A Goods and Services Tax (GST) audit checklist helps businesses verify that their turnover, taxes paid, ITC claims and books of account are accurate and aligned. Preparing these checks before year-end makes the audit process smoother and reduces the risk of penalties, notices and last-minute corrections. Filing returns regularly is only one part of staying GST-compliant.
What is a GST audit, and who does it apply to?
A GST audit is a formal verification process that examines a registered taxpayer’s returns, turnover, input tax credit (ITC) claims and tax payments to confirm their accuracy and consistency with the taxpayer's financial records. Since India’s GST system operates largely on self-assessment, an audit acts as a compliance safeguard by ensuring reported figures match actual business records.
GST audit applicability is as follows:
- GSTR-9 (Annual Return): Mandatory for registered taxpayers with aggregate annual turnover exceeding ₹2 crore.
- GSTR-9C (Reconciliation Statement): Mandatory for taxpayers with aggregate annual turnover exceeding ₹5 crore. It is a self-declared reconciliation of GSTR-9 figures against audited financial statements. A separate GSTR-9C must be filed for each GSTIN under the same PAN.
Aggregate turnover includes taxable supplies, exempt supplies, exports and inter-state supplies across all GSTINs under one Permanent Account Number (PAN), not just a single registration. Businesses with multiple GSTINs may cross the threshold even if the turnover of an individual GSTIN is below it.
How many types of GST audits are there?
GST audits can be classified by purpose and the authority responsible for initiating them. The main types are as follows:
- Departmental audit: Conducted under Section 65, this audit may be ordered by the GST Commissioner or an authorised officer for any registered person when considered necessary. Taxpayers must receive at least 15 working days’ notice before the audit begins. The audit is generally completed within 3 months, though the period may be extended by up to 6 months.
- Special audit: Conducted under Section 66, this audit may be directed by an Assistant Commissioner with prior approval from the GST Commissioner. It is typically ordered when transaction values appear understated, or ITC claims seem excessive. The audit is conducted by a Chartered Accountant (CA) or Cost and Management Accountant (CMA), with findings communicated through FORM GST ADT-04 within 90 days.
- Statutory audit: Originally under Section 35(5), businesses with a turnover above ₹2 crore were required to maintain CA/CMA-audited books and file a certified GSTR-9C. This requirement was withdrawn, effective 1 August 2021, under the Finance Act 2021, and replaced with self-certified GSTR-9C (now mandatory only for turnover exceeding ₹5 crore).
What Are the Must-Know Checks Before a GST Audit?
The main aspects that require verification before a GST audit are as follows:
Turnover reconciliation
Reconcile turnover across four levels: books of accounts, GSTR-1, GSTR-3B and GSTR-9. Common reasons for differences include unbilled revenue, advances received, credit notes issued after year-end and inter-branch transfers treated as deemed supplies. Every difference must be documented with a clear explanation.
GSTR-1 vs GSTR-3B reconciliation
The outward supply figures declared in GSTR-1 and the tax liability reported in GSTR-3B must match. Check for invoices declared in GSTR-1 but not reported in GSTR-3B, and vice versa.
ITC reconciliation with GSTR-2B
ITC claims in GSTR-3B must be reconciled with GSTR-2B, the auto-populated statement of available credit based on suppliers’ GSTR-1 filings. Key checks include:
- ITC claims must not exceed what appears in GSTR-2B.
- Ineligible credits under Section 17(5) must be identified and reversed.
- Reverse Charge Mechanism (RCM) credits must be correctly reflected and matched with payments made.
- ITC booked in books but not yet claimed in returns should be identified.
ITC reversal for non-payment within 180 days
Verify that ITC on invoices unpaid for 180 days has been reversed correctly, along with applicable interest and that any liability has been accounted for.
Invoice format and e-invoicing compliance
Check that all invoices comply with GST requirements, including GSTIN, place of supply, Harmonised System of Nomenclature (HSN)/Services Accounting Code (SAC) codes, tax breakup and e-invoicing requirements where applicable. Confirm that invoices generated through the IRP carry a valid IRN and QR code.
E-way bill reconciliation
Reconcile e-way bills generated during the year with the related invoices. Missing or expired e-way bills for moved consignments should be identified and addressed.
Exempt supplies and non-GST supplies
Ensure exempt and non-GST supplies are correctly classified and reported. Businesses making both taxable and exempt supplies must verify that the proportionate ITC reversal under Rules 42 and 43 has been completed.
Advances received
Verify that advances received have been correctly identified, tax paid where applicable and adjusted against final invoices at the time of supply.
RCM compliance
Identify transactions covered under RCM, such as freight charges, legal fees and imports of services. Confirm that GST was paid in cash and ITC was claimed only after meeting the required conditions.
Refund claims
Where refunds have been claimed for exports, inverted duty structure or excess cash balance, verify that supporting documents are complete and refund amounts match returns and financial records.
Conclusion
A GST audit is easier to manage when businesses maintain accurate, reconciled records throughout the year. With TallyPrime’s GST reconciliation, ITC tracking and e-invoice compliance features built into daily accounting, businesses can stay audit-ready and reduce last-minute corrections. Start your free trial today.
