1. Trade Receivables
Which statement best describes the GST implication of the gross amount shown under “Trade Receivables” at year-end?
A. Includes GST that must be excluded when reconciling turnover with GSTR-1
B. Indicates GST already discharged and therefore irrelevant for audit
C. Represents only taxable value; GST is disclosed separately under “Other Current Liabilities”
D. Has no bearing on GST because receivables are an accounting concept only
Answer: A
Explanation: Schedule III of the Companies Act, 2013 requires invoiced consideration inclusive of GST in Trade Receivables. During a GST audit, officers reconcile financial turnover (exclusive of GST) with outward-supply figures in GSTR-1/3B. The embedded GST must be backed out to avoid double counting. [Sec. 35 CGST – accounts & records]
2. Advances from Customers (Balance Sheet – Current Liabilities)
On receipt of a ₹5 lakh advance for taxable goods (no export), the supplier’s GST liability arises:
A. On receipt of advance itself
B. On issuance of tax invoice at dispatch
C. Only when goods are delivered AND paid for
D. No GST on advances for goods
Answer: B
Explanation: GST on advances applies to services but, since Nov 15 2017 (Not. 66/2017-CT), advances for goods are taxed only on invoicing/dispatch. Auditors verify that liability is booked when due, not on receipt. [Sec. 12(2)(a); Rule 55A]
3. Provision for Doubtful Debts (P&L)
Writing off a bad debt in books allows the taxpayer to:
A. Claim a refund of GST originally paid
B. Issue a credit note and adjust output tax if within the limitation period
C. Reverse ITC previously availed
D. Take no GST action; it is a purely accounting entry
Answer: B
Explanation: Credit notes under Sec. 34(1) permit reduction of output tax if issued by 30 Nov of following FY and reported in return. Auditors test whether credit notes—and corresponding GST adjustments—follow this timeline.
4. Depreciation on Capital Goods (P&L)
If book depreciation is calculated on the entire invoice value including GST, the corresponding ITC:
A. Is allowed in full
B. Must be reduced proportionately
C. Is blocked entirely for that asset
D. Can be claimed next year
Answer: C
Explanation: Sec. 16(3) prohibits ITC where depreciation is claimed on the GST component under the Income-tax Act. Auditors examine fixed-asset registers to ensure GST amount is excluded from depreciable base when ITC has been availed.
5. Employee Canteen Expenses (P&L – Staff Welfare)
ITC on mandatory canteen services under the Factories Act is:
A. Blocked by Sec. 17(5) irrespective of recovery from employees
B. Allowed in full if employer collects any amount from employees
C. Proportionally allowed only to the extent recovered
D. Fully allowed because it is a statutory requirement
Answer: C
Explanation: CBIC circular 172/04/2022-GST clarifies that ITC is allowed only up to the portion recovered from employees; the balance remains blocked u/s 17(5)(b)(i). Auditors match canteen expense ledgers with recovery entries.
6. Interest Income (Other Income)
Why is “Interest on Fixed Deposits” typically excluded from GST turnover reconciliation?
A. Interest is a supply but exempt
B. It is outside the scope of GST (Schedule III)
C. Interest is zero-rated
D. It is taxed under RCM
Answer: B
Explanation: Para 8 of Schedule III deems interest on loans, deposits or advances to be neither supply of goods nor services. Audit reconciliations therefore remove such income from P&L while matching with GSTR data.
7. Unrealized Foreign-Exchange Gain (Other Comprehensive Income)
For zero-rated export supplies, unrealized FX gain booked at year-end:
A. Triggers additional GST liability
B. Requires amendment of GSTR-1 values
C. Has no GST impact because GST is on invoice value in INR
D. Creates an ITC reversal under Rule 43
Answer: C
Explanation: GST liability for exports is on the INR value declared in shipping bill/tax invoice. FX fluctuations post-invoice do not affect GST already paid or LUT-based turnover.
8. Provision for Warranty (Balance Sheet – Provisions)
Full GST on warranty-covered goods is payable:
A. At time of actual warranty service
B. At original supply; subsequent warranty repairs are not supplies
C. Each time parts are replaced under warranty
D. Never, warranty is outside GST
Answer: B
Explanation: Consideration for warranty is imbedded in original price; supply is completed then. Repairs done later are not separate consideration. Auditors must ensure GST was discharged upfront. [Sec. 12(2)]
9. Goods Lost/Destroyed (P&L – Loss on Obsolescence)
ITC on goods lost, stolen or destroyed is addressed by:
A. Sec. 17(5)(h) – blocked credit
B. Rule 42 – proportionate reversal
C. Sec. 54 – refund in special cases
D. Rule 36 – documentary requirements
Answer: A
Explanation: Auditors scan “Loss on Obsolescence/Write-off” ledgers; if inputs were lost, ITC must be reversed because Sec. 17(5)(h) blocks credit.
10. Sales Returns (P&L – Revenue)
GST reduction for goods returned in next FY requires:
A. Debit note issued within six months
B. Credit note declared by 30 Nov following FY (Sec. 34)
C. Adjustment in annual return only
D. No GST effect; returns are commercial
Answer: B
Explanation: Credit note time-limit is 30 Nov of succeeding FY or date of annual return filing, whichever is earlier. Auditors verify timing.
11. Unbilled Revenue (Balance Sheet – Other Current Assets)
GST liability on unbilled revenue for ongoing services arises:
A. On date of books closing
B. On receipt of payment
C. On issuance of invoice or completion of milestone, whichever earlier
D. Never; GST follows accounting
Answer: C
Explanation: Sec. 13(2) (services) fixes time of supply at earliest of invoice issuance or payment receipt; auditors cross-check project-wise unbilled revenue with invoices/tax payments.
12. Capital Work-in-Progress (CWIP)
Provisional ITC on capital goods under installation can be:
A. Claimed immediately on receipt of goods
B. Deferred until asset is capitalized
C. Claimed in 60 monthly installments
D. Not allowed at all
Answer: A
Explanation: ITC on capital goods is available when goods are received (Sec. 16(1)) even if asset is under CWIP. Audit ensures invoice date and GRN match eligibility.
13. CSR Expenditure (P&L)
ITC on goods/services used exclusively for CSR is:
A. Allowed because CSR is mandatory under Companies Act
B. Blocked u/s 17(5)(h) as “gift” without consideration
C. Allowed conditionally if reported in CSR register
D. Deferred until approval by CSR committee
Answer: B
Explanation: Courts (e.g., Essel Propack v. CGST 2022) held CSR ITC blocked; CBIC instructions echo this. Auditors review CSR ledgers for ITC reversal.
14. Leasehold Improvement (Balance Sheet – Fixed Assets)
ITC on works-contract services for immovable property is:
A. Fully allowed
B. Allowed if capitalized as PPE
C. Blocked except where plant & machinery is installed
D. Allowed only to builders
Answer: C
Explanation: Sec. 17(5)(c)/(d) blocks ITC on works contracts for construction of immovable property other than plant & machinery. Audit looks at leasehold-improvement capex.
15. Bank Charges (P&L – Finance Cost)
GST paid on bank charges is typically:
A. Eligible ITC if bank issues tax invoice
B. Blocked because financial services are exempt
C. Subject to RCM by borrower
D. Ineligible because of Sec. 17(5)
Answer: A
Explanation: Banking services attract GST at 18 %; tax invoice/statement enables ITC. Auditors reconcile finance-cost GL with ITC ledger to capture often-missed credits.
16. Motor Vehicle Running Expenses (P&L)
ITC on fuel, repairs for cars (≤ 13 seats) used by directors is:
A. Fully allowed
B. Blocked under Sec. 17(5)(a) & (ab)
C. Allowed if car is registered for passenger transport
D. Allowed up to 50 %
Answer: B
Explanation: ITC on motor vehicles for personal/office transport is blocked unless used for specified taxable supplies (e.g., driving school). Auditors test vehicle logbooks.
17. Sales Promotion (P&L – Marketing)
Free samples accounted under “Sales Promotion” lead to:
A. Supply liable to GST on market value
B. ITC reversal u/s 17(5)(h); no output tax if distributed without consideration
C. No GST impact
D. Mandatory RCM
Answer: B
Explanation: Free samples are supplies without consideration deemed non-taxable (Schedule I not attracted). But Sec. 17(5)(h) blocks ITC. Audit focuses on sample registers.
18. Security Deposits (Balance Sheet)
Receipt of a refundable security deposit:
A. Generates GST liability on receipt
B. Treated as advance for supply
C. Not a supply provided it is refundable and contractually separate
D. Zero-rated supply
Answer: C
Explanation: Security deposits are outside GST unless adjusted towards consideration. Auditors ensure deposits ledger doesn’t mask advances liable to GST.
19. Interest on Delayed Customer Payments (Other Income)
Where invoice permits 18 % interest on late payment, GST treatment is:
A. Interest exempt (Schedule III)
B. Taxable as addition to value u/s 15(2)(d)
C. Zero-rated
D. Treated under RCM
Answer: B
Explanation: Sec. 15(2)(d) – any interest for delayed payment is included in value of supply; tax payable in month of receipt. Auditors verify separate interest receipts and amend liability.
20. Investment Property Rent (P&L – Other Income)
Renting out commercial property creates:
A. Exempt supply under Sch. II
B. Taxable supply; ITC allowed on maintenance expenses
C. Non-GST supply
D. Supply under RCM
Answer: B
Explanation: Renting immovable property for business is a taxable service (Heading 9972). Auditors compare rent ledger with GSTR-1 Table 11 outward services.
21. Dividend Received (Other Income)
Dividend income’s GST impact during audit reconciliation is:
A. Deduct from trial balance turnover because outside GST
B. Include as exempt supply
C. Treat as zero-rated
D. Declare under reverse-charge
Answer: A
Explanation: Dividend is a transaction in securities—outside GST (Schedule III, Para 8). Auditors remove it when matching financial turnover to GST returns.
