A GST audit consists of official evaluation procedures designed to check taxpayer financial records and returns with supporting documentation that validate tax payments, reported revenues, and input tax credit claims. The primary purpose behind GST audits is to verify complete business compliance with Goods and Services Tax legislation.
Under the GST framework, audits serve as a regulatory tool to identify discrepancies, detect tax evasion, and promote transparency. The audits will either run as self-certified checks (for companies preparing GSTR-9C) or through formal tax authority inspections as departmental or special audits.
The Goods and Services Tax requires extensive tax reporting oversight through GST audit operations for maintaining transparent, accurate, and compliant data. The evolution of mandatory audit based on turnover has brought changes, but additional thresholds and certain special scenarios require checks under the GST law. The authority must perform audits as a necessary step to validate the accuracy between tax payments and claimed ITC, along with documented returns against business records.
The CGST Act involved Section 35(5), which stated that businesses exceeding ₹2 crore in annual turnover needed auditing by Chartered Accountants or Cost Accountants. The Finance Act 2021 eliminated the requirement for account audits as set out in the original CGST Act, Section 35(5).
All taxpayers that generate more than ₹5 crore in aggregate turnover must file a self-certified reconciliation statement through Form GSTR-9C, along with their annual return using Form GSTR-9. The requirement for self-certified reconciliation statements through Form GSTR-9C does not force taxpayers to undergo third-party audits, yet it makes taxpayers responsible for accurate financial and tax reporting.
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Even if a taxpayer’s turnover is below the statutory threshold, a GST audit can still be ordered by tax authorities in the following scenarios:
GST audit is not limited to big businesses. Non-compliance, errors, or inconsistencies in filings can invite scrutiny and enforcement even for smaller entities. Regular reconciliations and internal checks are the best ways to stay audit-ready and avoid penalties.
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Depending on the situation and authority involved, there are several types of GST audits, each governed by specific provisions of the CGST Act. Here are the common types of GST audits:
A departmental GST audit is conducted by tax authorities under Section 65 of the CGST Act. This audit is typically initiated based on risk parameters, data analytics, or discrepancies identified during routine scrutiny. The officer issues a prior notice (Form ADT-01) at least 15 working days before starting the audit. The GST audit must be completed within 3 months from the date of commencement, extendable to 6 months by the Commissioner.
If a retail company gets flagged for repeated mismatches between GSTR-1 and GSTR-3B, it will be served a notice for a departmental audit by the GST authority.
A special audit under GST is initiated by the Assistant Commissioner if they believe that the taxpayer has undervalued supplies or wrongly claimed input tax credit beyond normal limits. The audit must be completed by a Chartered Accountant or Cost Accountant nominated by the Commissioner. This type of audit can be ordered regardless of the taxpayer’s turnover.
A small electronics importer with ₹1.5 crore turnover can be subjected to a special audit after the officer found a high ratio of ITC claims that didn’t align with industry benchmarks.
Previously, businesses with an annual aggregate turnover exceeding ₹2 crore were required to undergo a statutory GST audit conducted by a Chartered Accountant (CA) or Cost Accountant (CMA). However, post the Finance Act 2021 amendment, this provision was removed.
Currently, businesses with turnover exceeding ₹5 crore must submit a self-certified reconciliation statement in Form GSTR-9C, although a third-party audit is no longer mandatory. Despite this, many businesses still voluntarily engage CAs or CMAs for internal audits to ensure full compliance.
The GST audit process begins when the tax authorities issue a formal notice.
Upon receiving the audit notice, the taxpayer must submit necessary documents and records for examination. Commonly requested documents include:
Providing complete and accurate records helps ensure a smoother GST audit procedure.
The GST audit is conducted either at the taxpayer’s place of business or the department’s office. During the audit, officers:
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After reviewing all submissions, the findings are compiled and communicated:
This step is essential in determining the final tax liability, including any additional tax, interest, or penalty due.
If any demand is raised, the taxpayer must either pay the liability or contest it through appeal. Timely response to audit findings helps avoid legal complications and ensures GST compliance.
When discrepancies are discovered during a GST audit, businesses are given an opportunity to correct the errors. However, unresolved or serious inconsistencies can lead to legal and financial consequences under the GST law.
A GST audit is more than just a regulatory requirement; it’s a vital tool to ensure transparency, accuracy, and compliance in a business’s tax affairs. Understanding the audit process, preparing accurate records, and responding promptly to notices can help businesses avoid penalties and maintain seamless operations under the GST framework. Staying audit-ready is not just smart; it’s essential.