For a client under the GST composition scheme, the statutory audit checks continuing eligibility for the scheme throughout the year — since a breach of the turnover threshold or a disqualifying event takes effect from the date of breach, not retroactively from year start — recomputes the flat-rate tax on aggregate turnover independently rather than accepting CMP-08 as filed, confirms no input tax credit has been claimed since composition dealers are not entitled to it, and checks whether any reverse-charge liability, which composition dealers must still pay at the regular rate, has been correctly separated from the flat-rate scheme.
Eligibility monitoring through the year
- Track aggregate turnover across all GSTINs under the same PAN, cumulatively through the year, against the composition scheme's eligibility threshold — the moment the threshold is breached, the dealer must exit the scheme from that date, not wait for year end.
- Check for disqualifying activity during the year — supply of goods not leviable under GST, inter-state outward supply, supply through an e-commerce operator required to collect tax at source, or supply of specified services beyond the permitted limit — any of which ends composition eligibility.
- Where a breach occurred mid-year, confirm the entity correctly transitioned to normal registration from that date, including raising regular tax invoices and claiming input tax credit prospectively from the transition date, rather than continuing to file under composition for the balance of the year.
Flat-rate computation and other checks
| Check | Evidence | What it catches |
|---|---|---|
| Flat-rate recomputation | Sales register, CMP-08 filings | Rate applied to the wrong turnover base, or turnover understated against the books |
| No ITC claimed | Purchase ledger, electronic credit ledger | Input tax credit mistakenly claimed, which is not permitted under composition |
| Reverse charge paid at regular rate | RCM liability ledger | Reverse charge tax computed at the flat composition rate instead of the regular rate, which the scheme does not extend to RCM |
| Tax invoice vs bill of supply | Outward supply documents | A composition dealer issuing a tax invoice showing GST charged to the customer, which composition dealers are not permitted to do |
Regulatory requirement
The composition scheme's turnover threshold, the list of disqualifying activities, and the applicable flat rates by category of supplier are prescribed under the CGST Act and rules and periodically revised. Confirm the current figures and conditions before concluding on eligibility or the rate applied.
A composition dealer continuing to file CMP-08 after an eligibility breach has already occurred creates an exposure that compounds every month it continues — the dealer is liable for regular GST from the breach date regardless of what was actually filed. This is worth identifying early in the audit rather than at year-end reconciliation.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- GST & GSTR-2BGSTR-2B reconciliation: a practical guide for auditorsWhat GSTR-2B is, how the Invoice Management System changed it, the statutory conditions that govern input credit, and how to run and conclude the reconciliation.
- GST & GSTR-2BTwelve GST reconciliation mistakes that show up in audit filesPooling registrations, reconciling against 2A, stopping at March, netting categories and eight more errors, with what each causes and how to correct it.
- GST & GSTR-2BReverse charge mechanism (RCM) audit testingHow to test that reverse-charge GST liability was actually paid in cash, not offset against ITC, and that the matching credit landed in the right period.
- Audit data & extractsTrial balance mapping for audit softwareMapping a client's idiosyncratic ledgers to a standard chart of accounts is the step that decides whether analytics and disclosures work at all, and the one most firms rush.
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