GST Audit u/s 65 — What to expect & how to prepare

GST Audit under Section 65 — What to Expect & How to Prepare in 2026

Introduction

A GST departmental audit under Section 65 of the CGST Act, 2017 is an important compliance proceeding through which the GST authorities examine the books of account, GST returns and supporting records of a registered person.

Unlike a routine GST return filing, a departmental audit involves a detailed verification of whether the taxpayer has correctly reported:

Turnover
Tax liability
Exemptions and deductions
GST rates
Input Tax Credit (ITC)
Refunds
Other relevant GST transactions and records

For businesses receiving an audit notice, proper preparation is essential. A well-organised reconciliation and document trail can significantly reduce unnecessary queries, delays and disputes.

This article explains GST Audit under Section 65, what taxpayers can expect, what records may be required, key areas examined by officers and how businesses can prepare for a GST audit in 2026.

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What is GST Audit under Section 65?

Section 65 of the CGST Act empowers the Commissioner or an officer authorised by him to undertake an audit of a registered person.

The audit may cover a specified period and can be conducted:

At the registered person’s place of business; or
At the office of the GST department.

The audit is conducted to verify the correctness of the taxpayer’s GST compliance and records.

The relevant rules provide that the audit period may comprise a financial year, part thereof, or multiple financial years, as applicable.

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Is GST Audit under Section 65 Mandatory for Every Business?

No.

A Section 65 audit is not an annual audit applicable automatically to every registered taxpayer.

The Commissioner or authorised officer may select a registered person for audit in accordance with the GST law and applicable departmental process.

Therefore, businesses should understand the distinction between:

GST Return Filing → Regular statutory compliance

Section 65 Audit → Departmental verification initiated by GST authorities

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How Does a Section 65 GST Audit Start?

The process generally begins with a formal audit notice in FORM GST ADT-01.

Rule 101 provides for issuance of ADT-01 when it is decided to undertake an audit under Section 65.

The notice generally specifies details such as:

GSTIN
Legal name of taxpayer
Address
Financial year(s) under audit
Proposed date/place of audit
Records and documents required
Instructions for appearing before the officer or providing records

The taxpayer should carefully read the notice before preparing the documents.

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Minimum Notice Period for GST Audit

Under Section 65(3), the registered person must be informed at least 15 working days before the conduct of the audit.

This gives the taxpayer time to:

Arrange books of accounts
Reconcile GST returns
Prepare ITC workings
Compile invoices
Review previous notices
Organise financial records
Identify potential discrepancies

A taxpayer should use this period for preparation rather than simply collecting documents.

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What is the Time Limit for Completing a GST Audit?

Section 65 provides that the audit should generally be completed within 3 months from the date of commencement of audit.

The Commissioner may extend this period by a further period of up to 6 months, provided the statutory conditions are met and reasons are recorded in writing.

What is the Date of Commencement?

For this purpose, commencement of audit means the later of:

1. The date on which the records and documents called for by the tax authorities are made available by the registered person; or

2. The actual institution of audit at the place of business.

This date is important because the statutory audit completion period runs from the commencement of audit.

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What Does the GST Officer Check During Audit?

Rule 101 specifically provides for verification of several important areas.

The officer may examine:

1. Books of Account

The officer may verify the books and underlying documents maintained by the taxpayer.

2. GST Returns

Returns and statements furnished under GST law may be compared with the books and supporting records.

3. Turnover

The officer may verify whether the turnover declared in GST returns agrees with:

Sales ledger
Trial balance
Profit & Loss Account
Financial statements
E-invoices
E-way bills
Bank records
Other relevant data

4. Exemptions and Deductions

The officer may verify whether exemptions or deductions claimed by the taxpayer are legally available and properly supported.

5. GST Rates

The applicable rate on goods and services may be checked to determine whether the taxpayer has correctly discharged GST.

6. Input Tax Credit

ITC availed and utilised may be examined in detail.

7. Refunds

Refund claims may be reviewed for correctness and supporting documentation.

8. Other Relevant Issues

The audit may also cover other issues relevant to the taxpayer’s GST compliance.

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Key Documents to Prepare for GST Audit

The exact document list depends on the audit notice and nature of business.

However, businesses should generally keep the following records ready.

A. Basic Company/Business Documents

GST Registration Certificate
PAN
Constitution documents
Partnership deed/LLP agreement, where applicable
Certificate of Incorporation, where applicable
Details of additional places of business
Previous GST correspondence

B. Financial Records

Trial Balance
Profit & Loss Account
Balance Sheet
General Ledger
Cash Book
Bank Book
Fixed Asset Register
Journal Register
Debtors Ledger
Creditors Ledger

C. Sales Records

Sales register
Tax invoices
Debit notes
Credit notes
Export invoices
B2B/B2C sales details
E-invoices
E-way bills
Sales return records

D. Purchase Records

Purchase register
Purchase invoices
Debit notes
Credit notes
Import documents
Bill of Entry
Vendor ledgers
Goods receipt records

E. GST Returns

Keep copies/workings of relevant:

GSTR-1
GSTR-3B
GSTR-9
GSTR-9C, wherever applicable
GSTR-2B
Other applicable GST statements/reports

F. ITC Records

ITC register
GSTR-2B reconciliation
Purchase register reconciliation
Reversal workings
Rule 42/43 workings, where applicable
Blocked ITC workings under Section 17(5)
Import ITC records
RCM ITC records

G. Other Records

Depending on the business:

Job-work records
Stock register
Production records
Branch transfer records
Export documents
LUT
Refund workings
RCM workings
E-commerce reports
TDS/TCS records
Agreements/contracts
Related-party transaction records

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Most Important GST Reconciliations Before Audit

A taxpayer should not simply submit raw accounting data.

The most important step is to prepare a proper GST audit reconciliation file.

1. Books vs GSTR-1

Reconcile:

Sales as per books

with

Outward supplies reported in GSTR-1

Investigate differences caused by:

Credit notes
Debit notes
Advances
Amendments
Timing differences
B2B/B2C classification
Exempt sales
Nil-rated sales
Export supplies

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2. Books vs GSTR-3B

Compare:

Taxable turnover as per books

with

Taxable turnover reported in GSTR-3B

Also reconcile:

CGST
SGST
IGST
Cess, wherever applicable

Any unexplained difference can become a potential audit query.

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3. GSTR-1 vs GSTR-3B

Check whether outward supplies reported in GSTR-1 agree with tax liability reported in GSTR-3B.

Differences should be classified and explained.

For example:

GSTR-1 turnover: ₹1.20 crore

GSTR-3B taxable turnover: ₹1.15 crore

The ₹5 lakh difference should not simply be ignored.

Prepare a reconciliation explaining the reason.

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4. Books vs GSTR-2B

One of the most important ITC checks is:

Purchase Register vs GSTR-2B

Check:

Missing invoices
Duplicate ITC
Vendor GSTIN errors
Wrong tax amounts
Credit notes
Ineligible purchases
Timing differences

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5. ITC as per Books vs GSTR-3B

Reconcile:

Eligible ITC as per purchase records

with

ITC claimed in GSTR-3B

Also identify:

Excess ITC
Missed ITC
Reversed ITC
Reclaimed ITC
RCM ITC
Import ITC

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6. GSTR-2B vs GSTR-3B

The taxpayer should maintain a month-wise reconciliation of:

ITC appearing in GSTR-2B

ITC claimed in GSTR-3B

This can help identify potential issues before the officer raises them.

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Turnover Areas Commonly Requiring Attention

During an audit, taxpayers should review whether all relevant outward supplies have been correctly reported.

Particular attention should be given to:

Sales invoices
Unbilled revenue
Advances
Credit notes
Debit notes
Branch transfers
Stock transfers
Job work
Scrap sales
Asset sales
Export supplies
Exempt supplies
Nil-rated supplies
Non-GST supplies
Related-party transactions

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ITC Areas That May Attract Queries

ITC is one of the most important areas of GST audit.

The taxpayer should review:

Section 16 Conditions

Verify whether basic ITC conditions have been fulfilled.

Section 17(5)

Check blocked credits relating to specified goods/services.

Rule 42

Review common input/input-service ITC reversal where taxable and exempt supplies exist.

Rule 43

Review common capital-goods ITC reversal where applicable.

Reversal and Reclaim

Check whether reversals and subsequent reclaims are properly documented.

Vendor Compliance

Review vendor-wise discrepancies appearing in GSTR-2B and books.

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GST Rate Verification

Another important audit area is the correctness of GST rates.

Businesses should prepare an HSN/SAC-wise rate mapping.

For example:

| ——- | ————— | ———–: | ————–: | ———: |

| XXXXX | Product A | 18% | 18% | Nil |

| XXXXX | Product B | 12% | 12% | Nil |

This exercise can identify rate errors before the department does.

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Reverse Charge Mechanism (RCM) Verification

RCM should also be reviewed carefully.

Check whether the business has correctly identified applicable transactions such as:

Specified services
Legal services
GTA, where applicable
Import of services
Other notified RCM transactions

Verify:

Expense ledger → RCM liability → GSTR-3B → Payment → ITC

Any mismatch should be properly explained.

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E-Invoice and E-Way Bill Reconciliation

For businesses covered by applicable e-invoicing requirements, officers may compare:

Books

with

GSTR-1

and

E-invoice data

Similarly, e-way bill data may be used as a supporting source for verifying movement of goods.

Businesses should therefore reconcile:

Invoice number
Invoice date
GSTIN
Taxable value
Tax amount
Cancellation status
E-way bill details

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Export and Refund Verification

If the taxpayer has claimed refunds or made exports, maintain a separate refund file.

Documents may include:

Export invoices
Shipping bills
Bill of lading/airway bill
LUT
GSTR-1 export data
GSTR-3B data
Bank Realisation Certificate/FIRC, where relevant
Refund applications
Refund sanction orders
Reconciliation workings

The objective should be to establish that the refund claim is supported by actual transactions and statutory records.

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Stock and Inventory Verification

For manufacturers and traders, stock records can be an important part of the audit.

Prepare reconciliation between:

Opening Stock + Purchases − Sales/Consumption = Closing Stock

Differences should be identified and explained.

Particular attention should be given to:

Stock transfers
Job work
Scrap
Wastage
Damaged goods
Samples
Free supplies
Goods written off

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Related-Party and Branch Transactions

Businesses operating through multiple registrations or related entities should carefully review transactions between registrations.

Examples include:

Branch transfers
Cross-charge
Common services
Management charges
Employee-related expenses
Shared premises
Shared software
Inter-company expenses

The GST treatment should be reviewed according to the applicable provisions.

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What Happens During the Audit?

A typical audit can proceed broadly as follows:

Stage 1 — Audit Selection

The taxpayer is selected for departmental audit.

Stage 2 — ADT-01

The department issues FORM GST ADT-01.

Stage 3 — Document Submission

The taxpayer provides books, returns and supporting records.

Stage 4 — Verification

The officer verifies:

Turnover
Tax
ITC
Exemptions
Refunds
GST rates
Other relevant matters

Stage 5 — Audit Observations

The officer may communicate discrepancies noticed during the audit.

Stage 6 — Taxpayer’s Reply

The taxpayer can provide explanations and supporting documents.

Stage 7 — Finalisation

The officer considers the taxpayer’s reply and finalises the audit findings.

Stage 8 — ADT-02

On conclusion of the audit, the proper officer informs the taxpayer about the findings through FORM GST ADT-02.

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Can the Taxpayer Reply to Audit Observations?

Yes.

Rule 101 specifically provides that where discrepancies are noticed, the taxpayer may file a reply and the proper officer is required to consider the reply before finalising the audit findings.

This makes the quality of the reply extremely important.

A strong reply should contain:

Audit observation

Taxpayer’s response

Relevant legal provision

Calculation

Supporting documents

Reconciliation

Clear conclusion

Avoid submitting a generic response such as:

> “The difference is due to accounting adjustment.”

Instead, explain exactly what caused the difference and support it with documents.

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What Happens if Tax is Found Short Paid?

Section 65(7) provides that where an audit results in detection of:

Tax not paid
Tax short paid
Erroneous refund
ITC wrongly availed or utilised

the proper officer may initiate action under the applicable demand provisions, including Section 73 or Section 74, as applicable under the law.

Therefore, an audit observation does not necessarily mean that the final tax demand is automatically established.

Further proceedings and the applicable statutory process need to be followed.

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Section 65 Audit vs Section 66 Special Audit

These two concepts should not be confused.

| Particulars | Section 65 Audit | Section 66 Special Audit |

| ————— | —————————- | —————————————————- |

| Conducted by | GST officer/authorised team | CA/CMA nominated by Commissioner |

| Nature | Departmental audit | Special audit |

| Trigger | Departmental audit selection | Nature/complexity or revenue interest, as prescribed |

| Main form | ADT-01 | ADT-03 |

| Findings form | ADT-02 | ADT-04 |

| Legal provision | Section 65 | Section 66 |

Section 66 applies where the prescribed officer, with the required approval, directs a special audit having regard to factors such as the nature and complexity of the case and revenue interest.

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GST Audit Preparation Checklist

A business receiving ADT-01 should ideally prepare the following checklist.

Company/Business Records

[ ] GST registration details
[ ] PAN
[ ] Constitution documents
[ ] Previous GST notices/replies
[ ] Previous audit findings

Financial Records

[ ] Trial balance
[ ] P&L
[ ] Balance Sheet
[ ] General ledger
[ ] Bank statements
[ ] Fixed asset register

Sales

[ ] Sales register
[ ] Tax invoices
[ ] Credit/debit notes
[ ] E-invoices
[ ] E-way bills
[ ] GSTR-1 reconciliation
[ ] GSTR-3B reconciliation

Purchases & ITC

[ ] Purchase register
[ ] GSTR-2B
[ ] ITC reconciliation
[ ] ITC reversal workings
[ ] Section 17(5) review
[ ] RCM workings

Other

[ ] HSN/SAC mapping
[ ] Tax-rate mapping
[ ] Stock records
[ ] Job-work records
[ ] Export/refund documents
[ ] Branch transfer records
[ ] Related-party transaction details

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10 Practical Tips to Prepare for GST Audit

1. Don’t Wait for the Audit Date

Start reconciliation immediately after receiving ADT-01.

2. Reconcile Before Submitting Records

Don’t allow the officer to identify basic book-to-return differences that could have been resolved internally.

3. Create a Difference Report

Prepare a working sheet showing:

Difference → Reason → Amount → Supporting Document → Treatment

4. Keep Year-Wise Data Separate

If multiple financial years are covered, maintain separate folders and reconciliations.

5. Maintain a Query Tracker

Create a simple tracker:

| ——————- | ——–: | ———- | ——————– | ——— |

6. Don’t Give Unverified Answers

Every response should be checked against books, returns and legal provisions.

7. Keep Original Records Safe

Provide copies/soft copies wherever appropriate and maintain a proper document trail.

8. Review ITC Carefully

ITC-related issues can have significant tax and interest implications.

9. Review Rate Classification

Check HSN/SAC and rate mapping before the audit.

10. Take Professional Assistance for Complex Issues

If the audit involves significant tax exposure, classification disputes, ITC disputes or complex transactions, professional review can be useful.

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What Businesses Should Not Do During GST Audit

Avoid these common mistakes:

Don’t Ignore ADT-01

A departmental audit notice should not be treated as a routine communication.

Don’t Submit Unreconciled Data

Raw data without reconciliation can create unnecessary queries.

Don’t Admit Liability Without Verification

First establish the facts, calculation and legal position.

Don’t Destroy or Alter Records

Maintain original books and supporting documentation.

Don’t Give Inconsistent Explanations

The explanation should remain consistent with:

Books
GST returns
Invoices
E-invoices
E-way bills
Financial statements

Don’t Miss Response Deadlines

Track every communication and requested document.

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GST Audit Working Paper Structure

For professional-level preparation, a GST audit file can be structured as follows:

Folder 1 — Notice & Correspondence

ADT-01
Department letters
Emails/communications
Previous notices

Folder 2 — Financial Statements

Trial Balance
P&L
Balance Sheet
Ledgers

Folder 3 — Outward Supplies

Sales register
GSTR-1
GSTR-3B
E-invoices
E-way bills

Folder 4 — Inward Supplies & ITC

Purchase register
GSTR-2B
ITC reconciliation
Reversal workings

Folder 5 — Taxability

HSN/SAC mapping
Rate mapping
Exemption workings

Folder 6 — Special Transactions

RCM
Imports
Exports
Job work
Branch transfers
Related parties

Folder 7 — Audit Replies

Query-wise responses
Supporting documents
Reconciliation statements
Final audit findings

This structure makes the audit process significantly easier to manage.

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Frequently Asked Questions (FAQs)

1. What is GST Audit under Section 65?

It is an audit conducted by the GST authorities to verify the books, returns, turnover, tax, ITC, exemptions, refunds and other relevant GST compliance matters of a registered person.

2. What form is issued for GST Audit?

The department issues FORM GST ADT-01 for initiating the audit under Section 65.

3. How much advance notice is required?

The registered person should generally be informed at least 15 working days before the audit.

4. How long can a GST audit take?

The audit should generally be completed within 3 months from commencement, with a possible extension of up to 6 months by the Commissioner subject to the statutory conditions.

5. What is ADT-02?

ADT-02 is used to communicate the findings of the Section 65 audit to the registered person after conclusion of the audit.

6. Does receiving ADT-01 automatically mean there is tax liability?

No. ADT-01 is a notice for conducting an audit. The audit process may result in no discrepancy, explanations being accepted, or further action where discrepancies are established.

7. Can the taxpayer reply to audit observations?

Yes. Rule 101 provides for the taxpayer to submit a reply to discrepancies noticed during the audit, which must be considered before finalisation of the findings.

8. Can GST audit lead to a demand?

Yes. Where the audit detects tax not paid/short paid, erroneous refund or wrongly availed/utilised ITC, the proper officer may initiate applicable demand proceedings under the relevant provisions.

9. Is Section 65 audit the same as Section 66 special audit?

No. Section 65 is a departmental audit by authorised GST officers. Section 66 is a special audit involving a CA or Cost Accountant nominated under the statutory process.

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Conclusion

A GST audit under Section 65 is a detailed compliance review and should be approached systematically rather than as a simple document-submission exercise.

The most effective preparation is to reconcile the taxpayer’s books, GST returns, e-invoices, e-way bills, purchase records, GSTR-2B, ITC workings and financial statements before the department identifies discrepancies.

Businesses should especially focus on:

Turnover reconciliation
ITC reconciliation
HSN/SAC and tax-rate verification
Exempt and taxable supplies
RCM
E-invoice/e-way bill data
Refunds and exports
Stock records
Job work
Branch and related-party transactions

A well-maintained GST audit file with reconciliation statements, supporting documents and query-wise responses can make the audit process much more structured and reduce the risk of avoidable disputes.

Most importantly, taxpayers should remember that receiving ADT-01 is the beginning of the audit process, not a final determination of tax liability. If discrepancies are raised, the taxpayer has an opportunity to provide factual explanations and supporting evidence before the audit findings are finalised.

Written by

Sandeep Roy

Accounts Executive · Accounts & Taxation

Sandeep Roy is an Accounts Executive in TAXAJ's Accounts & Taxation team. With over six years of industry experience, Sandeep handles bookkeeping, tax filings and day-to-day compliance for clients. TAXAJ is a multi-disciplinary consulting firm spanning finance, taxation, legal, secretarial, FEMA and IPR, with offices in Delhi, Bihar, Bangalore and Goa.

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