverable accounts and their periodic nullifying may be suggested.

  23. Review of import documents, job work inward invoices, stock transfer inward invoices, etc. Some of these may not be accounted in the system as they are not financial entries but have an impact on ITC.

  24. Check TRAN-1, TRAN-2 filed: This is to be confirmed with what was eligible and if any excess availed to be reversed. If short availed disclosure could be made as last date is over. Court could provide additional time.

  25. Check whether transitional Credit is availed as per the provisions of the law.

  26. Check whether any ineligible transitional credit is reversed as per the law.

  27. Check any Reversal of Input Tax Credit for change in scheme from composition to Regular.

  28. Check if there are transactions of personal nature: In such cases credit is not available.

  29. Check if goods has been issued free of cost or as samples: At times the value of such FOC supplies may have to be included in the final supply at which time if the credit of such FOC is lost it may not be competitive as credit in between has been lost.

  30. Check credit apportionment in case of supply of taxable and exempted supplies: The capture of credit specific to each and only the common credits being allocated is a preferred way forward.

  31. Check credit availment in case of assets put partially for non-business /non-taxable use: The reversal for personal use needs to be confirmed.

  32. Check disputable credits: These credits could be availed and reversed with intimation to revenue avoid time limitation.

  33. Check credit accumulations: Reason to be ascertained and option if any exercised for encashment of such credits through refund or rebate.

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