GST Due Diligence: A Comprehensive Guide for Businesses


Date: 28 Jan 2023

Due Diligence Under GST 

Due diligence is necessary for an organization or business before entering a contract with another party. It helps a person or a company assess the compatibility of their potential partner. It includes the study of financial and non-financial records relevant to the contract. 


What classifies as Due Diligence, and what is its purpose?

Due diligence refers to the process of assessing the position of a potential partner or collaborator before entering a contract with them. It is merely some caution exercised before investing or partnering with another party. It helps both parties become aware of any issues or legal troubles that either of the parties might be having. One of the purposes of due diligence is to learn about liabilities for previous acquisitions, reorganization, disposals, and information regarding restructuring. It assists in understanding the structure of the company or enterprise that a business is to collaborate with. 


How to conduct due diligence?

The process of due diligence is conducted in three phases that are listed below:

Phase- I : Pre- due diligence 

  • A consultation with the customer is done to get better acquainted with the transaction 

  • An evaluation of the scope of work and a technique that would be best suited to the process

  • A project team from a central location is assembled

  • A list of all due diligence processes is to be made 


Phase- II : Due Diligence process and Negotiation phase

  • It is confirmed whether the work is on-site or off-site 

  • A flexible approach is maintained even after the project has been launched

  • A Q and A process is also initiated with the management 

  • Assistance is provided for both the formulation of financial aggregates and the phrasing of financial clauses in reports

  • The negotiation terms are also drafted with the assistance 

  • There is regular communication is maintained with the client 


Phase-III : Closing and post closing process

  • Preparation of a study of the client's paperwork

  • Assistance is provided on PPAs and other post-closing transactions 

  • Based on the results of due diligence, the price adjustment process is initiated


Critical areas of Diligence under GST 

Specific areas can be highlighted, and they are listed below:

Understanding of business 

Before acquiring or investing in any enterprise or business, it is imperative to understand and interpret the company's operations following the GST codes for goods and services. Along with the functions, it is also essential to observe their accounts to minimize any chance of fraud or sniffing out a hidden liability. By understanding the above information, the acquirer gets a better picture of GST's effects on the total goods and services.

GST compliance by business 

Experts of GST compliance assist clients in reviewing their GSTR-3B filings to compare them to GSTR 2A, which are essential for the book-to-return reconciliation, exempted/ non-GST supply delivery under warranty and the matching of the input tax credit. 

Supply related details 

The transactions related to ''place of supply'' and ''time of supply'' are measured and reviewed to circumvent any interest or penalty payments. 

Transactions related to Input tax credit

Checks for the delivery of goods/services, receipt of tax invoice, filing of GST return by the vendor, payment of GST to the government, and payment made to the vendor within 180 days.


Important points to consider while conducting due diligence under GST

  • Whether or not the manager can demonstrate the reconciliation of GST returns and audited financials.

  • Whether GST returns have been filed within the timelines.

  • Whether all GST compliances have been met

  • What are any notices they have received from the GST department?

  • Are there any outstanding legal compliances/cases from the previous indirect tax regime? ( service tax, VAT etc.)

  • The stock report is verified to ensure no lost or damaged goods.

  • Whether credit is allowed under GST law



GST due diligence reports enable a taxpayer to make informed decisions. An acquirer is presented with not only problems, but also solutions to navigate a merger or takeover with the help of due diligence. Its importance is emphasized because businesses are informed of obstacles and solutions. It helps to avoid any unnecessary expenditure either during the merger or after.