🧾 GST Audit – Full Detailed Guide (India)

 

1️⃣ What is GST Audit?

A GST Audit is a systematic examination of:

• GST returns filed

• Books of accounts

• Invoices & records

• Input Tax Credit (ITC) claims

• GST payments

to verify correctness, compliance, and accuracy under the GST Act, 2017.

 

2️⃣ Is GST Audit Mandatory?

🔴 Important Update

👉 Statutory GST Audit by CA/CMA (GSTR-9C) is NOT mandatory from FY 2020-21 onwards.

However:
✔ Departmental GST Audit
✔ Special GST Audit
✔ Self-certified reconciliation
are still applicable and very important.

 

3️⃣ Types of GST Audit (Very Important)

 

1️⃣ Departmental GST Audit (Section 65)

Conducted by:

• GST Department / Proper Officer

Applicability:

• Any registered taxpayer

• Based on risk, mismatch, or selection

Features:

• Prior notice of 15 working days

• Audit period up to 3 months (extendable)

• Covers:

  • Returns

  • ITC

  • Turnover

  • Tax payments

 

2️⃣ Special GST Audit (Section 66)

Conducted by:

• CA or CMA appointed by GST Department

Triggered when:

• Complex transactions

• Large ITC claims

• Doubtful valuation

• Revenue loss suspected

Cost:

• Paid by Government

 

3️⃣ Self-Certified Reconciliation (Earlier GSTR-9C concept)

Though CA certification removed:

• Businesses must still reconcile:

  • GSTR-1

  • GSTR-3B

  • Books of accounts

  • Income Tax & GST turnover

⚠️ Errors here = Notices & penalties

 

4️⃣ Who is Liable for GST Audit / Scrutiny?

GST audit/scrutiny can apply to:

• Large turnover businesses

• ITC-intensive entities

• Exporters

• E-commerce sellers

• Businesses with:

  • GST vs IT mismatch

  • High refunds

  • Repeated amendments

  • Nil / low tax but high turnover

 

5️⃣ Documents Required for GST Audit

A. Registration & Legal

• GST Registration Certificate

• PAN

• Constitution documents

B. Books of Accounts

• Sales register

• Purchase register

• Expense ledger

• Trial balance

• Profit & Loss Account

• Balance Sheet

C. GST Returns

• GSTR-1

• GSTR-3B

• GSTR-9 (Annual Return)

• Refund applications (if any)

D. ITC Documents

• Purchase invoices

• Debit/Credit notes

• ITC reversals

• Rule 42/43 workings

E. Other Records

• E-way bills

• Bank statements

• Stock records

• Agreements/contracts

 

6️⃣ Key Areas Checked in GST Audit

Area	What is Verified
Turnover	Books vs GSTR-1 vs IT
Output tax	Correct rate & classification
ITC	Eligibility, reversals, blocked credits
RCM	Reverse charge compliance
Exempt income	Proper disclosure
Time of supply	Correct tax period
Place of supply	IGST vs CGST/SGST
E-way bills	Movement vs invoices

 

7️⃣ GST Audit Process (Departmental)

1. Audit Notice Issued

2. Submission of records

3. Examination by officer

4. Queries & explanations

5. Draft findings

6. Final audit report

7. Demand (if any)

 

8️⃣ Common GST Audit Issues (High Risk)

• Excess ITC claim

• ITC on blocked items

• GST not paid on advances

• Wrong tax rate

• GST vs Income Tax turnover mismatch

• RCM not paid

• E-way bill non-compliance

• Credit notes not reversed

 

9️⃣ GST Audit vs Income Tax Audit (Difference)

Particular	GST Audit	IT Audit
Law	GST Act	Income Tax Act
Authority	GST Dept	Income Tax Dept
Focus	Tax & ITC	Profit & income
Period	Any period	Financial year
Penalty	High	Moderate

 

🔟 Penalties After GST Audit

Default	Penalty
Tax short paid	Tax + interest
Wrong ITC	ITC reversal + 24% interest
Fraud / suppression	100% penalty
Incorrect returns	Notice & demand
Non-cooperation	Best judgment assessment

 

1️⃣1️⃣ Importance of GST Audit Readiness

GST audit impacts:

• Refund eligibility

• Future scrutiny

• Business credibility

• Bank & investor confidence

• Avoidance of litigation

 

1️⃣2️⃣ Best Practices to Avoid GST Audit Issues

✔ Monthly reconciliation
✔ Correct HSN/SAC usage
✔ Timely ITC reversal
✔ GST-IT turnover matching
✔ Proper documentation
✔ Professional review before annual filing

 

1️⃣3️⃣ Advisory Draft – GST Audit Compliance

Email

Subject: Advisory on GST Audit & Compliance

To: [Client Name]
Date: __________

Dear Sir / Madam,

This is to inform you regarding GST audit, scrutiny, and compliance requirements under the GST Act, 2017. Although statutory GST audit certification is no longer mandatory, departmental and special GST audits remain fully applicable.

Key Advisory Points:

1. Ensure proper reconciliation between GSTR-1, GSTR-3B, GSTR-9, books of accounts, and Income Tax returns.

2. Maintain complete records of invoices, ITC workings, e-way bills, and bank statements.

3. Review ITC claims carefully to avoid reversal, interest, and penalties.

4. Respond to GST audit notices within prescribed timelines.

5. Conduct internal GST review periodically to remain audit-ready.

Benefits of Compliance:

• Avoidance of penalties and litigation

• Smooth GST refunds

• Reduced scrutiny risk

• Strong compliance rating

We recommend proactive GST audit preparedness to ensure seamless operations and statutory compliance.

Warm regards,
[Consultant Name]
[Designation / Firm Name]

 

🔹 Additional & Advanced GST Audit Information (Not Covered Earlier)

 

1️⃣ GST Audit vs GST Scrutiny vs Assessment (Often Confused)

Particular	GST Audit	GST Scrutiny	Assessment
Section	65 / 66	61	62–64
Authority	GST Officer / CA	GST Officer	GST Officer
Scope	Detailed	Limited	Final determination
Duration	Long	Short	Legal order
Outcome	Audit report	Clarification	Demand order

📌 Many notices start as scrutiny and later convert into audit.

 

2️⃣ Audit Can Cover Multiple Years

• GST audit is not limited to one financial year

• Department can audit:

  • Any previous year

  • Multiple years together

• Especially common in:

  • Refund cases

  • ITC heavy businesses

 

3️⃣ GST Audit Selection Parameters (Hidden Triggers)

Businesses are selected for audit due to:

• High ITC to turnover ratio

• Nil / low tax payment with high turnover

• Large refunds

• Frequent amendments in GSTR-1

• RCM non-payment patterns

• GST vs Income Tax mismatch

• E-way bill inconsistencies

 

4️⃣ Importance of GSTR-9 Even Though Optional for Some

Even if GSTR-9 is optional:

• GST audit officers still rely on:

  • Annual consolidated data

• Wrong annual data = strong audit risk

📌 Voluntary accurate filing reduces scrutiny.

 

5️⃣ GST Audit & Anti-Profiteering Link

During audit, officers may check:

• Whether GST benefit passed to customers

• Especially in:

  • Construction

  • FMCG

  • Retail chains

Failure may lead to anti-profiteering action.

 

6️⃣ ITC Time Limit – Audit Impact

• ITC claimed beyond time limit is automatically disallowed

• Audit officers verify:

  • Invoice date

  • Claim month

  • GSTR-3B period

📌 Late ITC = reversal + interest.

 

7️⃣ Stock Verification During GST Audit

Officers may:

• Physically verify stock

• Compare:

  • Purchase

  • Sales

  • Closing stock

• Especially for:

  • Traders

  • Manufacturers

Mismatch = tax demand.

 

8️⃣ GST Audit & Bank Statement Matching

GST audit includes:

• Bank credit vs turnover matching

• Unreported income detection

• Advance receipts not taxed

📌 Bank reconciliation is critical.

 

9️⃣ Cross-Linking with Other Laws

GST audit data is shared with:

• Income Tax Department

• ROC (Companies)

• Customs (Import/export)

• Enforcement Directorate (in extreme cases)

⚠️ Wrong GST data can trigger multi-department scrutiny.

 

🔟 Audit Outcome Does NOT End the Matter

After audit:

• Department may issue:

  • DRC-01 (demand notice)

  • SCN (Show Cause Notice)

• Taxpayer must:

  • Reply

  • File appeal if required

📌 Audit ≠ final order.

 

1️⃣1️⃣ GST Audit Record Retention Rule

Records must be kept for:

• 6 years from due date of annual return

• Extended if litigation pending

Failure → penalty.

 

1️⃣2️⃣ Voluntary Payment Before Audit Closure

If discrepancy found:

• Taxpayer can pay voluntarily using DRC-03

• Reduces:

  • Penalty

  • Litigation risk

📌 Strong compliance move.

 

1️⃣3️⃣ Industry-Specific Audit Focus

Industry	Audit Focus
Construction	ITC reversal, advances
Manufacturing	Stock, valuation
Trading	E-way bills
E-commerce	TCS reconciliation
Exporters	Refund misuse
Restaurants	Rate classification

 

🔹 “Extra Compliance Tips” (Website Section)

• Monthly GST reconciliation is best audit defense

• Keep invoice-wise ITC data

• Reconcile GST with Income Tax yearly

• Respond to notices within time

• Maintain stock & bank reconciliation