What Are the Types of Audits in GST?

Introduction to GST Audit

India's Goods and Services Tax (GST) system is designed to be self-policing, ensuring taxpayers voluntarily comply with tax regulations. However, to maintain transparency and prevent tax evasion, various types of audits under the GST Act have been implemented.

A GST audit is an official examination of a taxpayer's records, returns, and financial statements to verify compliance with GST laws and ensure the correct payment of taxes. Businesses must know these audits, their requirements, and the turnover-based audit thresholds to stay compliant and avoid penalties.

This article provides an in-depth look at the types of audits in GST, their processes, and the consequences of non-compliance.

Types of Audits in GST

Under the CGST Act, 2017, there are three main types of GST audits:

1. Turnover-Based Audit (Section 35(5))

This audit applies to businesses that exceed a prescribed turnover limit in a financial year. Previously, taxpayers with a turnover above Rs. 2 crores were required to undergo a GST audit by a Chartered Accountant (CA) or Cost Accountant (CMA). However, this requirement was removed in July 2021, and businesses now only need to self-certify GSTR-9C.

Key Features:

• Applicable to businesses exceeding Rs. 2 crore turnover.

• Requires self-certification of GSTR-9C.

• Ensures proper reconciliation of tax payments and compliance with GST regulations.

2. Departmental Audit (Section 65)

Under Section 65 of the CGST Act, the Commissioner or an authorized tax officer can audit any taxpayer’s business premises or the tax department’s office.

Key Features:

• Conducted by tax authorities to ensure compliance.

• The taxpayer receives 15 days' prior notice (Form GST ADT-01).

• The audit must be completed within 3 months (extendable to 6 months for valid reasons).

• Findings are communicated through Form GST ADT-04.

3. Special Audit (Section 66)

A Special Audit under GST is conducted when tax authorities suspect irregularities or fraud in taxpayers' filings. This audit is carried out by a CA or CMA appointed by the Commissioner.

Key Features:

• Triggered when authorities detect discrepancies in tax payments or ITC claims.

• Conducted by a CA or CMA nominated by the Commissioner.

• The auditor submits a report within 90 days (extendable by another 90 days).

• Findings may lead to additional tax liability, penalties, or legal actions.

Key Differences Between Different Types of GST Audits

GST Audit Process and Documentation

Step-by-Step GST Audit Process:

1. Issuance of Notice (Form GST ADT-01) – The taxpayer is informed 15 days in advance.

2. Examination of Financial Records – Includes GST returns, invoices, tax payments, ITC claims, and ledgers.

3. Audit Completion – Must be finalized within the prescribed time limit.

4. Issuance of Audit Report (Form GST ADT-04) – Details of tax liabilities, penalties, or discrepancies are documented.

5. Action on Non-Compliance – If issues are found, authorities may impose penalties or demand additional taxes.

Key Documents Required for GST Audit:

• GSTR-1, GSTR-3B, and GSTR-9 returns.

• Sales and purchase invoices.

• Input Tax Credit (ITC) claims.

• Stock registers and financial statements.

• Bank reconciliation statements.

Consequences of Non-Compliance in GST Audits

Failure to comply with GST audits can result in:

• Penalty for incorrect tax filings under Sections 73 & 74.

• Interest on unpaid taxes under Section 50.

• Legal action or prosecution for fraudulent claims.

FAQs

1. What are the four types of GST audits?

The four types of GST audits include:

1. Turnover-Based Audit (Self-Certified GSTR-9C).

2. Departmental Audit (By GST Authorities under Section 65).

3. Special Audit (By CA/CMA under Section 66).

4. Limited Scrutiny Audit (For specific compliance checks by authorities).

2. What is the difference between a general audit and a special audit in GST?

A general audit (under Section 65) is conducted by tax authorities to ensure compliance. A special audit (under Section 66) is conducted when authorities suspect fraud and is performed by a CA or CMA.

3. What are GSTR-9 and GSTR-9C?

• GSTR-9: Annual return summarizing GST transactions for the financial year.

• GSTR-9C: A self-certified reconciliation statement required for businesses exceeding Rs. 2 crore turnover.

4. Who is eligible for GSTR-9C?

All businesses with turnover exceeding Rs. 2 crore in a financial year must file GSTR-9C.

5. What is the GST audit's limit?

Businesses exceeding a turnover of Rs. 2 crore must file GSTR-9C (self-certified). Special audits can be conducted for any business at the discretion of tax authorities.

Conclusion

Understanding the different types of GST audits is essential for businesses to ensure compliance and avoid penalties. Whether it’s a turnover-based audit, departmental audit, or special audit, taxpayers must maintain accurate records and cooperate with tax authorities.

At Anil D’Souza & Associates (ADCA), we specialize in GST audit services in India, tax compliance, and legal advisory. If you need assistance in GST audits, filing GSTR-9C, or responding to audit notices, our team of expert Chartered Accountants is here to help!

Contact ADCA today for professional GST solutions! Visit ADCA or call us now for expert assistance.