A GST departmental audit under Section 65 of the CGST Act, 2017<\/strong> is an important compliance proceeding through which the GST authorities examine the books of account, GST returns and supporting records of a registered person.<\/p>\n Unlike a routine GST return filing, a departmental audit involves a detailed verification of whether the taxpayer has correctly reported:<\/p>\n 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.<\/p>\n 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.<\/strong><\/p>\n —<\/p>\n Section 65 of the CGST Act empowers the Commissioner or an officer authorised by him<\/strong> to undertake an audit of a registered person.<\/p>\n The audit may cover a specified period and can be conducted:<\/p>\n The audit is conducted to verify the correctness of the taxpayer’s GST compliance and records.<\/p>\n The relevant rules provide that the audit period may comprise a financial year, part thereof, or multiple financial years<\/strong>, as applicable.<\/p>\n —<\/p>\n No.<\/p>\n A Section 65 audit is not an annual audit applicable automatically to every registered taxpayer<\/strong>.<\/p>\n The Commissioner or authorised officer may select a registered person for audit in accordance with the GST law and applicable departmental process.<\/p>\n Therefore, businesses should understand the distinction between:<\/p>\n —<\/p>\n The process generally begins with a formal audit notice in FORM GST ADT-01<\/strong>.<\/p>\n Rule 101 provides for issuance of ADT-01 when it is decided to undertake an audit under Section 65.<\/p>\n The notice generally specifies details such as:<\/p>\n The taxpayer should carefully read the notice before preparing the documents.<\/p>\n —<\/p>\n Under Section 65(3), the registered person must be informed at least 15 working days before the conduct of the audit<\/strong>.<\/p>\n This gives the taxpayer time to:<\/p>\n A taxpayer should use this period for preparation rather than simply collecting documents.<\/p>\n —<\/p>\n Section 65 provides that the audit should generally be completed within 3 months from the date of commencement of audit<\/strong>.<\/p>\n The Commissioner may extend this period by a further period of up to 6 months<\/strong>, provided the statutory conditions are met and reasons are recorded in writing.<\/p>\n For this purpose, commencement of audit means the later of:<\/p>\n 1. The date on which the records and documents called for by the tax authorities are made available by the registered person; or<\/p>\n 2. The actual institution of audit at the place of business.<\/p>\n This date is important because the statutory audit completion period runs from the commencement of audit.<\/p>\n —<\/p>\n Rule 101 specifically provides for verification of several important areas.<\/p>\n The officer may examine:<\/p>\n The officer may verify the books and underlying documents maintained by the taxpayer.<\/p>\n Returns and statements furnished under GST law may be compared with the books and supporting records.<\/p>\n The officer may verify whether the turnover declared in GST returns agrees with:<\/p>\n The officer may verify whether exemptions or deductions claimed by the taxpayer are legally available and properly supported.<\/p>\n The applicable rate on goods and services may be checked to determine whether the taxpayer has correctly discharged GST.<\/p>\n ITC availed and utilised may be examined in detail.<\/p>\n Refund claims may be reviewed for correctness and supporting documentation.<\/p>\n The audit may also cover other issues relevant to the taxpayer’s GST compliance.<\/p>\n —<\/p>\n The exact document list depends on the audit notice and nature of business.<\/p>\n However, businesses should generally keep the following records ready.<\/p>\n Keep copies\/workings of relevant:<\/p>\n Depending on the business:<\/p>\n —<\/p>\n A taxpayer should not simply submit raw accounting data.<\/p>\n The most important step is to prepare a proper GST audit reconciliation file<\/strong>.<\/p>\n Reconcile:<\/p>\n with<\/p>\n Investigate differences caused by:<\/p>\n —<\/p>\n Compare:<\/p>\n with<\/p>\n Also reconcile:<\/p>\n Any unexplained difference can become a potential audit query.<\/p>\n —<\/p>\n Check whether outward supplies reported in GSTR-1 agree with tax liability reported in GSTR-3B.<\/p>\n Differences should be classified and explained.<\/p>\n For example:<\/p>\n GSTR-1 turnover:<\/strong> \u20b91.20 crore<\/p>\n GSTR-3B taxable turnover:<\/strong> \u20b91.15 crore<\/p>\n The \u20b95 lakh difference should not simply be ignored.<\/p>\n Prepare a reconciliation explaining the reason.<\/p>\n —<\/p>\n One of the most important ITC checks is:<\/p>\n Check:<\/p>\n —<\/p>\n Reconcile:<\/p>\n with<\/p>\n Also identify:<\/p>\n —<\/p>\n The taxpayer should maintain a month-wise reconciliation of:<\/p>\n vs<\/p>\n This can help identify potential issues before the officer raises them.<\/p>\n —<\/p>\n During an audit, taxpayers should review whether all relevant outward supplies have been correctly reported.<\/p>\n Particular attention should be given to:<\/p>\n —<\/p>\n ITC is one of the most important areas of GST audit.<\/p>\n The taxpayer should review:<\/p>\n Verify whether basic ITC conditions have been fulfilled.<\/p>\n Check blocked credits relating to specified goods\/services.<\/p>\n Review common input\/input-service ITC reversal where taxable and exempt supplies exist.<\/p>\n Review common capital-goods ITC reversal where applicable.<\/p>\n Check whether reversals and subsequent reclaims are properly documented.<\/p>\n Review vendor-wise discrepancies appearing in GSTR-2B and books.<\/p>\n —<\/p>\n Another important audit area is the correctness of GST rates.<\/p>\n Businesses should prepare an HSN\/SAC-wise rate mapping.<\/p>\n For example:<\/p>\n | HSN\/SAC | Product\/Service | Rate Applied | Rate Applicable | Difference |<\/p>\n | ——- | ————— | ———–: | ————–: | ———: |<\/p>\n | XXXXX | Product A | 18% | 18% | Nil |<\/p>\n | XXXXX | Product B | 12% | 12% | Nil |<\/p>\n | XXXXX | Service C | 5% | 18% | Review |<\/p>\n This exercise can identify rate errors before the department does.<\/p>\n —<\/p>\n RCM should also be reviewed carefully.<\/p>\n Check whether the business has correctly identified applicable transactions such as:<\/p>\n Verify:<\/p>\n Any mismatch should be properly explained.<\/p>\n —<\/p>\n For businesses covered by applicable e-invoicing requirements, officers may compare:<\/p>\n with<\/p>\n and<\/p>\n Similarly, e-way bill data may be used as a supporting source for verifying movement of goods.<\/p>\n Businesses should therefore reconcile:<\/p>\n —<\/p>\n If the taxpayer has claimed refunds or made exports, maintain a separate refund file.<\/p>\n Documents may include:<\/p>\n The objective should be to establish that the refund claim is supported by actual transactions and statutory records.<\/p>\n —<\/p>\n For manufacturers and traders, stock records can be an important part of the audit.<\/p>\n Prepare reconciliation between:<\/p>\n Differences should be identified and explained.<\/p>\n Particular attention should be given to:<\/p>\n —<\/p>\n Businesses operating through multiple registrations or related entities should carefully review transactions between registrations.<\/p>\n Examples include:<\/p>\n The GST treatment should be reviewed according to the applicable provisions.<\/p>\n —<\/p>\n A typical audit can proceed broadly as follows:<\/p>\n The taxpayer is selected for departmental audit.<\/p>\n The department issues FORM GST ADT-01<\/strong>.<\/p>\n The taxpayer provides books, returns and supporting records.<\/p>\n The officer verifies:<\/p>\n The officer may communicate discrepancies noticed during the audit.<\/p>\n The taxpayer can provide explanations and supporting documents.<\/p>\n The officer considers the taxpayer’s reply and finalises the audit findings.<\/p>\n On conclusion of the audit, the proper officer informs the taxpayer about the findings through FORM GST ADT-02<\/strong>.<\/p>\n —<\/p>\n Yes.<\/p>\n 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.<\/p>\n This makes the quality of the reply extremely important.<\/p>\n A strong reply should contain:<\/p>\n Avoid submitting a generic response such as:<\/p>\n > “The difference is due to accounting adjustment.”<\/p>\n Instead, explain exactly what caused the difference and support it with documents.<\/p>\n —<\/p>\n Section 65(7) provides that where an audit results in detection of:<\/p>\n the proper officer may initiate action under the applicable demand provisions, including Section 73 or Section 74<\/strong>, as applicable under the law.<\/p>\n Therefore, an audit observation does not necessarily mean that the final tax demand is automatically established.<\/p>\n Further proceedings and the applicable statutory process need to be followed.<\/p>\n —<\/p>\n These two concepts should not be confused.<\/p>\n | Particulars | Section 65 Audit | Section 66 Special Audit |<\/p>\n | ————— | —————————- | —————————————————- |<\/p>\n | Conducted by | GST officer\/authorised team | CA\/CMA nominated by Commissioner |<\/p>\n | Nature | Departmental audit | Special audit |<\/p>\n | Trigger | Departmental audit selection | Nature\/complexity or revenue interest, as prescribed |<\/p>\n | Main form | ADT-01 | ADT-03 |<\/p>\n | Findings form | ADT-02 | ADT-04 |<\/p>\n | Legal provision | Section 65 | Section 66 |<\/p>\n 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.<\/p>\n —<\/p>\n A business receiving ADT-01 should ideally prepare the following checklist.<\/p>\n —<\/p>\n Start reconciliation immediately after receiving ADT-01.<\/p>\n Don’t allow the officer to identify basic book-to-return differences that could have been resolved internally.<\/p>\n Prepare a working sheet showing:<\/p>\n If multiple financial years are covered, maintain separate folders and reconciliations.<\/p>\n Create a simple tracker:<\/p>\n | Query | Amount | Reply Due | Documents | Status |<\/p>\n | ——————- | ——–: | ———- | ——————– | ——— |<\/p>\n | ITC Difference | \u20b92,50,000 | 15-08-2026 | 2B Reconciliation | Pending |<\/p>\n | Turnover Difference | \u20b91,20,000 | 18-08-2026 | Sales Reconciliation | Submitted |<\/p>\n Every response should be checked against books, returns and legal provisions.<\/p>\n Provide copies\/soft copies wherever appropriate and maintain a proper document trail.<\/p>\n ITC-related issues can have significant tax and interest implications.<\/p>\n Check HSN\/SAC and rate mapping before the audit.<\/p>\n If the audit involves significant tax exposure, classification disputes, ITC disputes or complex transactions, professional review can be useful.<\/p>\n —<\/p>\n Avoid these common mistakes:<\/p>\n A departmental audit notice should not be treated as a routine communication.<\/p>\n Raw data without reconciliation can create unnecessary queries.<\/p>\n First establish the facts, calculation and legal position.<\/p>\n Maintain original books and supporting documentation.<\/p>\n The explanation should remain consistent with:<\/p>\n Track every communication and requested document.<\/p>\n —<\/p>\n For professional-level preparation, a GST audit file can be structured as follows:<\/p>\n This structure makes the audit process significantly easier to manage.<\/p>\n —<\/p>\n 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.<\/p>\n The department issues FORM GST ADT-01<\/strong> for initiating the audit under Section 65.<\/p>\n The registered person should generally be informed at least 15 working days before the audit<\/strong>.<\/p>\n The audit should generally be completed within 3 months from commencement<\/strong>, with a possible extension of up to 6 months<\/strong> by the Commissioner subject to the statutory conditions.<\/p>\n ADT-02 is used to communicate the findings of the Section 65 audit to the registered person after conclusion of the audit.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n —<\/p>\n A GST audit under Section 65<\/strong> is a detailed compliance review and should be approached systematically rather than as a simple document-submission exercise.<\/p>\n 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<\/strong> before the department identifies discrepancies.<\/p>\n Businesses should especially focus on:<\/p>\n A well-maintained GST audit file with reconciliation statements, supporting documents and query-wise responses<\/strong> can make the audit process much more structured and reduce the risk of avoidable disputes.<\/p>\n Most importantly, taxpayers should remember that receiving ADT-01 is the beginning of the audit process, not a final determination of tax liability<\/strong>. If discrepancies are raised, the taxpayer has an opportunity to provide factual explanations and supporting evidence before the audit findings are finalised.<\/p>\n","protected":false},"excerpt":{"rendered":" GST Audit under Section 65 \u2014 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…<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[6],"tags":[482],"class_list":["post-921","post","type-post","status-publish","format-standard","hentry","category-compliances","tag-gst-audit-u-s-65"],"_links":{"self":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/921","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/comments?post=921"}],"version-history":[{"count":2,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/921\/revisions"}],"predecessor-version":[{"id":1452,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/921\/revisions\/1452"}],"wp:attachment":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/media?parent=921"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/categories?post=921"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/tags?post=921"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
What is GST Audit under Section 65?<\/h2>\n
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Is GST Audit under Section 65 Mandatory for Every Business?<\/h2>\n
GST Return Filing \u2192 Regular statutory compliance<\/h2>\n
Section 65 Audit \u2192 Departmental verification initiated by GST authorities<\/h2>\n
How Does a Section 65 GST Audit Start?<\/h2>\n
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Minimum Notice Period for GST Audit<\/h2>\n
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What is the Time Limit for Completing a GST Audit?<\/h2>\n
What is the Date of Commencement?<\/h3>\n
What Does the GST Officer Check During Audit?<\/h2>\n
1. Books of Account<\/h3>\n
2. GST Returns<\/h3>\n
3. Turnover<\/h3>\n
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4. Exemptions and Deductions<\/h3>\n
5. GST Rates<\/h3>\n
6. Input Tax Credit<\/h3>\n
7. Refunds<\/h3>\n
8. Other Relevant Issues<\/h3>\n
Key Documents to Prepare for GST Audit<\/h2>\n
A. Basic Company\/Business Documents<\/h2>\n
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B. Financial Records<\/h2>\n
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C. Sales Records<\/h2>\n
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D. Purchase Records<\/h2>\n
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E. GST Returns<\/h2>\n
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F. ITC Records<\/h2>\n
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G. Other Records<\/h2>\n
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Most Important GST Reconciliations Before Audit<\/h2>\n
1. Books vs GSTR-1<\/h2>\n
Sales as per books<\/h2>\n
Outward supplies reported in GSTR-1<\/h2>\n
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2. Books vs GSTR-3B<\/h2>\n
Taxable turnover as per books<\/h2>\n
Taxable turnover reported in GSTR-3B<\/h2>\n
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3. GSTR-1 vs GSTR-3B<\/h2>\n
4. Books vs GSTR-2B<\/h2>\n
Purchase Register vs GSTR-2B<\/h2>\n
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5. ITC as per Books vs GSTR-3B<\/h2>\n
Eligible ITC as per purchase records<\/h2>\n
ITC claimed in GSTR-3B<\/h2>\n
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6. GSTR-2B vs GSTR-3B<\/h2>\n
ITC appearing in GSTR-2B<\/h2>\n
ITC claimed in GSTR-3B<\/h2>\n
Turnover Areas Commonly Requiring Attention<\/h2>\n
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ITC Areas That May Attract Queries<\/h2>\n
Section 16 Conditions<\/h3>\n
Section 17(5)<\/h3>\n
Rule 42<\/h3>\n
Rule 43<\/h3>\n
Reversal and Reclaim<\/h3>\n
Vendor Compliance<\/h3>\n
GST Rate Verification<\/h2>\n
Reverse Charge Mechanism (RCM) Verification<\/h2>\n
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Expense ledger \u2192 RCM liability \u2192 GSTR-3B \u2192 Payment \u2192 ITC<\/h2>\n
E-Invoice and E-Way Bill Reconciliation<\/h2>\n
Books<\/h2>\n
GSTR-1<\/h2>\n
E-invoice data<\/h2>\n
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Export and Refund Verification<\/h2>\n
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Stock and Inventory Verification<\/h2>\n
Opening Stock + Purchases \u2212 Sales\/Consumption = Closing Stock<\/h2>\n
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Related-Party and Branch Transactions<\/h2>\n
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What Happens During the Audit?<\/h2>\n
Stage 1 \u2014 Audit Selection<\/h3>\n
Stage 2 \u2014 ADT-01<\/h3>\n
Stage 3 \u2014 Document Submission<\/h3>\n
Stage 4 \u2014 Verification<\/h3>\n
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Stage 5 \u2014 Audit Observations<\/h3>\n
Stage 6 \u2014 Taxpayer’s Reply<\/h3>\n
Stage 7 \u2014 Finalisation<\/h3>\n
Stage 8 \u2014 ADT-02<\/h3>\n
Can the Taxpayer Reply to Audit Observations?<\/h2>\n
Audit observation<\/h2>\n
Taxpayer’s response<\/h2>\n
Relevant legal provision<\/h2>\n
Calculation<\/h2>\n
Supporting documents<\/h2>\n
Reconciliation<\/h2>\n
Clear conclusion<\/h2>\n
What Happens if Tax is Found Short Paid?<\/h2>\n
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Section 65 Audit vs Section 66 Special Audit<\/h2>\n
GST Audit Preparation Checklist<\/h2>\n
Company\/Business Records<\/h3>\n
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Financial Records<\/h3>\n
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Sales<\/h3>\n
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Purchases & ITC<\/h3>\n
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Other<\/h3>\n
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10 Practical Tips to Prepare for GST Audit<\/h2>\n
1. Don’t Wait for the Audit Date<\/h2>\n
2. Reconcile Before Submitting Records<\/h2>\n
3. Create a Difference Report<\/h2>\n
Difference \u2192 Reason \u2192 Amount \u2192 Supporting Document \u2192 Treatment<\/h2>\n
4. Keep Year-Wise Data Separate<\/h2>\n
5. Maintain a Query Tracker<\/h2>\n
6. Don’t Give Unverified Answers<\/h2>\n
7. Keep Original Records Safe<\/h2>\n
8. Review ITC Carefully<\/h2>\n
9. Review Rate Classification<\/h2>\n
10. Take Professional Assistance for Complex Issues<\/h2>\n
What Businesses Should Not Do During GST Audit<\/h2>\n
Don’t Ignore ADT-01<\/h3>\n
Don’t Submit Unreconciled Data<\/h3>\n
Don’t Admit Liability Without Verification<\/h3>\n
Don’t Destroy or Alter Records<\/h3>\n
Don’t Give Inconsistent Explanations<\/h3>\n
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Don’t Miss Response Deadlines<\/h3>\n
GST Audit Working Paper Structure<\/h2>\n
Folder 1 \u2014 Notice & Correspondence<\/h2>\n
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Folder 2 \u2014 Financial Statements<\/h2>\n
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Folder 3 \u2014 Outward Supplies<\/h2>\n
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Folder 4 \u2014 Inward Supplies & ITC<\/h2>\n
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Folder 5 \u2014 Taxability<\/h2>\n
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Folder 6 \u2014 Special Transactions<\/h2>\n
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Folder 7 \u2014 Audit Replies<\/h2>\n
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Frequently Asked Questions (FAQs)<\/h2>\n
1. What is GST Audit under Section 65?<\/h2>\n
2. What form is issued for GST Audit?<\/h2>\n
3. How much advance notice is required?<\/h2>\n
4. How long can a GST audit take?<\/h2>\n
5. What is ADT-02?<\/h2>\n
6. Does receiving ADT-01 automatically mean there is tax liability?<\/h2>\n
7. Can the taxpayer reply to audit observations?<\/h2>\n
8. Can GST audit lead to a demand?<\/h2>\n
9. Is Section 65 audit the same as Section 66 special audit?<\/h2>\n
Conclusion<\/h2>\n
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