GST Audit & Health Check

A GST audit checks whether the turnover you declared, the tax you paid, the refunds you claimed and the input tax credit you used are correct. It can be carried out by the department, ordered as a special audit, or done voluntarily as a health check before the department looks. We prepare businesses for departmental audits, carry out GST health checks and prepare the annual reconciliation statement.

Types of GST audit

Audit by the department (section 65)

The Commissioner or an authorised officer can audit a registered person for one or more financial years. Notice is given in Form GST ADT-01 at least 15 working days in advance. The audit should be completed within three months, extendable by up to six months. Findings are communicated in Form ADT-02, and any tax found short leads to proceedings under section 73 or 74.

Special audit (section 66)

Where an officer, with the Commissioner's approval, considers that the value declared or credit availed is not correct, a chartered accountant or cost accountant can be appointed to audit the records. The direction is issued in Form ADT-03, and the report is due within 90 days, extendable by 90 days.

Annual reconciliation statement (GSTR-9C)

The audit of accounts by a chartered accountant or cost accountant under GST, which applied to businesses with turnover above ₹2 crore, was removed from 1 August 2021. Taxpayers with turnover above ₹5 crore now self-certify a reconciliation statement in GSTR-9C, filed with the annual return GSTR-9.

How we carry out a GST audit or health check

1. Initial review: returns, financial statements, registration details and earlier notices.
2. Reconciliation: GSTR-1, GSTR-3B and GSTR-9 against the books, including turnover, tax and credit.
3. Input tax credit check: credit claimed against GSTR-2B, invoices, payments within 180 days and blocked credit under section 17(5).
4. Other checks: classification and rates, reverse charge, e-invoices and e-way bills, place of supply, and related-party valuation.
5. Report: findings, the tax effect and recommended corrections, including payment through DRC-03 where voluntary payment reduces interest and penalties.
6. Annual return: preparation of GSTR-9 and GSTR-9C.

Documents needed

• Audited financial statements (balance sheet, profit and loss account, cash flow)
• GSTR-1, GSTR-3B and GSTR-9
• Sales and purchase registers
• Credit records, invoices and proofs of payment
• E-way bills and e-invoices
• Correspondence with the department

Common difficulties

• Differences between returns and the financial statements
• Short deadlines in the department's notices
• E-way bill and e-invoice gaps
• Credit claimed that is not in GSTR-2B
• Portal problems close to deadlines

Legal position

Courts have upheld the department's power to audit under section 65, and have also held, in several cases, that credit should not be denied solely because of a mismatch between GSTR-2A and GSTR-3B where the buyer can show the purchase was genuine and tax was paid. Each case turns on its facts, and we use the current position when replying to audit observations.

How we help

• Chartered accountants and GST advisers who review credit, reconcile returns and correct errors
• Preparation for departmental audits and representation during them
• Replies to audit observations and ADT-02 findings
• GSTR-9 and GSTR-9C preparation

Common questions

Is a GST audit by a chartered accountant still compulsory?

No. Since 1 August 2021, the compulsory audit has been replaced by a self-certified GSTR-9C for businesses above ₹5 crore. The department can still audit any registered person.

Should we pay tax found in a health check now?

Usually yes. Paying with interest through DRC-03 before the department issues a notice generally avoids penalty.

How long does a departmental audit take?

The law allows three months from the start, extendable by six months.