GST Audit in India —
Section 65, 66 & GSTR-9C
The three forms of GST audit, how to respond to an ADT-01 notice, records you must keep, common red flags officers look for, and the audit-to-appeal timeline.
GST audit today has three forms: (1) GSTR-9C self-certification — a reconciliation statement filed with GSTR-9 by taxpayers whose aggregate turnover exceeds Rs5 crore (CA certification removed from FY 2020-21); (2) Departmental audit under Section 65 — an on-premises audit by a GST officer after a 15-working-day ADT-01 notice; and (3) Special audit under Section 66 — ordered by the Commissioner and conducted by a CA/CMA at departmental cost. Records must be kept for 6 years under Section 36.
The Three Types of GST Audit
GSTR-9 is the annual return; GSTR-9C is the self-certified reconciliation between your audited accounts and returns. Sections 65 and 66 are department-initiated audits.
| Audit type | Legal basis | Triggered by | Conducted by | Cost borne by |
|---|---|---|---|---|
| GSTR-9C self-certification | Sec 44 & Rule 80 | Turnover > Rs5cr (automatic, annual) | Taxpayer self-certifies | Taxpayer |
| Departmental audit | Section 65 | Risk-based selection by Commissioner | GST officer (on premises) | Department |
| Special audit | Section 66 | Commissioner's order in complex cases | CA / CMA nominated by Commissioner | Department |
| Return scrutiny (compare) | Section 61 | Discrepancy flagged in filed returns | GST officer (desk review) | — |
GSTR-9 annual return is due for turnover > Rs2 crore; GSTR-9C reconciliation kicks in above Rs5 crore. Due date 31 December following the financial year.
The GST 2.0 rationalisation (effective 22 September 2025) restructured goods and services into a two-slab 5% / 18% system with a 40% demerit rate, but it did not alter the audit machinery. Sections 65, 66 and the GSTR-9/9C thresholds continue exactly as before — though the reclassified rates make ITC and turnover reconciliation across the changeover date a fresh audit focus area.
Departmental Audit — the Section 65 Process
A departmental audit is the audit most businesses actually face. The officer must give at least 15 working days' notice in FORM GST ADT-01 (Rule 101), then examine your books, and communicate findings in FORM GST ADT-02.
| Step | Action | Timeline |
|---|---|---|
| 1 | Commissioner authorises audit; officer issues FORM GST ADT-01 | At least 15 working days before audit |
| 2 | Taxpayer produces records, registers and documents | Within the notice period |
| 3 | Officer examines books at premises or GST office | Complete within 3 months; extendable by 6 months |
| 4 | Findings communicated in FORM GST ADT-02 | Within 30 days of completion |
| 5 | Show Cause Notice under Section 73 (non-fraud) or 74 (fraud) | Taxpayer gets a chance to reply |
| 6 | Adjudication order in FORM GST DRC-07 | Appeal to Appellate Authority within 3 months |
Sec 73 covers non-fraud demands (limitation shortened under the new common time limit); Sec 74 covers fraud, suppression or wilful misstatement, with far higher penalties.
A Section 73 (non-fraud) demand carries a lower penalty and a shorter limitation. A Section 74 demand alleges fraud, suppression of facts or wilful misstatement and carries penalties up to 100% of the tax. How you frame your audit reply can decide which section is invoked, so respond carefully and on time.
Received an ADT-01 audit notice? Get your returns reconciled and a reply drafted.
Talk to a GST Expert →Records to Maintain for a GST Audit
Under Sections 35 and 36 read with Rule 56, every registered person must keep the following for 6 years (72 months) from the due date of the annual return — longer if any matter is under appeal.
- All GSTR-1, GSTR-3B, GSTR-9 & GSTR-9C with acknowledgements
- Monthly ITC reconciliation (GSTR-3B vs GSTR-2B)
- Turnover reconciliation with books of accounts
- Tax invoices issued & received, debit / credit notes
- E-invoice (IRN) records where applicable
- Stock register & production / quantity accounts
- E-way bill logs, delivery challans, transport docs
- Import / export & shipping documents
- RCM self-invoices & payment vouchers
- Rule 42/43 ITC-reversal workings
- Bank statements & ledgers
- HSN / SAC-wise supply summary
| Record set | Why the officer wants it | Priority |
|---|---|---|
| GSTR-3B vs GSTR-2B ITC recon | Verify no excess or ineligible ITC claimed | Critical |
| Turnover vs books reconciliation | Detect under-declared outward supply | Critical |
| Sales & purchase invoices | Match reported supplies with documents | High |
| Stock & e-way bill records | Verify movement, classification & reversals | High |
Digital records are accepted provided they can be produced and verified during the audit.
Common GST Audit Red Flags
Most audit demands come from a short list of recurring mismatches. Fix these before you are picked, not after.
| Red flag | Section | Risk |
|---|---|---|
| ITC claimed without a matching GSTR-2B entry | Sec 16(2)(aa) | High |
| Turnover under-reported in GSTR-1 vs financials | Sec 73 / 74 | High |
| ITC not reversed on exempt / non-business use | Rule 42/43 | High |
| Supplier payment not made within 180 days | Sec 16(2) proviso | High |
| Blocked credits wrongly availed | Sec 17(5) | High |
| Wrong HSN / rate applied (esp. post-22 Sep 2025) | Sec 73 / 74 | Medium |
| RCM liability on inward supplies not discharged | Sec 9(3)/9(4) | Medium |
| E-invoicing non-compliance above threshold | Rule 48(4) | Medium |
E-invoicing is mandatory once aggregate turnover crosses Rs5 crore in any year from 2017-18 onwards.
How an ITC Reversal Adds Up
ITC excess claimed
Cost of the mismatch
Interest under Section 50 runs at 18% on wrongly availed and utilised ITC, plus a penalty depending on whether Section 73 or 74 is invoked — which is why proactive ITC reconciliation is far cheaper than an audit demand.
Worried your ITC won't survive an audit? Get a pre-audit health check.
Get an ITC Review →Audit vs Scrutiny vs Special Audit
Not every GST notice is an audit. A scrutiny under Section 61 is a desk review of your returns; only Section 65/66 involve a full examination of your books.
| Parameter | Scrutiny (Sec 61) | Departmental audit (Sec 65) | Special audit (Sec 66) |
|---|---|---|---|
| Initiation | Officer spots return inconsistencies | Commissioner authorises; risk-based | Commissioner's order in complex cases |
| Venue | Desk review at officer's office | Taxpayer's business premises | CA/CMA or taxpayer's premises |
| Records seen | Filed returns & uploaded data | Full books, registers & documents | Comprehensive incl. valuation |
| Notice | ASMT-10 (Rule 99) | ADT-01 — 15 working days | Commissioner's order + ADT-03 |
| Conducted by | GST officer | GST officer | CA / CMA nominated |
A scrutiny that reveals value wrongly declared or credit wrongly availed can itself escalate into a Section 66 special audit.
You are audit-ready if
- GSTR-3B and GSTR-2B ITC reconcile every month
- Turnover in returns matches your financials
- All invoices, e-way bills and RCM records are filed
- Rule 42/43 reversals are computed and documented
You are at risk if
- You claim ITC not appearing in GSTR-2B
- GSTR-1 turnover is lower than your P&L
- RCM on imports / notified supplies is missed
- Records are incomplete or older than 6 years are discarded
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