📌 What is a GST Audit?

A GST Audit is an official examination of a taxpayer’s GST records, returns, and documents to verify correctness of turnover declared, taxes paid, refund claimed, and input tax credit availed. It also ensures that the taxpayer complies with the provisions of the Goods and Services Tax Act, 2017.

Under the current GST regime, audits can be conducted by:

• The taxpayer’s own accountant (in some earlier provisions under Section 35(5) – now removed),
• GST Department (Departmental Audit), or
• Chartered Accountant/Cost Accountant appointed by GST Officer (Special Audit).

📌 Types of GST Audits in India

There are three major types of audits under GST:

1. Departmental Audit (Section 65)

Conducted by the CGST/SGST Commissioner or any authorized officer, a departmental audit is initiated after issuing a notice to the taxpayer. The audit must be completed within 3 months, extendable by another 6 months. Taxpayers are selected based on risk assessment and other parameters.

2. Special Audit (Section 66)

If at any stage of scrutiny, inquiry, or investigation the officer is of the opinion that the value has not been correctly declared or credit has been wrongly availed, a special audit may be ordered. This audit is carried out by a Chartered Accountant or Cost Accountant nominated by the Commissioner.

3. Audit by Tax Authorities (Earlier Section 35(5))

This was applicable for businesses with annual turnover exceeding ₹2 crores. However, this provision has been removed effective 1st August 2021. Now, taxpayers are not required to get their books audited by professionals, but departmental and special audits continue.

📌 Legal Provisions Governing GST Audit (2025 Update)

📌 GST Audit Threshold in 2025

As of July 2025, there is no mandatory GST audit by professionals based on turnover threshold. However, the department may initiate an audit under Section 65 or 66 at its discretion.

Earlier, businesses with annual aggregate turnover exceeding ₹2 crore were required to file a GST Audit Report in GSTR-9C, but this has been removed.

Current Thresholds for GSTR Filing (for Reference):

• GSTR-9 (Annual Return): Mandatory for all taxpayers with turnover above ₹2 crore.
• GSTR-9C (Audit Reconciliation): Voluntary since FY 2020-21. Only applicable if required by the department.

📌 Who Can Be Audited in 2025?

The following businesses or taxpayers are more likely to be selected for audit by GST authorities in 2025:

• Businesses with inconsistent tax payments across months
• Entities claiming unusually high Input Tax Credit (ITC)
• Firms with major mismatches in GSTR-3B and GSTR-2A/2B
• Taxpayers who filed late returns frequently
• Sector-specific industries with historically low compliance

The CBIC has upgraded its AI-based data analytics to identify audit cases using red flags and trend deviations.

📌 Departmental GST Audit Process (Step-by-Step)

1. Audit notice (Form ADT-01) is issued to the taxpayer at least 15 days prior to audit.
2. Audit is conducted at the place of business or at the GST office.
3. Officers examine books of accounts, returns, e-way bills, ITC records, etc.
4. The audit must be completed within 3 months from commencement, extendable to 6 months.
5. Findings are recorded in Form ADT-02 and shared with the taxpayer.
6. Additional tax, interest, or penalties may be imposed if discrepancies are found.

Types of GST Audit in India

1. Statutory GST Audit (Section 35(5) – Now Omitted)

Earlier, under Section 35(5) of the CGST Act, if the turnover of a registered taxpayer exceeded ₹2 crore in a financial year, they were required to get their accounts audited by a Chartered Accountant or Cost Accountant. However, this provision has been omitted w.e.f. 1st August 2021 via the Finance Act, 2021.

Despite its omission, this audit requirement still applies to past financial years (up to FY 2020–21) where turnover exceeded ₹2 crore. Taxpayers must file Form GSTR-9C along with a reconciliation statement and CA certification for those years.

2. Departmental Audit (Section 65)

A departmental audit is conducted by CGST/SGST officers, either on their own or as directed by the Commissioner. The scope includes examination of records, returns, and statements to verify the correctness of:

• Turnover declared
• Taxes paid
• Refunds claimed
• Input tax credit (ITC) availed
• Other compliance parameters

The audit is conducted at the taxpayer’s place of business and must be completed within 3 months from the commencement date, extendable by another 6 months with proper reasons.

3. Special Audit (Section 66)

If at any stage of scrutiny or investigation, the officer finds that the value declared or ITC claimed is inaccurate or misleading, a Special Audit may be initiated.

The key features include:

• Ordered by the Assistant Commissioner with approval from the Commissioner
• Conducted by a Chartered or Cost Accountant nominated by the department
• Must be completed within 90 days (extendable by 90 more days)
• Cost of audit is borne by the department

Who is Liable for GST Audit in 2025?

As of July 2025, the mandatory audit by Chartered Accountants under Section 35(5) has been abolished. However, the GST Department may initiate audits under Section 65 and 66.

Departmental Audit Applicability

GST authorities use risk parameters to shortlist businesses for audits. Common triggers include:

• High ITC claims vs output tax
• Frequent amendments in GSTR-1 and GSTR-3B
• Unusual refund applications
• Non-filers or late filers
• Mismatch between GSTR-1 and GSTR-3B

Audit Frequency

The department may conduct regular audits once every 5 years unless irregularities are observed, in which case, special audits or investigations may be ordered.

Key Documents Required for GST Audit

The following documents are typically required for smooth GST audit proceedings:

• GSTR-1, GSTR-3B, GSTR-9, and GSTR-9C (if applicable)
• Purchase and sales registers
• Electronic cash, credit, and liability ledgers
• Invoices and debit/credit notes
• Bank statements and payment challans
• Input tax credit reconciliation
• E-way bills and stock registers
• Fixed asset registers
• Trial balance and P&L statements

Step-by-Step GST Audit Process in India

1. Notice Issued (Form GST ADT-01): Sent by the proper officer informing the start of audit.
2. Audit Commencement: Officer visits place of business within 15 working days of notice issuance.
3. Audit Execution: Records examined. Clarifications may be sought.
4. Completion & Final Report (Form GST ADT-02): Submitted to the taxpayer outlining discrepancies and liabilities.
5. Post-Audit Action: Demand notice (Form DRC-01) may be issued if non-compliance is detected.

Time Limit for Completion of Audit

GST Audit Report Format (Sample)

The final audit report issued by the department is typically in Form GST ADT-02. Here is a simplified structure of what it includes:

• Taxpayer Name & GSTIN
• Audit Period
• Details of records examined
• Findings and observations
• Discrepancies noticed
• Additional liabilities payable (tax + interest + penalty)
• Recommendations for improvement

Sample Summary Table in GST Audit Report

Penalties for Non-Compliance in GST Audit

If discrepancies are found and the taxpayer fails to respond or pay the liability, the following consequences may arise:

• Interest: 18% per annum on unpaid tax from due date till payment
• Penalty: 10% of tax due or ₹10,000, whichever is higher
• For fraudulent intent: 100% of tax due
• Suspension or cancellation of GST registration in extreme cases
• Prosecution and imprisonment if amount exceeds specified thresholds

Best Practices for GST Audit Preparedness

To minimize the chances of disputes and penalties during a GST audit, businesses should adopt the following best practices:

• Regularly reconcile GSTR-1, GSTR-3B, and GSTR-2B
• Maintain digital and physical copies of invoices and contracts
• Perform internal audits quarterly to identify red flags
• Segregate ineligible and blocked ITC
• Cross-check vendor filings to claim accurate ITC
• Use automated accounting and GST compliance tools
• Respond promptly to departmental queries
• Consult GST professionals for complex transactions

Real-Life Case Studies of GST Audits

Case 1: ITC Reversal Due to Non-Filing by Vendor

A Bangalore-based garment exporter claimed ITC of ₹12 lakh. During the audit, the department found that one of the major suppliers had not filed GSTR-1. As a result, ITC of ₹3.8 lakh was disallowed, and interest + penalty was imposed.

Case 2: Turnover Mismatch

A Chennai-based electronics retailer declared ₹2.4 crore turnover in GSTR-3B but ₹2.8 crore in Income Tax Return. During the audit, this mismatch triggered further scrutiny, resulting in a demand of ₹7.2 lakh plus interest.

Case 3: Stock Transfer Issues

A Mumbai-based manufacturer failed to generate e-way bills for inter-branch stock transfers. During audit, the department levied ₹1.5 lakh as penalty under Rule 138 of CGST Rules for non-compliance with e-way bill provisions.

Frequently Asked Questions (FAQs)

Conclusion: Be Audit-Ready, Stay GST Compliant

Though the statutory GST audit by a CA has been removed, the department continues to tighten scrutiny through audits under Section 65 and 66. Businesses must prioritize clean record-keeping, regular reconciliations, and timely compliance to avoid penalties and reputational damage.

Being GST audit-ready is not just about avoiding fines—it’s about building long-term business credibility and trust with authorities, clients, and investors.

Keep your GST compliance up to date and consult professionals for any doubts. The cost of non-compliance far outweighs the effort to stay audit-ready!

For the latest GST circulars and audit updates, visit the official GST portal: https://www.gst.gov.in