GST Audit in India: Types, Procedures, Rights & Consequences Explained (2025 Guide)

A GST audit in India is a comprehensive review of a registered taxpayer’s records, returns, and compliance with GST laws, conducted to verify the accuracy of tax declarations, ITC claims, and refund requests.

There are three types of audits under the CGST Act—Turnover-Based (now self-certified), Departmental, and Special Audits—each with distinct triggers and procedures.

Tax authorities use data analytics to identify audit candidates, while taxpayers retain rights like prior notice, representation, and appeal. Audit findings can lead to tax demands, penalties, and even prosecution, making proactive compliance and accurate record-keeping essential for businesses.

Audits of Registered GST Taxpayers in India: A Comprehensive Guide

India’s Goods and Services Tax (GST) regime has revolutionized indirect taxation with transparency, digitization, and compliance at its core. While the system largely operates on self-assessment, audits play a vital role in ensuring taxpayers meet their obligations.

This guide by AUBSP provides an in-depth view of GST audits, their types, procedures, taxpayer rights, and best practices for preparedness. Whether you’re a business owner, accountant, or tax professional, understanding audits is key to maintaining compliance and avoiding penalties.

What is a GST Audit?

A GST audit is more than just a review of numbers—it’s a deep dive into a registered taxpayer’s compliance history. Its primary aim is to validate whether the declared information is accurate and aligns with the GST law.

A GST audit verifies:

• Turnover declared and taxes paid.
• Refund claims made by the taxpayer.
• Input Tax Credit (ITC) availed and utilized.
• Adherence to GST law and procedural norms.

An audit can reveal hidden liabilities, identify fraud, and even assist taxpayers in improving internal tax systems. Understanding this process is crucial for all stakeholders in the GST ecosystem.

Types of GST Audits in India

There are three key types of GST audits under the CGST Act, 2017. Each serves a unique purpose and is triggered by specific circumstances. Let’s understand these audits and their current applicability.

1. Turnover-Based Audit (Now Replaced with Self-Certification)

This audit was previously mandatory for high-turnover taxpayers.

✅ Historical Applicability:

Businesses with turnover exceeding ₹2 crore (later ₹5 crore) had to get their accounts audited by a Chartered Accountant (CA) or Cost Accountant (CMA) and submit Form GSTR-9C.

✅ Present Status:

Post August 1, 2021, this audit requirement has been omitted. From FY 2020–21 onwards, taxpayers must self-certify Form GSTR-9C without a mandatory CA/CMA attestation—bringing ease but more responsibility.

💡 AUBSP Insight: Even with self-certification, internal audits and reconciliations remain crucial. Taxpayers should ensure accuracy before filing GSTR-9 and 9C.

2. Departmental Audit (Section 65)

This audit is initiated by the GST Commissioner or authorized officers. It plays a vital role in monitoring compliance post-filing.

✅ Key Highlights:

• Notice (Form GST ADT-01) issued at least 15 days in advance.
• Conducted either on-site at business premises or at the tax office.
• Completed within 3 months (extendable to 6 months).
• Findings shared in Form GST ADT-02.

🔍 Focus Areas:

• Books of accounts and GST returns.
• Turnover, ITC, refund claims, and tax payments.

📌 If discrepancies are found, recovery may follow under Section 73 or 74.

3. Special Audit (Section 66)

Special audits are ordered when complex or suspicious cases arise during scrutiny, investigation, or assessment.

✅ When and How:

• Ordered by the Assistant Commissioner with Commissioner’s approval.
• Conducted by a nominated CA/CMA.
• Time limit: 90 days (extendable to another 90 days).
• Expenses are paid by the department, not the taxpayer.

⚠️ Consequences:

Findings may lead to further investigation, tax demand, and recovery. Taxpayers are always given a chance to be heard before final action.

Criteria for GST Audit Selection

Ever wondered what triggers an audit? The selection is rarely random. Authorities use data analytics and intelligence to identify high-risk profiles. Understanding these parameters helps you stay audit-ready.

✅ Common Red Flags:

• High ITC claims relative to turnover.
• Mismatch between GSTR-1, GSTR-3B, and GSTR-2A/2B.
• Consistent late or non-filing of returns.
• Frequent refund applications.
• Sector-specific risks or intelligence inputs.
• Sudden variation in tax payments.

💡 AUBSP Tip: Perform routine reconciliations and monitor compliance health to avoid falling into audit triggers.

Powers of GST Auditors and Officers

Audit officers wield broad powers under the GST Act. Knowing what they can and cannot do helps you protect your business’s legal interests.

✅ Authorities Can:

• Access all financial records, electronic data, ledgers, and returns.
• Verify transactions, exemptions, ITC, and refunds.
• Summon individuals to provide information or documents.
• Conduct inspection, search, and seizure in cases of suspected fraud.
• Initiate tax assessments and penalty proceedings based on audit results.

💬 AUBSP Reminder: Cooperate with authorities, but also exercise your rights when necessary.

Rights of Registered GST Taxpayers during an Audit

Audits can be stressful, but taxpayers are protected under the law. Assert your rights while fulfilling your obligations.

✅ Key Taxpayer Rights:

• Prior notice before audit (Form GST ADT-01).
• Representation through CA, legal counsel, or CS.
• Right to explanation before adverse actions.
• Written communication of findings (Form GST ADT-02).
• Option for voluntary payment with reduced penalties.
• Appeal mechanism for disputed findings.
• Assurance of privacy and confidentiality of data.

💡 AUBSP Pro Tip: Always document audit proceedings and seek professional help when necessary.

Consequences of GST Audit Findings

Audit outcomes can have far-reaching effects—from tax dues to reputational harm. Being aware of potential consequences helps in strategic compliance planning.

🚨 Major Consequences Include:

• Tax liability on under-reported turnover or ITC misuse.
• Interest at 18% on delayed or unpaid taxes.
• Penalties:
  • 10% of tax due (or ₹10,000) for non-fraudulent issues.
  • 100% penalty for fraud or willful misstatements.
• Show Cause Notice (SCN) and subsequent demand orders.
• Asset recovery via attachment or garnishment.
• Prosecution for serious offenses (e.g., tax evasion > ₹5 crore).
• Suspension or cancellation of GST registration.
• Reputational damage in case of persistent non-compliance.

⚖️ AUBSP Suggests: Address audit findings promptly and respond to SCNs with evidence and legal clarity.

Preparing for a GST Audit: Best Practices

Proactive compliance is the best defense against audit risks. A robust preparation strategy minimizes errors, costs, and stress.

✅ AUBSP’s Audit-Ready Checklist:

• Maintain accurate records: Sales, purchases, stock registers, and vouchers.
• Reconcile GSTR-1, 3B, 2A/2B, 9/9C with books regularly.
• Stay updated with latest GST circulars and amendments.
• Perform internal GST audits quarterly.
• Respond to audit notices timely with required documentation.
• Engage a qualified CA or tax consultant for audits.

📈 Bonus Tip from AUBSP: Automate compliance with digital accounting software to reduce manual errors.

FAQs on GST audit in India

What is a GST audit in India?
A GST audit is a detailed examination of a registered taxpayer’s records, returns, and documents to verify the accuracy of tax payments, ITC claims, refund applications, and overall compliance with GST laws.

Who conducts a GST audit?
GST audits can be conducted by Chartered Accountants or Cost Accountants (earlier under Section 35), or by GST officers and commissioners under Section 65 and 66 of the CGST Act for departmental and special audits.

Is GST audit by a CA/CMA still mandatory?
No, the mandatory audit by a CA or CMA under Section 35(5) has been removed from FY 2020–21 onwards. Taxpayers with turnover above ₹5 crore must self-certify GSTR-9C.

What is a departmental audit under GST?
A departmental audit is conducted by GST authorities under Section 65. The taxpayer is notified in advance and the audit is carried out at the taxpayer’s premises or GST office.

What is a special audit under GST?
A special audit under Section 66 is ordered during scrutiny or investigation when there’s doubt about value declaration or ITC claims. It is conducted by a CA/CMA nominated by the Commissioner.

When is a GST audit initiated?
An audit may be initiated based on turnover thresholds, risk parameters, discrepancies in returns, refund claims, non-filing of returns, or intelligence gathered by the department.

What forms are used in a GST audit?
Form GST ADT-01 is used to notify the taxpayer of the audit. Form GST ADT-02 communicates audit findings. GSTR-9 and GSTR-9C are used for annual return and reconciliation.

What is the time limit for completing a GST audit?
A departmental audit must be completed within 3 months, extendable to 6 months. A special audit report must be submitted within 90 days, extendable by another 90 days.

Can audit findings result in penalties?
Yes, if discrepancies are found, penalties and interest may be levied under Section 73 or 74. Fraudulent cases can lead to 100% penalty and even prosecution.

What happens after audit discrepancies are found?
A show cause notice (SCN) is issued in Form DRC-01. Based on the taxpayer’s reply, a demand order may be issued for tax, interest, and penalties.

What are the taxpayer’s rights during a GST audit?
Taxpayers have the right to receive prior notice, to be represented by a tax professional, to respond to discrepancies, to maintain confidentiality, and to appeal any adverse decisions.

Can a taxpayer avoid penalties through voluntary payment?
Yes, if the taxpayer agrees with the audit findings, voluntary payment before the issuance of SCN can reduce penalties significantly in non-fraudulent cases.

What triggers a special audit?
A special audit is triggered when the Assistant Commissioner doubts the accuracy of declared values or ITC claims during scrutiny, investigation, or assessment proceedings.

What is the role of Form GSTR-9C in audits?
Form GSTR-9C is a reconciliation statement between the annual return and audited financials. It is now self-certified by the taxpayer (if turnover > ₹5 crore), with no CA/CMA attestation required from FY 2020–21.

Are refund claims audited under GST?
Yes, refund claims are scrutinized during audits, especially if claimed frequently or in large amounts, to check for accuracy and eligibility.

What are the penalties for incorrect GST reporting?
General penalty is 10% of tax or ₹10,000 (whichever is higher) in non-fraud cases. In fraud cases, penalties can be 100% of the tax involved, along with possible prosecution.

Can the GST department inspect premises during audit?
Yes, in cases of suspected evasion or fraud, GST officers can inspect, search, and seize records, goods, or premises under Section 67 of the CGST Act.

Can a business be prosecuted after a GST audit?
Yes, in serious fraud cases involving tax evasion over ₹5 crore, prosecution and imprisonment may be initiated under the law.

Can GST registration be cancelled due to audit findings?
Yes, in cases of repeated non-compliance, significant fraud, or continued violations, the GST registration may be suspended or cancelled by the authorities.

How should businesses prepare for GST audits?
Businesses should maintain accurate records, reconcile returns regularly, ensure timely filings, conduct internal reviews, and seek expert advice for audit preparedness.

Are GST audit findings confidential?
Yes, the tax department is obligated to maintain confidentiality of taxpayer information unless disclosure is legally required.

Can a taxpayer appeal audit findings?
Yes, if dissatisfied with the outcome, a taxpayer can appeal to appellate authorities following the procedures under GST law.

Is there any cost to the taxpayer in a special audit?
No, the cost of a special audit, including auditor fees, is borne by the GST department, not the taxpayer.

GST audits are not just regulatory checks—they’re an opportunity to strengthen your financial systems, correct errors, and build trust with tax authorities. As India’s GST landscape continues to evolve, staying audit-ready is no longer optional—it’s a business imperative.

We empower taxpayers with actionable guidance, professional insights, and compliance support. Whether you’re filing annual returns, managing reconciliations, or responding to audit notices—we’ve got your back.