GST Audit: Applicability & What Auditors Check

Business owners often use "GST audit" loosely to mean anything from filing their own annual reconciliation to a tax officer showing up with a notice. These are genuinely different processes, with different applicability rules, different documents involved, and very different levels of stress. Here is exactly what each one covers.

GSTR-9C: The Annual Reconciliation Statement

GSTR-9C is a reconciliation between a taxpayer's audited financial statements and the figures reported across the year in GSTR-9, the annual GST return. It applies to registered persons whose aggregate turnover in a financial year exceeds Rs 5 crore. Below that threshold, filing GSTR-9 alone is sufficient; GSTR-9C does not apply.

Where it applies, GSTR-9C reconciles turnover, tax paid, and input tax credit as per the books of account against what was declared in the GST returns filed through the year, and requires an explanation for every material difference.

Departmental Audit Under Section 65

A Section 65 audit is a routine audit conducted by a tax officer, or a team authorised by the Commissioner, to verify the correctness of turnover declared, taxes paid, refunds claimed, and input tax credit availed. Key mechanics:

• Notice period: at least 15 working days before the audit begins, issued in Form GST ADT-01.
• Duration: generally required to be completed within 3 months from commencement, extendable by up to 6 months by the Commissioner for recorded reasons.
• Conducted where: either at the taxpayer's place of business or at the tax office, at the officer's discretion.
• Selection: the department typically uses risk-based parameters; high ITC relative to output tax, frequent return amendments, turnover spikes without proportional tax payment, and mismatches between GSTR-1 and GSTR-3B are common triggers.

At the end of the audit, findings are communicated in Form GST ADT-02, along with the taxpayer's rights and obligations arising from those findings, including any tax, interest, or penalty proposed.

Special Audit Under Section 66

A Section 66 special audit is a different order of scrutiny. It is invoked, at any stage of scrutiny, inquiry, or investigation, when the officer forms an opinion (with the Additional/Joint Commissioner's approval) that the value has not been correctly declared or the credit availed is not within the normal limits, and the case involves complexity that warrants deeper examination. Distinguishing features:

• Conducted by an independent CA or Cost Accountant nominated by the Commissioner, not by the department's own audit officers.
• No routine advance-notice requirement in the way Section 65 mandates 15 days; it is ordered specifically because a concern already exists.
• Cost of the special audit is borne by the department, not charged to the taxpayer.
• Runs on its own extended timeline, commonly longer than a Section 65 audit given the depth of the review required.

What Auditors Actually Check

Across both GSTR-9C reconciliation and a Section 65/66 audit, the recurring focus areas are consistent:

• Turnover reconciliation: revenue in the audited financials against aggregate turnover reported across GSTR-1 and GSTR-3B for the year.
• ITC verification: input tax credit claimed against what is reflected in GSTR-2B/2A, and whether the underlying invoices meet the Section 16 conditions for eligibility.
• Tax rate application: whether the correct GST rate was charged on each category of supply, especially where a business deals in multiple product or service categories with different rates.
• Reverse charge compliance: whether tax was correctly self-assessed and paid on reverse-charge supplies, a frequently missed item.
• E-way bill and stock consistency: movement of goods reflected in e-way bills reconciled against sales and stock records.
• Refund claims: where refunds have been claimed (exports, inverted duty structure), whether the supporting documentation and eligibility conditions hold up.

In practice, the vast majority of audit objections trace back to reconciliation gaps between what was filed month to month and what the books actually show at year-end, rather than to a single dramatic compliance failure. Keeping GSTR-1, GSTR-3B, and books reconciled every month, rather than only at year-end, is the most effective way to walk into either process with a clean file.

If you are approaching the Rs 5 crore threshold, have received an ADT-01 notice, or simply want your monthly filings reconciled before year-end so GSTR-9C is a formality rather than a scramble, our GST Advisory team can take this off your plate.