Analysis on GST Audit

GST audit in India operates through three routes: a departmental audit under Section 65 conducted by GST officers, a special audit under Section 66 by a CA or CMA nominated by the Commissioner, and self-certified Form GSTR-9C reconciliation for taxpayers with turnover above ₹5 crore. Section 65 audits require 15 days advance notice in Form ADT-01 and must conclude within three months, extendable by six. Findings are communicated in Form ADT-02 and may trigger demand proceedings under Section 73 or 74.

Mayank Wadhera

Published: 24 Dec 2022

Updated: 16 May 2026

4 min read

GST audit in India has evolved significantly since the original mandatory audit by chartered accountants was withdrawn in 2021. In FY 2026-27, the framework rests on departmental audits under Section 65 and special audits under Section 66, with self-certified reconciliation in Form GSTR-9C. Understanding the trigger points, scope, and rights during an audit helps businesses respond confidently when the GST officer comes calling.

Forms of GST audit in 2026

Departmental Audit under Section 65 — conducted by GST officers at the registered person's premises or office.
Special Audit under Section 66 — ordered by the Commissioner when complexity, value, or interest of revenue warrants a deeper review by a Cost Accountant or Chartered Accountant.
GSTR-9C self-certified reconciliation — mandatory for registered persons with aggregate turnover above ₹5 crore in a financial year, signed off by the taxpayer rather than an external auditor.

Section 65 — Audit by tax authorities

The Commissioner or any authorised officer may conduct an audit of any registered person. A notice in Form GST ADT-01 must be issued at least 15 working days before the audit. The audit must be completed within three months from commencement, extendable by up to six more months. On completion, Form GST ADT-02 conveys findings, taxpayer's rights, and any tax-and-interest determined. Where discrepancies are noted, proceedings under Section 73 (non-fraud) or Section 74 (fraud) follow.

Section 66 — Special Audit

If the officer believes the value declared, ITC availed, or any other parameter is not correct, the Assistant Commissioner — with prior approval of the Commissioner — may direct a registered person to get accounts examined by a CA or CMA nominated by the Commissioner. The nominated auditor submits the report within 90 days (extendable by 90), and the expense is borne by the Commissioner. Findings can lead to demand under Section 73 or 74.

Documents typically examined

Books of accounts including ledgers, journals, and stock registers.
All GST returns filed — GSTR-1, GSTR-3B, GSTR-9, GSTR-9C, ITC-04, RFD-01.
Tax invoices, debit notes, credit notes, e-way bills, and e-invoices.
Reconciliation of GST turnover with audited financial statements and income-tax return.
Documentation supporting input tax credit — supplier invoices, payment proofs, and Section 16(2) eligibility checks.

Common GST audit issues to expect

ITC reversal under Rule 42/43 for exempt supplies or blocked credits under Section 17(5).
Mismatch between GSTR-2B and ITC claimed in GSTR-3B.
Time-of-supply errors on advances received for services.
Valuation under Rule 27-35, especially for related-party transactions and transfers between distinct persons.
Reverse charge liability missed on imports of services, GTA, and director remuneration.

Rights of the registered person

During audit, you have the right to be informed in writing of discrepancies, to file a reply, and to be heard before any adverse order. If you accept any discrepancy and pay tax with interest before issue of a show-cause notice, the penalty under Section 73 is waived; under Section 74 (fraud cases), penalty is reduced to 15% if paid before SCN.

Preparing your books for a possible GST audit

Audit-readiness is a year-round discipline, not a last-week scramble. Begin every month by reconciling GSTR-2B with the purchase register and resolving mismatches within seven days — a clean ITC trail is the single most reviewed area. Maintain a separate ledger for RCM liabilities so officers can trace self-invoices, payment vouchers, and corresponding ITC. Document the basis for any export under LUT, including FIRC for foreign-exchange realisation. For e-commerce sellers, reconcile TCS in GSTR-2B with the supplier portals (Amazon, Flipkart) quarterly. Keep a written note on the company's tax position on grey areas — for example, why a discount has been treated as a financial credit note rather than a Section 15(3) discount. Lastly, retain digital and physical copies of all e-invoices and e-way bills, with serial gaps explained. When the ADT-01 lands, hand the team a curated, indexed file room — your audit cost (in management time, professional fees, and tax exposure) drops by half.

Conclusion

GST audits in 2026 demand month-on-month reconciliation discipline rather than year-end firefighting. Maintain a clean ITC register, reconcile GSTR-2B daily, and lock down RCM exposure on every imported service or GTA payment. When an ADT-01 lands in your inbox, a well-organised file room reduces audit time and revenue exposure dramatically.

Frequently Asked Questions

Is statutory GST audit by a CA mandatory in 2026?

No. The mandatory GST audit by a chartered accountant under the original Section 35(5) was removed by Finance Act, 2021. Instead, taxpayers with aggregate turnover above ₹5 crore must file a self-certified reconciliation statement in Form GSTR-9C along with the annual return GSTR-9.

What is the time limit to complete a Section 65 GST audit?

A departmental audit under Section 65 must be completed within three months from the date of commencement. The Commissioner may extend this period by up to six more months on recording reasons in writing. The actual audit begins from the date records are made available or the audit physically starts.

Who bears the cost of a special audit under Section 66?

The cost of a special audit conducted under Section 66 of the CGST Act — including remuneration of the Chartered Accountant or Cost Accountant nominated by the Commissioner — is determined and borne by the Commissioner, not the registered person under audit.

What is Form GST ADT-01?

Form GST ADT-01 is the notice issued to a registered person before commencement of a departmental audit under Section 65. It must be served at least 15 working days before the audit begins and indicates the period under audit, documents required, and the team conducting the audit.