Prepare a separate, indexed evidence file for each GST registration (GSTIN) covered by a tax-authority audit under Section 65 of India’s CGST Act. Reconcile each registration’s returns and tax ledgers to its books and source documents, document transactions and shared services between state registrations, and keep a group-level crosswalk for consolidated accounts. A PAN-level summary alone may not explain the records of each registration, which the Act treats as a distinct person.
First, confirm what kind of audit you have received
This guide concerns an audit by tax authorities under Section 65 of the Central Goods and Services Tax Act (CGST Act). It is different from a special audit under Section 66 and from assessment or return-scrutiny processes. Check the notice for the provision invoked and the tax period; the applicable law and rules can depend on the period under audit.
For a Section 65 audit, the Commissioner or an authorized officer may conduct the audit at your place of business or at the officer’s office. The Act provides for notice at least 15 working days before the audit, and the Rules prescribe Form GST ADT-01. Section 65(3) states: “The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed.” See the CGST Act published by CBIC and the CGST Rules published by CBIC; verify amendments and rules applicable to your audit period.
Read the notice as a scope document
Record the period, every GSTIN named, the officer and contact details, the records requested, the proposed place and timing, and any requested file format. Assign an owner for each GSTIN and keep a dated log of records supplied and follow-up requests. If the notice’s scope or a requested item is unclear, seek clarification promptly rather than silently excluding it.
Know the statutory timing
Under the Act and Rules cited above, an audit period is a financial year or multiples of a financial year. The Act sets a three-month completion period from commencement, with the Commissioner able to extend it by up to a further six months for reasons recorded in writing. Commencement is the later of the day the taxpayer makes the called-for records and documents available or the day the audit is actually instituted at the place of business. Within 30 days after conclusion, the proper officer must inform the registered person of findings, rights and obligations, and reasons; the Rules provide for Form GST ADT-02 to communicate findings. These are statutory periods, not estimates of how long an individual audit will take.
Build the audit pack separately for each GSTIN
Section 25 treats each registration obtained or required in a state or union territory as a distinct person for GST purposes. Use one index and reconciliation pack for every GSTIN in scope, then add a group-level crosswalk that connects shared ledgers and consolidated financial statements to the relevant registrations. This structure makes it easier to answer registration-specific questions without losing the group context.
Suggested index for each registration
- Audit notice, scope confirmation, correspondence, and record-submission log.
- Period-wise return and tax-ledger reconciliations, with explanations for reconciling items.
- Working papers and transaction-level support for turnover, exemptions, deductions, and tax rates.
- Input tax credit workings, including invoices, ledger entries, return data, reversals, and adjustments.
- Refund claims and supporting calculations, where relevant.
- Inter-registration transaction schedule, including supplier and recipient GSTINs, supporting documents, return treatment, and accounting entries.
- Source records and electronic-system information needed to trace the figures in the reconciliations.
Keep a master index with document names, periods, GSTIN, issue addressed, and file location. Use consistent naming and version control so that the team can identify exactly which records were provided and which working papers support a response.
Reconcile the audit’s main review areas
The Rules identify review areas including turnover, exemptions and deductions, tax rates, input tax credit, refunds, and other matters. The following is a preparation framework, not a universal checklist for every taxpayer; tailor it to the notice, business activity, transactions, and tax period.
Turnover
For each GSTIN and tax period, reconcile financial-book turnover to GST returns. Explain each material difference, such as timing, classification, or another accounting-to-return adjustment, and link the explanation to the relevant entries and source documents. Make it possible to trace a return figure back through the reconciliation to the ledger and transaction support.
Exemptions and deductions
Retain the calculation and the legal basis for each amount claimed, along with transaction-level evidence supporting the treatment. Identify the transactions included in the working so the officer can test the position rather than relying on a summary total alone.
Tax rates
Connect the rate applied to the supply description, invoice, and the classification or other analysis supporting that rate. Where a position depends on a particular product or service description, preserve the records that establish what was actually supplied.
Input tax credit and refunds
For credit, reconcile the amount availed and utilized to invoices, ledgers, return data, reversals, and adjustments. For refunds, keep the claim, supporting calculations, and underlying records together. In both cases, use a schedule that shows how the filed amount was derived rather than submitting only a ledger extract.
Document transactions between state registrations
For supplies between registrations sharing a PAN, make the direction of each transaction clear. Your schedule should identify the supplier GSTIN, recipient GSTIN, invoice or other supporting document, return treatment, and accounting entry. Match the two registrations’ records where the transaction has a corresponding entry on each side, and explain any timing or reporting difference.
Review shared input services carefully
Central procurement can create a distinct-person issue when a third-party service is used by more than one state registration. 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. See the CBIC sectoral FAQ.
For each shared service, preserve the vendor invoice, identify the registrations that used it and the basis for that conclusion, and retain the relevant invoicing or distribution records. Confirm the mechanism and treatment against the law and facts for the service and period; the FAQ does not decide every transaction-specific allocation.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Make books and electronic records traceable
Keep source documents supporting the books, returns, and tax positions. The rules contemplate producing electronic records on demand in hard copy or electronically readable form. They also contemplate an account of audit trails and inter-linkages, including source documents, financial accounts, record layout, data dictionary, and explanations for codes. The CGST Act and CGST Rules set out the relevant framework.
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Before the audit, test a sample amount from each GSTIN: trace it from the return to the ledger and then to its source document. Check that electronic exports open in a readable format and that staff can explain the fields, codes, and links between records. Preserve the underlying data and an explanation of how it was extracted, rather than relying only on screenshots or reports that cannot be reproduced.
Check retention dates before disposing of records
The Act states a retention period of 72 months from the due date for furnishing the annual return for the year to which the records pertain. It also provides for longer retention in specified appeal, revision, proceeding, or investigation circumstances. Calculate the relevant date from the annual-return due date and check for such proceedings before destroying records; confirm the applicable provisions for the relevant period in the CGST Act published by CBIC.
Prepare evidence-based replies to audit observations
An officer may raise discrepancies as audit observations. The taxpayer may reply, and the officer is to consider the reply before finalizing findings. For each observation, create a response entry that preserves the exact issue and links the answer to the affected GSTIN, period, and supporting evidence.
- Restate the observation accurately. Keep the officer’s wording or reference and identify the registration and tax period involved.
- Set out the facts and position. Explain the transaction or reconciliation and the factual and legal basis for the treatment.
- Attach numbered support. Refer to the specific reconciliation, invoice, ledger entry, return, or other source record in the GSTIN’s indexed pack.
- Address any correction consistently. If an error is identified, align the books, returns, and registration-level workings, and document any payment or other remediation together with its basis.
- Keep the response trail. Retain the submitted reply, attachments, acknowledgments, and subsequent correspondence.
For a material interpretive question or cross-state credit issue, have a GST professional familiar with the registrations and tax period review the position before it is submitted.
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At the end of the audit, the proper officer must communicate findings, rights and obligations, and reasons within the statutory 30-day period; the Rules prescribe Form GST ADT-02. If the audit detects unpaid or short-paid tax, an erroneous refund, or input tax credit wrongly availed or utilized, further action may follow under the Act. Keep the final communication with the audit file and track any response or action required by the findings.
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