What is GST Audit?

GST Audit is the process of detailed examination and verification of the records, returns, and other relevant documents maintained by a registered taxable person under the Goods and Services Tax (GST) law. The primary purpose of a GST audit is to verify the correctness of:

  • Turnover declared,

  • Taxes paid,

  • Refund claims,

  • Input Tax Credit (ITC) availed,

  • Compliance with GST provisions and rules.

It ensures transparency and compliance, helps detect irregularities, and improves voluntary tax compliance.

Who is Required to Get a GST Audit?

  • Businesses with an aggregate turnover exceeding ₹2 crore (threshold as per current GST provisions; subject to periodic revision).

  • Government may also order a Special Audit by an Independent Chartered Accountant or Cost Accountant if tax authorities suspect irregularities or complex transactions.

  • Other categories may be notified by the Commissioner for audit.

Types of GST Audit

  1. Statutory GST Audit (Section 35 of CGST Act):
    Conducted by a Chartered Accountant (CA) or Cost Accountant (CMA).
    Filing of annual return (Form GSTR-9) and reconciliation statement (Form GSTR-9C) after audit is mandatory.

  2. Departmental Audit (Section 65 of CGST Act):
    Conducted by tax authorities to check the correctness of returns and compliance.
    Intimation is given 15 days before the audit.

  3. Special Audit (Section 66 of CGST Act):
    Ordered when the tax authority suspects non-compliance or complex cases.
    Conducted by a CA/CMA nominated by the Commissioner.

Objective of GST Audit

  • Verify declared turnover is accurate and complete.

  • Ensure appropriate tax payment and refunds.

  • Validate input tax credits claimed are legitimate and used correctly.

  • Identify any discrepancies, under-reporting, or evasion.

  • Check compliance with GST laws and rules.

  • Recommend corrective actions for better compliance.

Preparation for GST Audit

  • Maintain all financial records, tax invoices, bills, debit/credit notes, e-way bills, payment challans, and books of accounts.

  • Ensure proper reconciliation between purchase/sales data and GST returns.

  • Keep documentary evidence for all ITC claims.

  • Organize copies of returns filed and communications with tax authorities.

GST Audit Process Overview

Step 1: Intimation of Audit

The registered taxpayer is notified usually via Form GST ADT-01 at least 15 days before the audit.

Step 2: Commencement of Audit

Audit team (tax department or CA/CMA) reviews records either at the place of business or their office.

Step 3: Verification and Examination

  • Cross-checking sales and purchase registers with GST returns (GSTR-1, GSTR-3B).

  • Verification of ITC eligibility and utilization.

  • Scrutiny of exempted sales and zero-rated supplies.

  • Checking treatment of job work, advances, and e-way bills.

  • Verification of refund claims and payments made.

  • Review accounting system and books of accounts for consistency.

Step 4: Reporting Findings

  • Audit findings are communicated in Form GST ADT-02 (departmental audit) or Form GST ADT-04 (special audit).

  • The taxpayer gets an opportunity to be heard on objections raised.

Step 5: Action Based on Audit Report

  • If discrepancies or tax shortfalls are found, demand notices (under Sections 73/74 of CGST Act) may be issued for recovery.

  • If no discrepancies, the audit is closed without further action.

GST Audit Documents Typically Verified

  • Tax invoices and bills of supply

  • Purchase registers and payment records

  • Sales registers and customer invoices

  • E-way bills and transporter documents

  • Return filings (GSTR-1, GSTR-3B, GSTR-9, etc.)

  • Electronic credit ledger and debit ledger

  • Tax payment challans and bank statements

  • Contracts, agreements, and refund applications

  • Books of accounts and accounting software reports

Important Compliance Points During Audit

  • Accurate disclosure of turnover and taxable supplies

  • Proper classification of goods/services in correct HSN/SAC codes

  • Correct rate of GST applied and tax collected

  • Proper availing and reversal of Input Tax Credit

  • Treatment of advances and adjustments in returns

  • Timely payment and deposit of GST

  • Compliance with invoicing rules and maintenance of records

Penalties and Consequences of Non-Compliance

  • Penalty for non-cooperation or concealment of tax liability.

  • Interest on late payment of GST.

  • Prosecution in cases of willful tax evasion.

  • Suspension or cancellation of GST registration.

Advanced Considerations: Special Audit and Risk-based Assessments

  • Special audit triggered for complicated or suspicious cases.

  • Use of data analytics by tax authorities to select cases based on risk profiles (excessive ITC, mismatch in returns, unusual transactions).

  • Focus on sectors with high revenue leakage risk.

Filing Annual GST Audit Report: GSTR-9C

  • It is a reconciliation statement along with the audited financial statements.

  • Required from taxpayers with turnover above the prescribed limit.

  • Form GSTR-9C must be certified by a CA/CMA.

  • Assists in reconciling the taxpayer’s records with GST returns filed. 

Guide to GST Audit for Kyna FinTax: Detailed Checklist, Document Formats, Client Communication, and Explanation

 

Part 1: Explanation of GST Audit

What is GST Audit?

GST Audit is a thorough examination of a registered taxpayer’s financial records and GST returns to verify the correctness of turnover, tax paid, input tax credit claimed, and overall compliance with GST provisions.

It helps tax authorities and taxpayers ensure:

  • Proper reporting of sales and purchases,

  • Correct payment of taxes,

  • Prevention of tax evasion,

  • Identification of errors or discrepancies,

  • Strengthening the GST system’s transparency and efficiency.

Why is GST Audit Important?

GST is a destination-based consumption tax imposed on goods and services. Given the volume and complexity of transactions, GST audits help maintain the integrity of the tax system by verifying the accuracy and completeness of the tax paid and reported.

For businesses, it serves as a checkpoint to:

  • Detect and rectify accounting or reporting mistakes,

  • Ensure eligible input tax credits are claimed,

  • Avoid penalties and future litigation,

  • Improve internal accounting and compliance processes.

Who is Covered Under GST Audit?

  • Mandatory for businesses with annual aggregate turnover exceeding ₹2 crore.

  • Special audits can be ordered by tax authorities for any taxpayer suspected of irregularities or complex transactions.

  • All registered taxpayers covered under GST law can be audited as per legal provisions.

Types of GST Audits

1. Statutory GST Audit

  • Conducted by qualified professionals (CA/CMA) appointed by the taxpayer.

  • Must be filed annually with the GST return reconciliation forms (Form GSTR-9 and GSTR-9C).

  • Covers verification of books, accounts, ITC, turnover, invoices, and records.

2. Departmental GST Audit

  • Conducted by the GST department officers under Section 65 of the CGST Act.

  • The department notifies the taxpayer 15 days in advance.

  • Auditor reviews compliance, cross-verifies declared data, and may seek additional documents.

3. Special Audit

  • Ordered by the Commissioner when complex cases or irregularities are suspected.

  • An independent CA or CMA is appointed.

  • Detailed scrutiny of specific transactions or issues.

GST Audit Procedure: Step-by-Step

Step 1: Audit Notice and Preparation

  • Tax authorities issue GST ADT-01 to notify the audit.

  • Taxpayer prepares records: sales/purchase registers, invoices, returns, ledger books, and ITC documentation.

Step 2: Audit Execution

  • Physical/online verification of documents.

  • Cross-check return data (GSTR-1, GSTR-3B) against accounting records.

  • Validate supplies, exemptions, zero-rated goods/services.

  • Examine ITC claims for eligibility and usage.

  • Verify payment of taxes and filing of returns.

  • Review contracts, bank statements, e-way bills.

Step 3: Audit Reporting

  • Findings are shared in GST ADT-02 (departmental) or ADT-04 (special audit).

  • Taxpayer can respond to objections or clarify.

Step 4: Post Audit Action

  • Tax authorities may issue notices for tax recovery or penalties under Sections 73/74.

  • Taxpayer should implement audit recommendations.

Key Areas in a GST Audit

  • Turnover Recognition: Verify all taxable and exempt sales are properly reported.

  • Input Tax Credit: Assess if credit claimed is supported by invoices and used correctly.

  • Tax Payments: Confirm taxes collected and deposited against the declared returns.

  • Compliance: Check adherence to invoicing requirements, filing deadlines, and reconciliation.

  • Special Transactions: Job work, advance payments, exports, imports, and capital goods.

Penalties & Consequences

Non-compliance or errors found in audit can lead to penalties, interest payments, or prosecution for deliberate tax evasion. Cooperating with audit and rectifying mistakes minimizes legal risks.

Part 2: Detailed GST Audit Checklist

Area Checklist Points Documents Required
Registration Details Verify valid GST registration, registration amendments, composition scheme usage. GST registration certificate, amendment letters.
Turnover and Sales Verify sales invoices, classify supplies (taxable, exempt, nil rated). Verify turnover accuracy. Sales invoices, bills of supply, export docs.
Purchase Records & ITC Check purchase invoices, validate ITC eligibility and reversal. Purchase bills, debit/credit notes, ITC ledger.
Input Tax Credit (ITC) Confirm ITC claims align with law: valid tax invoices, receipt of goods/services, timely claim. Tax invoices, payment proof, supplier returns.
Returns Filed Verify accuracy of GSTR-1, GSTR-3B, GSTR-9, and GSTR-9C. GST return filing acknowledgment & reports.
E-way Bills Check proper generation and usage of e-way bills for inter/intrastate transport. E-way bill documents.
Tax Payment Confirm GST payments (CGST, SGST, IGST) made timely with correct amounts. Challans, bank statements.
Exemptions and Composition Verify exemptions claimed and whether composition scheme rules are followed. Exemption notifications, returns under composition.
Advances and Refunds Check accounting for advance receipts and GST refunds processed. Contracts, refund orders, payment documents.
Accounting System Assess integration of GST in accounting software and internal controls. Accounting software reports, internal control docs.
Specific Sector Checks Special provisions applicable to exports, imports, job work, real estate, etc. Sector-specific records and invoices.
Compliance with Notices Review responses to past GST notices or compliance actions. Notice copies, correspondence files.

Part 3: Sample GST Audit Document Formats

1. GST Audit Confirmation Letter (To Client)

Date: [DD/MM/YYYY]

To,
[Client’s Name]
[Client’s Address]

Subject: Appointment Confirmation for GST Audit

Dear [Client’s Name],

We are pleased to confirm our appointment to conduct the GST Audit for your business for the financial year [YYYY-YYYY]. This audit will include verification of records, returns, and compliance under the GST law.

Please provide the requisite documents and books of accounts by [Date]. Our team will coordinate with your staff and ensure minimal disruption.

For any clarifications, feel free to contact us.

Thanks & Regards,
[Your Name]
Kyna FinTax
[Contact Details]

2. GST Audit Findings Report Format (Sample Excerpt)

Sr. No Audit Area Findings Impact/Amount Recommendation
1 Input Tax Credit ITC claimed on invoices not supported by supplier filings ₹50,000 Reverse the ITC claimed and pay interest
2 Sales Reporting Certain exempted sales reported as taxable Revenue Shortfall Amend returns and correct reporting
3 E-Way Bill Compliance Missing e-way bills for inter-state supplies Procedural Violation Implement controls to generate e-way bills timely

Part 4: Client Communication Templates

Initial GST Audit Notice Email to Client

Subject: GST Audit Notification and Document Requirement

Dear [Client’s Name],

As part of regulatory compliance, your GST returns for the financial year [YYYY] are scheduled for audit. To ensure a smooth audit process, please provide the following documents:

  • GST registration certificate

  • Copies of tax invoices (sales and purchase)

  • Return filings (GSTR-1, GSTR-3B, GSTR-9)

  • Tax payment challans

  • Input tax credit registers

  • E-way bills (if applicable)

  • Accounting records for the relevant period

Our team will coordinate with you to schedule a convenient audit time. Please feel free to reach out for any assistance.

Best Regards,
[Your Name]
Kyna FinTax

Audit Completion and Feedback Email

Subject: GST Audit Completion and Preliminary Findings

Dear [Client’s Name],

We have completed the GST audit for the year [YYYY]. Preliminary findings and recommendations are attached for your review.

Please schedule a discussion to address any concerns and plan for necessary corrections.

Thank you for your cooperation.

Warm regards,
[Your Name]
Kyna FinTax

Part 5: Additional Guidance and Best Practices

  • Maintain organized and updated records throughout the year. This minimizes delays during audit.

  • Regular reconciliation of GST returns with accounting records helps identify errors early.

  • Educate staff responsible for GST compliance on recording and reporting standards.

  • Review ITC eligibility criteria carefully to avoid disallowances during audit.

  • Collaborate proactively with auditors and provide honest explanations for discrepancies.

  • Follow up on audit recommendations diligently to maintain smooth compliance and avoid penalties.

GST Audit is a comprehensive, mandatory process that ensures a business remains compliant with GST laws and accurate in its tax reporting. With increasing scrutiny from tax authorities, being audit-ready is essential for smooth operations and avoiding penalties.

For businesses using your Kyna FinTax services, offering this detailed preparation, clear communication, and structured audit methodology will build trust and demonstrate professionalism.