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Published on:

September 15, 2025

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Basics of GST

GST Audit: Types, Threshold Limits & Compliance for 2025

Goods and Services Tax (GST) has been a paradigm change in the Indian taxation scenario. But just returning is not enough. The company must ensure their returns are genuine and devoid of discrepancies, and GST Audits play a vital role here. An audit guarantees that the business is in accordance with the law, taxes are paid in the right way, and there are no differences which could result in penalization.

With 2025 in sight, it is now more important than ever that every GST-registered company is conscious of the new regulation, threshold points, and compliance processes.

What is a GST Audit?

A GST audit is a detailed scrutiny of the financial accounts of a registered taxpayer to confirm accuracy of turnover, paid taxes, input tax credit taken, and refund claimed. It serves as an examination to check if all GST dues are properly paid.

Normally, companies need to keep a number of documents like invoices, purchase records, outward supply registers, and challans of payments. Auditors verify these papers during a GST audit to cross-check the details given in the GST returns.

In the event of any discrepancies, companies can be charged penalties, interest, or prosecution in extreme cases.

Briefly, a GST audit is a watchdog that ensures businesses are financially disciplined under the GST regime.

Why is a GST Audit Important?

The GST audit is significant for several reasons, both for tax authorities and businesses.

For companies, it makes sure that they remain compliant and, in the process, prevent possible future disputes or hefty fines. Auditing often identifies errors prematurely, giving organizations a chance to rectify them before they translate into full-scale legal matters. It also maintains credibility within the market and investment community.

For governments, audits assist in unearthing tax evasion and making sure that the government gets the right amount of revenue. It makes the entire tax system stronger by implementing stringent discipline in taxpayers.

Therefore, audits are of vital importance in ensuring transparency, promoting confidence, and facilitating effective working of the GST regime.

Types of GST Audits

There are primarily three types of GST audits:

1. Turnover-Based Audit (Audit by Chartered Accountant)

Under Section 35(5) of the CGST Act, companies that surpass a specific threshold of turnover need to obtain the audit of their accounts by a Chartered Accountant or a Cost Accountant.

The auditor shall file a reconciliation statement in Form GSTR-9C reconciling returns figures with the audited balance sheets.

Note: According to recent revisions, mandatory audits under Section 35(5) have been removed, while those under Section 65 and 66 still persist.

2. Departmental Audit (Audit by Tax Authorities)

The Commissioner or other officer authorised by the Commissioner may audit any registered taxpayer under Section 65.

In such a situation:

At least 15 working days' prior notice is provided.

It is usually finished within 3 months but can be extended by a further 6 months.

Findings are communicated, and measures are taken after the audit if discrepancies are detected.

Departmental audits are necessary to make sure companies that otherwise go unnoticed are kept in check.

3. Special Audit (Ordered by Authorities)

When a tax officer believes that a taxpayer has undervalued goods/services or availed excess ITC, they can order a special audit under Section 66.

Key points:

Special audits are conducted by a Chartered Accountant nominated by the Commissioner.

Expenses for the special audit are borne by the government, not the taxpayer.

It is usually ordered in complex cases where regular audits aren’t sufficient.

GST Audit Threshold Limits for 2025

The threshold limit for GST audits has been a topic of continuous change. Here’s the latest update for 2025:

Particulars	Threshold Limit
Aggregate turnover for mandatory audit	More than ₹5 crore

However, due to amendments, self-certification via GSTR-9C (without CA certification) is allowed if turnover is below ₹5 crore.

Businesses with turnover above ₹2 crore are still required to file GSTR-9 (Annual Return), while the audit obligation kicks in only if turnover exceeds ₹5 crore.

Always verify your turnover across all GST registrations combined to check if you fall under audit requirements.

Reference: CBIC Official Site on GST Audit

GST Audit Procedure

The audit process follows a structured approach:

Notice Issued: Department sends a notice informing the business about the audit.

Document Submission: Business must submit documents such as GST returns, tax invoices, e-way bills, purchase orders, etc.

Audit Conducted: Auditors verify details against books of accounts.

Findings Shared: Authorities share discrepancies (if any) and give a chance for clarification.

Action Taken: If discrepancies are not satisfactorily explained, tax demands, penalties, and interest may be levied.

Thus, maintaining organized, updated, and clean records is crucial to face audits confidently.

Penalties for Non-Compliance in GST Audit

Failing to comply with GST audit requirements can lead to:

Interest on unpaid tax: 18% per annum.

Penalties: 10% of tax due or ₹10,000, whichever is higher.

Cancellation of Registration: In extreme cases, registration may be canceled.

Prosecution: Fraudulent activities can even lead to imprisonment.

Hence, proactively maintaining compliance is better than dealing with post-audit penalties.

Tips for Businesses to Prepare for GST Audit

To smoothly sail through a GST audit, businesses should:

Maintain proper records: Ensure books, invoices, and returns are up-to-date.

Perform internal audits: Regular self-checks can spot errors early.

Reconcile monthly: Match ITC claimed with GSTR-2A and 2B data.

Avoid common errors: Like claiming ineligible ITC, wrong HSN codes, or non-filing of NIL returns.

Seek professional help: Hire CAs or GST consultants for accurate filings.

Following these tips can minimize the risk of facing issues during audits.

Know more - Section 65. Audit by tax authorities.

Common Mistakes That Lead to GST Audit Notices

Some of the most common triggers for audit notices include:

Mismatch between GSTR-1 and GSTR-3B filings.

Excessive input tax credit claims without valid documents.

Non-deposit of collected GST to government accounts.

Non-compliance with e-invoicing requirements.

Large refund claims without supporting documentation.

Being aware of these mistakes helps businesses proactively avoid scrutiny.

GST Audit Checklist for 2025

Before facing an audit, businesses must ensure the following:

Books of accounts are updated

Proper invoices are issued and preserved

Returns filed are accurate and timely

Input tax credit claimed matches with GSTR-2A/2B

Annual Return (GSTR-9) is filed

Reconciliation statements are prepared

Payments of taxes, interest, and penalties are done properly

Having a pre-audit checklist ensures that businesses face audits confidently.

Latest Updates on GST Audit Rules for 2025

Some recent changes that businesses should know:

Audit requirement for businesses with turnover over ₹5 crore continues.

CA certification of GSTR-9C abolished for businesses below ₹5 crore.

Departmental audits to focus more on high-risk taxpayers.

More reliance on technology-driven audits and data analytics by GST authorities.

Thus, staying updated is key to avoiding trouble.

Learn more - View Section 66

Conclusion

GST audits are no longer a rare occurrence but a common occurrence in the context of business compliance. Businesses are now required to be more disciplined, have proper records, and file returns in a timely manner. As there is greater digitalization of taxation processes, any mistakes are readily identifiable by authorities.

By knowing the nature of audits, thresholds, compliance requirements, and pitfalls, companies can prepare better for GST audits in 2025 and run their businesses with ease without worrying about penalties.