GST Audit: Turnover Limits and What Gets Examined

There is no longer a turnover limit above which a chartered accountant must audit your GST accounts. The provision that created that obligation — the original Section 35(5) of the CGST Act — was omitted, and the certified reconciliation statement it required was replaced by a self-certified GSTR-9C. What remains is a turnover threshold for filing GSTR-9C, and two audits that the department itself conducts: Section 65 departmental audit and Section 66 special audit. Most confusion about the GST audit limit comes from treating those three things as one.

Three different things are called a GST audit

When people search for the GST audit limit they are usually thinking of the position as it stood in the first years of GST, when a registered person above a turnover threshold had to get its accounts audited by a chartered accountant or a cost accountant and file a reconciliation statement certified by that professional. That regime no longer exists. The audit requirement in Section 35(5) was omitted and Section 44 was recast so that the reconciliation statement is prepared and certified by the registered person itself.

So there is no turnover figure that triggers a compulsory professional audit under GST. What the word "audit" now covers is three separate things, and it is worth being precise about which one you mean:

• GSTR-9C — a self-certified reconciliation statement filed with the annual return above a notified turnover threshold. A return, not an audit.
• Departmental audit under Section 65 — the tax authority examining your records at its own initiative. This is the audit most businesses will actually encounter.
• Special audit under Section 66 — a targeted examination by a chartered accountant or cost accountant nominated by the department, ordered mid-investigation in complex cases.

The statute also defines audit generally in Section 2(13): an examination of records, returns and other documents to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess compliance. That definition tells you what an auditor is looking for in every one of these settings.

GSTR-9C: the self-certified reconciliation statement

GSTR-9C is filed alongside the GSTR-9 annual return by every registered person whose aggregate annual turnover for the financial year exceeds the notified threshold. It is not a substitute for GSTR-9 and it cannot be filed on its own; the annual return carries the declared figures and GSTR-9C explains how those figures relate to the audited financial statements.

Two features of the applicability test catch people out. First, the threshold is tested on aggregate annual turnover computed PAN-wise, across every GSTIN registered under that permanent account number, on an all-India basis. It is not tested registration by registration. A group with fifty crore of turnover spread across six states does not escape by pointing out that no single state crosses the line. Second, once the PAN crosses the threshold, GSTR-9C is due for each registration separately, including the small ones — which means allocating the entity-level audited financial statements down to each GSTIN.

The reconciliation itself has two halves. Part A reconciles turnover as per the audited annual financial statements against turnover declared in the annual return, working through the adjustments that explain the gap: unbilled revenue, advances on which tax was paid, deemed supplies under Schedule I, credit notes issued after the year end, trade discounts not permissible under Section 15, and differences in accounting treatment. The second half reconciles tax paid against tax payable rate by rate, and reconciles input tax credit availed against credit as per the books, with expense-head-wise detail. Any unreconciled liability that emerges must be stated, with reasons, and can be paid through DRC-03.

Do not assume the threshold figure you remember is still the figure in force. It has been revised, and the turnover limits for GSTR-9 and GSTR-9C are not the same. Confirm both against the current notification on the GST portal before concluding that you are outside the requirement.

Departmental audit under Section 65 and Rule 101

Section 65 empowers the Commissioner, or an officer authorised by general or specific order, to audit any registered person for a financial year or part of a financial year, or for multiples of a financial year. Two points in that sentence do real work. Any registered person means there is no turnover qualification and no requirement of suspicion — selection is typically risk-based, but the power is general. And part of a financial year means the audit need not cover a full year, which matters when the department is following a specific issue.

The audit may be conducted at the place of business of the registered person or in the office of the officer. Rule 101 supplies the procedure.

The ADT-01 notice and the fifteen working days

The officer must issue a notice in Form GST ADT-01 at least fifteen working days before the audit is conducted. The notice identifies the period under audit and the records to be produced. Fifteen working days is a floor, and being counted in working days rather than calendar days it usually gives you three weeks or more of real time. Use it, because the quality of what you hand over on day one shapes the entire audit.

Three months, and where the clock starts

The audit must be completed within three months from the date of commencement. Where the Commissioner is satisfied that it cannot be completed in that time, he may record the reasons in writing and extend the period by a further six months — an outer limit of nine months.

Commencement is defined, and the definition favours the taxpayer who is organised. It is the later of two dates: the date on which the records and other documents called for by the officer are made available by the registered person, and the date on which the audit is actually commenced. In other words, the clock does not begin until you have actually produced the records. Withholding them does not shorten the audit; it delays the start of the very period that constrains the department.

Your obligations, and the ADT-02 findings

During the audit you must afford the officer the facility to verify the books of account and other documents, and furnish the information sought and such assistance as is required for timely completion. Failure to cooperate does not stop the process; it simply moves matters towards a best-judgement outcome under other provisions.

On conclusion, the officer must within thirty days inform the registered person of the findings, the reasons for those findings, and its rights and obligations, in Form GST ADT-02. ADT-02 is a communication of findings, not a demand. Where the audit results in a detection of tax not paid or short paid, input tax credit wrongly availed or utilised, or a refund erroneously claimed, the officer may initiate action under Section 73 (cases without fraud or wilful misstatement) or Section 74 (cases involving fraud, wilful misstatement or suppression). That is a separate proceeding with its own notice, its own reply window and its own appeal route under APL-01 if an adverse order follows.

Special audit under Section 66 and Rule 102

A special audit is a different instrument entirely. It can be ordered at any stage of scrutiny, inquiry, investigation or any other proceedings, by an officer not below the rank of Assistant Commissioner, where he is of the opinion — having regard to the nature and complexity of the case and the interest of revenue — that the value has not been correctly declared or that credit availed is not within the normal limits. It requires the prior approval of the Commissioner.

The direction is issued in Form GST ADT-03 and requires the registered person to get its records, including books of account, examined and audited by a chartered accountant or a cost accountant nominated by the Commissioner. You do not choose the auditor, and you do not pay for the work: the examination and audit expenses, including the remuneration of the professional, are determined and paid by the Commissioner.

The auditor must submit a report within ninety days, signed and certified, in Form GST ADT-04. On an application by the registered person or by the auditor, and for material and sufficient reason, the officer may extend that period by a further ninety days.

Two safeguards deserve emphasis. A special audit may be ordered even if the accounts have already been audited under any other law — a completed statutory audit under the Companies Act is no answer. And the registered person must be given an opportunity of being heard in respect of any material gathered on the basis of the special audit that is proposed to be used in any proceedings against it. As with Section 65, where the report reveals tax not paid, short paid, credit wrongly availed or a refund wrongly claimed, proceedings under Section 73 or 74 follow.

Section 65, Section 66 and GSTR-9C compared

Records you must keep under Section 35 and Rule 56

Every audit rests on the records you were obliged to keep in the first place. Section 35 requires every registered person to maintain, at the principal place of business, a true and correct account of production or manufacture of goods, inward and outward supplies, stock, input tax credit availed, output tax payable and paid, and such other particulars as are prescribed. Where a person has more than one place of business named in the certificate of registration, the accounts relating to each place must be kept there.

Rule 56 fills in the detail: separate accounts for each activity including manufacturing, trading and services; an account of advances received, paid and adjusted; details of tax payable, collected and paid, including under reverse charge; names and addresses of suppliers and recipients; the addresses of premises where goods are stored, including goods in transit; and monthly production accounts with raw materials consumed and waste generated. Entries may not be erased or overwritten — an incorrect entry is struck out under attestation and the correct entry recorded, and where records are kept electronically, a log of every edit must be maintained.

The retention period is anchored to the annual return rather than to the financial year. Books and records must be retained until the expiry of the prescribed period counted from the due date of furnishing the annual return for the year to which they relate — and where an appeal, revision or other proceeding is pending, for one year after its final disposal, or the normal period, whichever is later. In practice that means archived e-invoice files, e-way bill data and ledger extracts need a retention policy that outlives the accounting system they came from.

Preparing for an ADT-01

The fifteen working days between ADT-01 and the first visit are best spent assembling reconciliations rather than raw data dumps. An auditor given a coherent set of statements works from your numbers; an auditor given a box of ledgers builds his own.

Have these ready, for each financial year under audit:

• Turnover as per the audited financial statements reconciled to GSTR-9, and GSTR-9 reconciled to the sum of the monthly GSTR-1 and GSTR-3B filings.
• Output tax as per GSTR-3B reconciled to GSTR-1, rate by rate, with the reasons for every difference documented at the time rather than reconstructed later.
• Input tax credit availed in GSTR-3B reconciled to GSTR-2B and to the purchase register, with the ageing of any credit claimed but not appearing in 2B.
• Electronic credit ledger, electronic cash ledger and electronic liability register, printed for the full period and tied to the books.
• Reverse charge workings: the list of expense heads attracting RCM, the tax paid, and the credit taken.
• Rule 42 and Rule 43 reversal computations for exempt and non-business use, including the annual recomputation.
• A sample invoice file — outward invoices, credit and debit notes, delivery challans, e-way bills and e-invoice IRN records for the months the officer selects.

Working through a structured GST compliance checklist well before an ADT-01 lands is the cheapest form of audit preparation there is, because most findings are the accumulated residue of small monthly omissions rather than a single large error.

What auditors usually find, and what follows

Audit findings cluster in a small number of places, and they are the same places year after year:

• Rule 42 and 43 reversals not made where the business has exempt supplies, non-business use or capital goods used commonly — often missed entirely because the monthly working was never set up.
• Section 17(5) blocked credits taken — motor vehicles, employee benefits, works contract and construction on own account, and goods lost, stolen, written off or given as gifts and free samples. Our guide to the input tax credit rules covers the boundaries that generate most of these adjustments.
• Reverse charge not discharged on notified services such as goods transport, legal services, sponsorship and director remuneration — and, where it was discharged late, credit taken in the wrong period.
• E-way bill data against declared turnover — outward movement recorded on the e-way bill portal that does not tie to invoices reported in GSTR-1 is a standard analytical test.
• Credit from non-filing suppliers — input tax credit claimed against invoices from suppliers whose registration was later cancelled or who never filed the corresponding GSTR-1. Periodically checking the status of your significant suppliers through the GSTIN search tool catches this while it is still fixable.

None of these findings becomes a liability by itself. ADT-02 states them and gives reasons; the department then has to issue a notice under Section 73 or 74 to recover anything, and you get to reply. The same logic applies to a scrutiny notice in ASMT-10, which is a lighter-touch examination of returns rather than an audit but tends to raise the same issues. Where you agree with a finding, paying through DRC-03 before a notice issues generally limits the penalty exposure; where you do not, the reply is the place to say so, and the appeal route remains open on any adverse order.

Frequently asked questions