The question ‘Is GST audit mandatory?’ is one of the most searched - and most misunderstood - questions in Indian indirect tax. The confusion exists because GST audit has gone through three distinct phases: Phase 1 (FY 2017-18 to FY 2019-20): mandatory CA/CMA audit for turnover > Rs 2 crore; Phase 2 (FY 2020-21 onwards): mandatory CA/CMA audit removed, GSTR-9C self-certified for turnover > Rs 5 crore; Phase 3 (ongoing): departmental audits under Sections 65/66 continue for all taxpayers.
The short answer: the mandatory CA/CMA-certified GST audit was abolished. But GSTR-9C reconciliation (self-certified) and departmental audits remain very much alive. This blog clarifies exactly who must comply with what, who is exempt, and what each type of audit involves.
What Is GST Audit?
Under Section 2(13) of the CGST Act, ‘audit’ means an examination of records, returns, and other documents maintained by a registered person to verify: (a) correctness of turnover declared, (b) taxes paid, (c) refunds claimed, (d) input tax credit availed, and (e) compliance with GST provisions.
GST audit can be conducted by: the taxpayer’s own CA/CMA (pre-Finance Act 2021 - now removed), the taxpayer through self-certification (GSTR-9C, post-Finance Act 2021), the GST Commissioner or authorised officers (departmental audit under Section 65), or a CA/CMA appointed by the Commissioner (special audit under Section 66).
Businesses using GST return filing services (know more) get GSTR-9/9C preparation and filing as part of the annual compliance cycle.
Key Terms You Should Know
GSTR-9 - Annual Return: Mandatory for regular taxpayers with aggregate turnover > Rs 2 crore. Consolidates all monthly/quarterly returns for the FY. Due by 31 December of the following year.
GSTR-9C - Reconciliation Statement: Mandatory for aggregate turnover > Rs 5 crore. Reconciles GSTR-9 figures with audited financial statements. Self-certified by the taxpayer (post-Finance Act 2021). Due by 31 December (same as GSTR-9).
Aggregate Turnover: Value of all taxable supplies + exempt supplies + exports + inter-state supplies, computed on a PAN basis (not GSTIN basis). Excludes: GST charged, inward supplies under reverse charge. Includes: exempt turnover - this is why even businesses with significant exempt income may cross the threshold.
Section 65 - Departmental Audit: The Commissioner can order an audit of any registered person by his officers or CAs/CMAs. Period covered: up to one FY or multiple FYs. Notice given 15 days in advance. Must be completed within 3 months (extendable by 6 months).
Section 66 - Special Audit: If during scrutiny, investigation, or any proceeding, the officer believes the case is complex and requires expert examination, the Commissioner can direct a special audit by a CA/CMA nominated by the Commissioner. Cost borne by the government.
Finance Act 2021 Change: Section 35(5) of CGST Act (mandatory CA/CMA audit for turnover > Rs 2 crore) was omitted. Section 44 amended: GSTR-9C no longer requires CA/CMA certification - self-certified by the taxpayer. Threshold raised to Rs 5 crore.
Who Must Comply: The Complete Matrix
| Taxpayer Type | GSTR-9 Required? | GSTR-9C Required? | Departmental Audit (Sec 65/66)? | Notes |
|---|---|---|---|---|
| Regular taxpayer (turnover > Rs 5 Cr) | Yes - mandatory | Yes - mandatory (self-certified) | Yes - can be selected anytime | Full annual compliance: GSTR-9 + GSTR-9C + risk of departmental audit |
| Regular taxpayer (Rs 2-5 Cr) | Yes - mandatory | No - exempt | Yes - can be selected | File GSTR-9 only. No GSTR-9C. But departmental audit still possible. |
| Regular taxpayer (up to Rs 2 Cr) | No - optional | No - exempt | Yes - can be selected | GSTR-9 optional. No GSTR-9C. Departmental audit still possible. |
| Composition scheme taxpayer | No - files GSTR-4 instead | No | Yes | Files GSTR-4 annual return. No GSTR-9/9C. |
| SEZ unit/developer | Yes (if turnover > Rs 2 Cr) | Yes (if > Rs 5 Cr) | Yes | Same thresholds as regular. Separate GSTIN for SEZ. |
| Input Service Distributor (ISD) | No - exempt | No | Yes | ISD files GSTR-6 monthly. No annual return. |
| Casual taxable person | No - exempt | No | Yes | Short-term registration. No annual return. |
| Non-resident taxable person | No - exempt | No | Yes | Files GSTR-5. No annual return. |
| OIDAR service provider (non-resident) | No - exempt | No | Yes (theoretically) | Files GSTR-5A. Exempt from GSTR-9/9C. |
| Foreign airline company (Companies Act) | Yes (if > Rs 2 Cr) | No - exempt (CBIC notification) | Yes | Specific exemption from GSTR-9C per CBIC notification 30/2021. |
Key: The departmental audit (Section 65/66) applies to ALL registered taxpayers regardless of turnover. There is no exemption from departmental audit based on size. The Commissioner can select any taxpayer for audit based on risk assessment, ITC claims, return discrepancies, or intelligence. For GST annual return expert guide (know more), see our detailed GSTR-9/9C preparation methodology.
The Three Types of GST Audit in 2026
| Parameter | Type 1: GSTR-9C Reconciliation | Type 2: Departmental Audit (Section 65) | Type 3: Special Audit (Section 66) |
|---|---|---|---|
| Who conducts? | Taxpayer (self-certified). CA/CMA may assist in preparation. | GST Commissioner or authorised officers | CA/CMA appointed by the Commissioner |
| When triggered? | Mandatory annually for turnover > Rs 5 crore | Commissioner’s discretion. Can be ordered anytime. Risk-based selection. | During scrutiny/investigation when case is complex or revenue risk is high |
| Scope | Reconciliation of GSTR-9 with audited financials: turnover, tax liability, ITC. | Full examination: records, returns, documents. Can cover one or more FYs. | Expert examination of specific aspects: accounts, stock, ITC, valuations. |
| Timeline | Filed by 31 December of following year (with GSTR-9) | 15 days advance notice. Complete within 3 months (extendable by 6 months). | Report submitted within 90 days (extendable by 90 days). |
| Cost | CA/CMA professional fees if engaged for preparation (borne by taxpayer) | No cost to taxpayer (government officers conduct) | Cost borne by government (CA/CMA appointed and paid by Commissioner) |
| Outcome | Filed on GST portal. If discrepancies: pay additional tax + interest via DRC-03. | Audit report with findings. If discrepancies: demand notice under Section 73/74. | Audit report to Commissioner. May trigger demand notice or further proceedings. |
Critical distinction: Many businesses believe ‘GST audit was abolished.’ Only Type 1 (mandatory CA/CMA certification) was modified to self-certification. Types 2 and 3 (departmental and special audit) continue unchanged and apply to all taxpayers regardless of turnover. Use statutory audit (know more) services for audit-ready GST record maintenance.
What Is Aggregate Turnover and How to Calculate It
Aggregate turnover determines whether GSTR-9 and GSTR-9C are applicable. It is computed on a PAN basis (not GSTIN basis):
Aggregate Turnover = Taxable supplies (inter-state + intra-state) + Exempt supplies + Export supplies
Excludes: GST charged on outward supplies, inward supplies under reverse charge mechanism.
Includes: exempt turnover, nil-rated supplies, non-GST supplies (like alcohol, if the entity also deals in taxable goods).
Example: A company in Pune with GSTIN in Maharashtra has taxable turnover of Rs 3 crore and exempt turnover of Rs 2.5 crore. Aggregate turnover = Rs 5.5 crore. Even though taxable turnover is only Rs 3 crore, the company must file GSTR-9C because aggregate turnover (PAN-level, including exempt) exceeds Rs 5 crore.
Multi-GSTIN entities: If a business has GSTINs in 3 states, the aggregate turnover is calculated at PAN level (sum of all 3 GSTINs). If the PAN-level aggregate exceeds Rs 5 crore, ALL GSTINs must file GSTR-9C - even if an individual GSTIN’s turnover is below Rs 5 crore.
The Legal Framework: Key Sections
| Section / Notification | What It Provides | Current Status (2026) |
|---|---|---|
| Section 35(5) CGST Act | Previously required CA/CMA audit for turnover > Rs 2 crore. Omitted by Finance Act 2021. | No longer applicable. Mandatory CA/CMA audit removed. |
| Section 44 CGST Act (amended) | Requires every registered person to file annual return (GSTR-9). GSTR-9C now self-certified. | Active. GSTR-9 mandatory for > Rs 2 Cr. GSTR-9C mandatory for > Rs 5 Cr. Self-certified. |
| Section 65 CGST Act | Commissioner can order departmental audit of any registered person by his officers or appointed professionals. | Active. Applies to ALL taxpayers. No turnover threshold. |
| Section 66 CGST Act | Commissioner can direct special audit by nominated CA/CMA during scrutiny or investigation. | Active. Triggered during complex proceedings. |
| Notification 29/2021 (30 July 2021) | GSTR-9C to be self-certified (not CA/CMA certified) for turnover > Rs 5 crore. | Current rule. Self-certification by taxpayer. |
| Notification 30/2021 (30 July 2021) | Exempts foreign airline companies from GSTR-9C. Exempts OIDAR providers from GSTR-9/9C. | Active. Specific exemptions continue. |
| Notification 14/2024 | Exempts taxpayers with aggregate turnover up to Rs 2 crore from filing GSTR-9 for FY 2023-24. | Applied for FY 2023-24. Similar notification expected for FY 2024-25 and 2025-26. |
GSTR-9C: What It Contains and How to Prepare
GSTR-9C has two parts:
Part A - Reconciliation Statement: Compares turnover as per audited financial statements with turnover as per GSTR-9. Reports: gross turnover, taxable turnover, tax payable, ITC claimed, tax paid. Identifies and explains discrepancies between the books and GST returns.
Part B - Certification: Post-Finance Act 2021: self-certified by the taxpayer (authorised signatory). The taxpayer certifies: (a) accounts and records are maintained, (b) financial statements are prepared from books, (c) GSTR-9C is accurate and reconciled.
Common reconciliation differences: unbilled revenue (income recognised in books but not invoiced in GST period), advance receipts (GST paid on advance but revenue not yet recognised), credit notes (issued in GST but not yet adjusted in books), exempt/non-GST income (in books but not in GST returns), and timing differences between GST reporting and accounting periods.
For our methodology on preparing GSTR-9/9C, see the GST annual return expert guide (know more).
Documents Required for GSTR-9C Preparation
- Audited financial statements (P&L, balance sheet, notes to accounts)
- All 12 months’ GSTR-1 and GSTR-3B filed returns
- GSTR-9 (annual return) - prepared and reviewed before GSTR-9C
- GSTR-2B statements for all 12 months (for ITC reconciliation)
- Tax payment challans and electronic cash/credit ledger statements
- ITC reversal records (Rule 42/43, Section 17(5))
- Credit/debit note register
- Revenue reconciliation working paper (books vs GST returns)
- ITC reconciliation working paper (GSTR-2B vs purchase register vs GSTR-3B)
- HSN/SAC summary from books of accounts
- Expense ledger analysis for reverse charge liability
- Prior year’s GSTR-9C (for comparison)
- DRC-03 payment details (for additional tax identified during reconciliation)
Step-by-Step: Filing GSTR-9C on the GST Portal
Step 1: Ensure GSTR-9 is prepared and ready (GSTR-9C cannot be filed without GSTR-9).
Step 2: Log in to GST portal > Services > Returns > Annual Return > Select FY.
Step 3: Navigate to GSTR-9C tab. Choose: Prepare Online or Prepare Offline (download offline tool).
Step 4: Fill Part A (Reconciliation Statement): enter turnover from audited financials, reconcile with GSTR-9 figures, explain discrepancies.
Step 5: Fill Part B (Certification): self-certify the accuracy of the reconciliation.
Step 6: Upload audited financial statements as PDF attachment.
Step 7: Preview GSTR-9C. Verify all figures. Once filed, GSTR-9C cannot be revised.
Step 8: File using EVC or DSC. Download acknowledgement.
Step 9: If additional tax liability is identified during reconciliation: pay via DRC-03 before or at the time of filing. For GST registration (know more) and return filing including annual compliance, we handle the complete lifecycle.
Penalties for Non-Compliance
| Non-Compliance | Penalty / Consequence | Legal Provision |
|---|---|---|
| GSTR-9 filed late | Rs 200/day (Rs 100 CGST + Rs 100 SGST). Maximum: 0.25% of turnover in the state/UT. Auto-calculated from January 2026. | Section 47 CGST Act |
| GSTR-9C not filed | General penalty up to Rs 25,000. Filing GSTR-9 alone is NOT sufficient where GSTR-9C is also required (CBIC Circular 246/03/2025). | Section 125 CGST Act |
| Non-cooperation with departmental audit (Section 65) | Penalty under Section 125. Adverse assessment based on available information. Potential demand under Section 73/74. | Section 65 + Section 125 |
| Non-cooperation with special audit (Section 66) | Same as Section 65 penalties. Additionally, Commissioner may proceed with demand based on audit report. | Section 66 + Section 125 |
| Discrepancies found during any audit | Demand notice under Section 73 (non-fraud: tax + 18% interest) or Section 74 (fraud: tax + 100% penalty + 24% interest). | Section 73/74 CGST Act |
| 3-year filing restriction (GSTR-9/9C) | From July 2025: GSTR-9/9C cannot be filed after 3 years from due date. Permanently unfiled if deadline missed beyond this window. | GSTN Advisory + Rule 61 |
Common Mistakes Businesses Make With GST Audit Compliance
Mistake 1: Believing ‘GST audit was abolished.’ Only the mandatory CA/CMA certification was removed. GSTR-9C (self-certified) is still required for turnover > Rs 5 crore. Departmental and special audits continue for all taxpayers.
Mistake 2: Not filing GSTR-9C because ‘GSTR-9 is enough.’ CBIC Circular 246/03/2025 clarified: filing GSTR-9 alone is NOT sufficient where GSTR-9C is also applicable. Both must be filed.
Mistake 3: Calculating aggregate turnover at GSTIN level instead of PAN level. Aggregate turnover is PAN-based. A business with 3 GSTINs totalling Rs 6 crore must file GSTR-9C for ALL GSTINs - even if each individual GSTIN is below Rs 5 crore.
Mistake 4: Not reconciling books with GST returns before filing GSTR-9C. GSTR-9C specifically asks for reconciliation. Filing without actual reconciliation creates a permanent record of unresolved discrepancies that can trigger departmental scrutiny.
Mistake 5: Ignoring exempt and non-GST turnover in aggregate calculation. Exempt supplies, nil-rated supplies, and non-GST supplies are included in aggregate turnover. A business with Rs 3 crore taxable and Rs 2.5 crore exempt = Rs 5.5 crore aggregate = GSTR-9C required. For our statutory audit 2026 analysis (know more), we cover how statutory audit feeds into GST annual compliance.
How Section 65 Departmental Audit Works in Practice
The departmental audit is the most misunderstood GST audit type. Key points:
(1) Selection: The Commissioner selects taxpayers for audit based on risk parameters: high ITC claims, frequent amendments, return discrepancies, intelligence inputs, or random selection.
(2) Notice: 15 working days advance notice to the taxpayer specifying the period to be audited and documents to be produced.
(3) Conduct: Officers examine records at the taxpayer’s premises or request documents at the GST office. All GSTR-1, GSTR-3B, purchase records, sale records, ITC registers, and e-way bills are reviewed.
(4) Timeline: Must be completed within 3 months from commencement. Extendable by 6 months maximum.
(5) Outcome: Audit report with findings. If discrepancies: show cause notice under Section 73/74. If no discrepancies: audit closes. The taxpayer has the right to be heard before any demand is raised.
(6) Response: Cooperate fully. Provide all requested documents. Explain discrepancies with supporting evidence. Engaging a CA for departmental audit response significantly improves outcomes. For tax planning framework (know more) including audit-readiness as part of annual planning, we handle the complete cycle.
GSTR-9 vs GSTR-9C vs Section 65 vs Section 66: Quick Comparison
| Parameter | GSTR-9 | GSTR-9C | Section 65 Audit | Section 66 Audit |
|---|---|---|---|---|
| What is it? | Annual return | Reconciliation statement | Departmental audit | Special audit |
| Who must comply? | Turnover > Rs 2 Cr | Turnover > Rs 5 Cr | Any taxpayer (Commissioner’s discretion) | Complex cases during proceedings |
| Who prepares? | Taxpayer (or CA assisted) | Taxpayer (self-certified, CA may assist) | GST officers | CA/CMA appointed by Commissioner |
| Due date | 31 December | 31 December (with GSTR-9) | Commissioner initiates. Complete in 3+6 months. | Report in 90+90 days |
| Can be avoided? | No (if above threshold) | No (if above threshold) | No (Commissioner’s power) | No (Commissioner’s power) |
| Penalty for non-compliance | Rs 200/day, max 0.25% turnover | Rs 25,000 general penalty | Rs 25,000 + adverse assessment | Rs 25,000 + adverse assessment |
2026 Context: What’s New for GST Audit
| 2026 Development | Impact | What to Do |
|---|---|---|
| 3-year filing restriction (July 2025) | GSTR-9/9C for FY 2021-22 cannot be filed after 31 December 2025 + 3 years = 31 December 2028 (approximately). Earlier years may already be blocked. | File all pending GSTR-9/9C immediately. Do not delay. |
| GSTR-9 auto late fee (from January 2026) | Late filing of GSTR-9 triggers automatic late fee calculation based on turnover slab. No manual waiver. | File by 31 December. Auto-fee makes late filing immediately expensive. |
| CBIC Circular 246/03/2025 | Clarifies: filing GSTR-9 alone is NOT sufficient where GSTR-9C is required. Both must be filed. Late fee applies separately. | File both GSTR-9 and GSTR-9C if turnover > Rs 5 Cr. |
| Enhanced departmental audit focus | CBIC increasing departmental audits with data analytics. Risk-based selection using GSTR-1 vs GSTR-3B mismatches, ITC anomalies, and e-invoice data. | Maintain audit-ready records. Reconcile monthly. Address discrepancies proactively. |
| ITC matching tightened | ITC claims face tighter scrutiny - only ITC reflected in GSTR-2B can be claimed. GSTR-9C reconciliation of ITC is a key audit trigger. | Reconcile GSTR-2B with purchase register monthly. Address vendor non-compliance early. |
Our Methodology: GST Audit Readiness
Our approach for 25,000+ clients ensures year-round audit readiness:
(1) Monthly GSTR-1 vs GSTR-3B reconciliation: We catch mismatches monthly - not at year-end.
(2) Monthly ITC reconciliation (GSTR-2B vs purchase register): Every claimed ITC is verified against GSTR-2B. Vendor non-compliance flagged immediately.
(3) Quarterly turnover tracking: Aggregate turnover monitored quarterly to confirm GSTR-9/9C applicability. No last-minute surprises.
(4) Pre-GSTR-9 reconciliation (October-November): Books vs GST returns reconciliation started 2 months before the 31 December deadline.
(5) GSTR-9C preparation (November-December): Self-certified reconciliation prepared with CA review. Discrepancies documented. DRC-03 paid if additional tax identified.
(6) Departmental audit response (as needed): All records maintained audit-ready. Professional representation for Section 65/66 audits. For tax planning services (know more) that integrate GST audit readiness with annual compliance, we handle the complete lifecycle.
Key Takeaways
The mandatory CA/CMA-certified GST audit was removed by Finance Act 2021. But GSTR-9C (self-certified reconciliation) is still mandatory for aggregate turnover > Rs 5 crore. GSTR-9 (annual return) is mandatory for > Rs 2 crore.
Departmental audit (Section 65) and special audit (Section 66) apply to ALL taxpayers regardless of turnover. The Commissioner can select any taxpayer for audit. There is no exemption based on size.
Aggregate turnover is calculated at PAN level (not GSTIN level) and includes exempt/nil-rated/non-GST supplies. Multi-GSTIN businesses: if PAN-level aggregate exceeds the threshold, ALL GSTINs must file.
Exempt from GSTR-9/9C: composition taxpayers, ISD, casual, non-resident, OIDAR providers, turnover up to Rs 2 crore (GSTR-9 optional), turnover up to Rs 5 crore (GSTR-9C not required).
Filing GSTR-9 alone is NOT sufficient where GSTR-9C is also required (CBIC Circular 246/03/2025). Both must be filed by 31 December. Late fees are now auto-calculated.
Need Help With GST Audit Compliance?
Whether you need GSTR-9/9C preparation, departmental audit response, or year-round audit readiness - our team handles the complete GST annual compliance lifecycle.
Explore our GST return filing services (know more) and statutory audit (know more) for integrated GST audit compliance across Pune, Mumbai, Delhi, and all-India.
For queries, reach out at +91 945 945 6700 or WhatsApp us directly.
