Prepare a separate, traceable audit file for every GSTIN in scope, then connect those files to shared ledgers and group accounts with a clear crosswalk. India’s CGST Act treats registrations in different states as distinct persons, so a PAN-level summary alone may not explain each registration’s returns, tax positions, or transactions with other registrations.
This guide covers a tax-authority audit under Section 65 of the Central Goods and Services Tax Act (CGST Act), not a special audit under Section 66 or another form of assessment or return scrutiny. The governing Act and rules can be amended; confirm the provisions and rules applicable to the tax period being audited.
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Start with the audit notice and confirm what is in scope
Use the notice to establish the period, GSTIN or GSTINs being audited, records requested, responsible officer, and requested format. A Section 65 audit notice is issued in Form GST ADT-01. The CGST Act requires notice at least 15 working days before the audit. Section 65 of the CGST Act, as published by CBIC and the CGST Rules describe the process.
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The audit may take place at your business premises or at the officer’s office. Under the Rules, the audit period is a financial year or multiples of a financial year. Keep the notice and every follow-up request at the front of the file; they define the practical boundaries for your response.
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Organize the evidence by GSTIN, then link shared records
Section 25 treats each registration obtained or required in one or more states or union territories as a distinct person under the Act. Build one audit index and reconciliation pack for each GSTIN in scope. Keep a group-level crosswalk to shared ledgers and consolidated financial statements, but do not rely on a consolidated summary in place of registration-specific evidence. See Section 25 of the CGST Act.
For supplies between registrations sharing a PAN, make the relationship easy to follow. For each transaction, identify the supplier GSTIN, recipient GSTIN, invoice or other supporting document, return treatment, and accounting entry. This lets an auditor trace the transaction on both sides rather than infer its treatment from group totals.
Reconcile the areas the audit rules identify
The Rules identify key areas an audit may examine. Treat the list below as a preparation framework, not a universal statutory checklist: the records needed depend on your activity, transactions, tax period, and notice. For every explanation, identify the GSTIN and period and retain the underlying calculation and source documents. The review areas are set out in the CGST Rules.
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Reconcile the financial books to GST returns, by registration and tax period. List reconciling items and show how each was treated rather than leaving the auditor to infer why book and return totals differ.
Exemptions and deductions
Retain the calculation, the legal basis for the treatment, and transaction-level evidence supporting the amount claimed.
Tax rates
Connect the rate used to the supply description and invoice, with relevant classification information or supporting analysis for the position taken.
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Reconcile credit availed and utilized with invoices, ledgers, return data, and any reversals or adjustments. Keep the workings specific to the GSTIN and period under review.
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For a refund, retain the claim, supporting calculations, and source records. Address any other item raised in the notice or audit observations with indexed evidence, not an unsupported assertion.
Give special attention to shared services and cross-state credit
Central procurement of a third-party service used by multiple state registrations needs a clear, fact-based credit trail. CBIC’s sectoral FAQ asks: “Would Input Tax Credit (ITC) be available to a GST registrant though the services procured from third party vendor are also directly used by various ‘distinct persons’?” The FAQ says credit for services used across states should be appropriately invoiced or distributed through the ISD mechanism to the distinct persons that actually used the services. Check the law and facts for the service and tax period before concluding that a particular allocation or mechanism is correct. See the CBIC sectoral FAQ.
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In your file, connect the vendor document and accounting entry to the service’s use, the registrations that used it, and the invoicing or distribution treatment applied. Where the use or allocation is disputed or materially interpretive, have the position reviewed by a GST professional familiar with the relevant period and registrations.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Make electronic records readable and traceable
The Rules contemplate producing electronic records on demand in hard copy or in an electronically readable form. They also contemplate an account of the audit trail and inter-linkages, including source documents, financial accounts, record layout, data dictionary, and explanations for codes. Review the relevant CGST Rules and prepare exports that can be read and explained.
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Track the audit timetable and record retention
The CGST Act sets a three-month period to complete a Section 65 audit, with the Commissioner able to extend it by up to a further six months for recorded reasons. The clock starts on the later of the day you make the called-for records and documents available or the day the audit is actually instituted at your place of business. Within 30 days after conclusion, the proper officer must inform you of the findings, your rights and obligations, and the reasons for the findings. The Rules provide for Form GST ADT-02 to communicate findings. These periods are set out in Section 65 of the CGST Act and the CGST Rules.
The Act states a 72-month retention period measured from the due date for furnishing the annual return for the year to which records pertain. It also provides for a longer period in specified appeal, revision, proceeding, or investigation circumstances. Calculate the date against the relevant annual-return due date and check for proceedings before disposing of records. See the CGST Act.
Answer audit observations with indexed evidence
An officer may raise discrepancies as audit observations. You may reply, and the officer is to consider the reply before finalizing the findings. An audit can lead to further action if it detects unpaid or short-paid tax, erroneous refunds, or wrongly availed or used input tax credit. Section 65 of the CGST Act and the CGST Rules set out these aspects of the process.
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