What is a GST Audit?

A GST audit is an examination of a taxpayer's records, returns, and documents to verify the accuracy of turnover declared, taxes paid, refunds claimed, and input tax credit (ITC) availed. It helps ensure that the taxpayer is complying with the provisions of the Goods and Services Tax (GST) law.

The audit is conducted by tax authorities or authorized professionals to check if the correct GST is paid and if any discrepancies exist. It also helps prevent tax evasion and ensures that the taxpayer follows the rules set by the income tax department and the central government.

Why is a GST Audit Important?

GST audits are essential to:

✔️ Confirm accurate reporting of sales, purchases, and tax payments.

✔️ Verify that ITC claims and refunds are legitimate.

✔️ Identify under-reporting or misreporting of taxable income.

✔️ Prevent tax evasion and ensure proper compliance with the income tax act 1961.

✔️ Ensure that businesses maintain proper books of account and follow tax regulations.

Types of GST Audits

There are three types of GST audits based on the audit authority and purpose:

1. Turnover-Based Audit (Section 35(5) of CGST Act)

• Applicable when a taxpayer’s aggregate turnover exceeds ₹5 crore in a financial year.
• The taxpayer must get their accounts audited by a Chartered Accountant (CA) or a Cost Accountant.
• A reconciliation statement in Form GSTR-9C is required. (This audit requirement was removed from FY 2020-21 onwards, but businesses may still do voluntary audits.)

2. Audit by Tax Authorities (Section 65)

The Commissioner of CGST/SGST or an authorized officer may conduct an audit to verify compliance.

Process:

• Notice issued in Form GST ADT-01 at least 15 working days before the audit.
• Audit period covers a financial year or multiple financial years.
• Audit completion within 3 months (extendable by 6 months).

Obligations of the Registered Person:

• Provide access to books of account and other documents.
• Offer support and clarification to tax officers.
• Cooperate with auditors during the review process.

Audit Report:

• Findings are communicated in Form GST ADT-02 within 30 days of completion.
• If discrepancies are found (like unpaid tax or wrong refund), demand and recovery action will be initiated.

3. Special Audit (Section 66)

A special audit is ordered by the Assistant Commissioner with prior approval from the Commissioner if there’s suspicion of incorrect value declaration or wrong ITC claims.

Process:

• Order issued in Form GST ADT-03.
• Conducted by a chartered accountant or cost accountant appointed by the Commissioner.
• Auditor must submit the report within 90 days (extendable by another 90 days).
• Audit expenses, including auditor fees, are covered by the Commissioner.

Audit Report:

• Findings are communicated in Form GST ADT-04.
• Taxpayer is given an opportunity to explain discrepancies.
• If discrepancies are found, demand and recovery action is initiated.

4. Statutory Audit (Removed w.e.f. 1st August 2021)

A statutory audit was earlier mandatory for businesses with a turnover exceeding ₹2 crore in a financial year under Section 35(5) of the CGST Act.

Key Points:

• Conducted by a chartered accountant or a cost accountant.
• Covered the verification of tax payments, input tax credit, and turnover.
• Removed by the Finance Act 2021 (effective from 1st August 2021).
• Replaced with a self-certified Form GSTR-9C for taxpayers with a turnover exceeding ₹5 crore.

Current Rule:

• Taxpayers with turnover above ₹5 crore must file:
• GSTR-9 – Annual Return
• GSTR-9C – Self-certified reconciliation statement
• Businesses must submit supporting documents like:
• Income tax returns
• Form 26AS
• Internal audit report
• Cost audit report
• Financial statements (Profit and Loss, Balance Sheet)

Documents Required for a GST Audit

To ensure a smooth audit, the taxpayer should keep the following documents ready:

📌 Books of account (purchase and sales records)

📌 Profit and Loss Statement and Balance Sheet

📌 Income tax returns and Form 26AS

📌 GSTR-1, GSTR-3B, GSTR-9, GSTR-9C

📌 Cost audit report (if applicable)

📌 Internal audit report

📌 All invoices (tax invoices, bills of supply, debit/credit notes)

📌 Bank account statements

📌 E-way bills

📌 Contracts and purchase orders

📌 Stock register and fixed asset register

Outcome of a GST Audit

If discrepancies are found during the audit, the tax officer will:

• Communicate the findings in writing.
• Provide a chance for the taxpayer to respond.
• If the taxpayer is found liable for unpaid or short-paid tax, wrong refund, or wrong ITC claims:
• Demand and recovery action will be initiated.
• Interest and penalties may be applied as per GST law.

Role of Tax Professionals in GST Audit

Tax professionals like chartered accountants and statutory auditors play a crucial role in ensuring proper GST compliance. They help businesses with:

• Preparing and filing GST returns
• Handling audits and compliance checks
• Advising on GST-related issues
• Representing clients in case of disputes

Importance of GST Audit for Businesses

GST audits are essential for businesses to:

✔️ Maintain accurate records and ensure proper tax compliance.

✔️ Avoid penalties and legal issues.

✔️ Ensure correct taxable income and avoid misreporting.

✔️ Keep track of all tax payments and refunds.

✔️ Maintain transparency with tax authorities.

When to Expect a GST Audit

• Turnover exceeds ₹5 crore – File self-certified GSTR-9C.
• Suspicion of under-reporting or over-claiming of ITC – Special audit may be ordered.
• Random selection by tax authorities – Routine audit may be conducted.

Conclusion

A GST audit helps ensure proper tax compliance and accurate reporting of sales, purchases, and input tax credit. While statutory audits are no longer mandatory, businesses with a turnover exceeding ₹5 crore must file a self-certified GSTR-9C. Proper record-keeping of books of account, invoices, and tax returns is crucial to handle any future audit smoothly. Consulting experienced tax professionals and chartered accountants can help in managing GST audits effectively.

FAQs on GST Audit

1. What is a GST audit?

A GST audit is an examination of records and returns to verify the accuracy of turnover, tax payments, and ITC claims.

2. Who conducts a GST audit?

It can be conducted by tax authorities or appointed chartered accountants or cost accountants.

3. Is a statutory audit required under GST?

No, the statutory audit requirement was removed from 1st August 2021.

4. What happens if discrepancies are found?

Tax authorities will communicate the findings, and recovery action may be initiated for unpaid tax or wrong ITC claims.