GST Audit & Health Check

The mandatory CA-certified GST audit under the erstwhile Section 35(5) of the CGST Act was removed by the Finance Act 2021, effective for FY 2020-21 onwards. Since then, taxpayers with aggregate turnover above ₹5 crore self-certify Form GSTR-9C instead of having it certified by an independent CA. So in that specific statutory sense, mandatory CA-certified GST audit no longer exists. However, the department retains its own audit powers under Sections 65 (General Audit) and 66 (Special Audit) of the CGST Act, which can be exercised at any time regardless of the self-certification change. "GST Audit & Health Check" as we offer it is a voluntary, advisory service — not a statutory filing requirement — designed to give you the same independent verification that the old mandatory audit used to provide.

GSTR-9C is a reconciliation statement you file on the GST portal — a structured comparison of your GST returns against your audited financial statements, self-certified by you (or your authorised signatory). A GST Audit & Health Check is the independent analytical work that should precede an accurate GSTR-9C: verifying every reconciliation item, testing ITC eligibility line by line, checking RCM compliance, and quantifying any exposure — before you sign off on the self-certification. You can technically file GSTR-9C without a prior health check, using only your own team's reconciliation work; the health check exists to independently verify that work is correct.

GSTR-9 (Annual Return) is mandatory for regular taxpayers with aggregate turnover above the CBIC-notified exemption threshold (currently ₹2 crore, subject to annual notification). GSTR-9C (Reconciliation Statement) is additionally required where aggregate turnover exceeds ₹5 crore in the financial year. Composition taxpayers file GSTR-4 instead and are outside GSTR-9/9C. A health check is most valuable — though not limited to — businesses crossing or approaching the ₹5 crore GSTR-9C threshold, since that is precisely where the self-certified reconciliation carries the most analytical complexity and risk.

Section 65 audits are typically risk-based, selected using the department's internal analytics on return data, industry risk profiles, refund claims, high-value ITC positions, or random selection as part of the department's annual audit programme. There is no single public formula for selection. The Commissioner (or an officer authorised by them) can direct an audit of any registered person for any period, with a minimum of 15 working days' advance notice under Section 65(3), and the audit is ordinarily required to be completed within 3 months of commencement, extendable by a further 6 months for reasons recorded in writing.

Section 73 covers demands for tax not paid, short-paid, or ITC wrongly availed/utilised where there is no allegation of fraud, wilful misstatement, or suppression of facts. Section 74 covers the same categories of default but where fraud, wilful misstatement, or suppression is alleged. The penalty exposure differs enormously: under Section 73, paying the tax and interest in full before a show-cause notice is issued, or within 30 days of the notice, generally results in no penalty at all; if payment is not made within that window and the demand proceeds to an order, the penalty is 10% of the tax amount or ₹10,000, whichever is higher. Section 74 penalty, by contrast, can reach 100% of the tax amount in the most severe cases where payment is not made early, alongside potential prosecution exposure in serious cases. Whether a case is pursued under Section 73 or Section 74 has a dramatic impact on the final liability.

Section 73(5) allows a taxpayer to voluntarily pay tax, interest, and (where applicable) a reduced penalty before a show-cause notice is issued, or within 30 days of a notice being issued, using Form DRC-03. Paying voluntarily at this stage, before the department formally raises the demand, generally results in materially lower penalty exposure than waiting for a formal demand and contesting it. Where our health check identifies a genuine, quantifiable underpayment or ineligible ITC claim, we typically recommend voluntary DRC-03 payment as the most cost-effective resolution — subject always to your decision after we present the analysis.

The department's data-matching capability has expanded significantly since e-invoicing and the GSTR-2B auto-population framework matured. GSTR-1 data from your suppliers auto-populates your GSTR-2B, which is then compared against the ITC you actually claim in GSTR-3B — mismatches are visible to the department in real time. E-invoice IRN data, e-way bill data, and income-tax return data (through the AIS/26AS ecosystem) are increasingly cross-referenced. Annual return GSTR-9 and reconciliation statement GSTR-9C are compared against audited financials. In short: the department no longer relies primarily on manual audit selection — data mismatches surface analytically, often triggering an ASMT-10 scrutiny notice before any human auditor is involved.

In order of frequency across our engagements: reverse charge mechanism liability under-paid or mistimed (particularly GTA freight and legal fees); ITC claimed on blocked credit categories under Section 17(5) — commonly motor vehicle expenses, employee-related benefits, and works contract services for immovable property; ITC claimed beyond the Section 16(4) time limit; GSTR-1 and GSTR-3B turnover mismatches from credit note timing or B2C/B2B misclassification; e-invoicing or e-way bill gaps for applicable transactions; and ITC claimed that does not match GSTR-2B due to vendor non-filing or late filing.

Rule 42 governs the reversal of common input tax credit where a business makes both taxable and exempt supplies (or has some non-business use) — the credit attributable to exempt supplies must be reversed using a prescribed formula, reconciled and finally adjusted at year-end. Rule 43 applies a similar principle specifically to capital goods used partly for exempt supplies, spread over a 5-year useful life. Both rules are commonly misapplied or simply not applied by businesses that are not primarily exempt-supply entities but have some incidental exempt income (such as interest income, which is an exempt supply for GST purposes). Our health check specifically tests whether Rule 42/43 reversal applies to your fact pattern and, if so, whether it has been correctly computed.

A single-GSTIN business with moderate transaction volume and reasonably organised records typically takes 3–5 weeks from the point complete data is received to the final report. Multi-GSTIN or multi-state businesses, or engagements with a large volume of RCM/import/export transactions, generally take longer and are scoped individually. Health checks commissioned urgently in response to a live departmental notice are prioritised and can be turned around faster for the specific issue flagged, though a comprehensive review still benefits from the fuller timeline.

PNPC quotes a fixed, agreed fee based on the number of GSTINs, transaction volume, the period under review, and the specific trigger for the engagement (routine annual review versus urgent response to a department notice). The fee is confirmed in writing before work begins. As a general principle, the fee for a proactive health check is consistently lower than the combined cost of professional fees, interest, and penalty exposure that typically follows an unprepared departmental audit — but the precise figure depends entirely on your specific facts.

Yes, and this is in fact the ideal time to commission one. A health check performed with no live issue pending is a genuine preventive exercise — it establishes a clean baseline, catches small errors before they compound across multiple return periods, and creates the documented working file that makes any future departmental interaction shorter and less stressful. Waiting until a notice arrives means the same analytical work happens under time pressure, with the department's timeline instead of yours.

The department issues an intimation in Form ADT-01, giving at least 15 working days' notice. The audit is conducted either at your place of business or at the department's office, and can extend to reviewing books of account, GST returns, invoices, and any other records the officer considers relevant. On conclusion, the officer informs you of the findings, your rights and obligations, and the reasons for the findings via Form ADT-02. If the audit uncovers tax short-paid, ITC wrongly availed, or refund wrongly obtained, the department can initiate action under Section 73 or 74 depending on whether fraud/suppression is alleged.

Yes. For businesses above the notified e-invoicing turnover threshold, we verify that e-invoices carry valid IRNs and QR codes, and that the e-invoice data matches the corresponding GSTR-1 entries — a mismatch here is now flagged automatically by the GST system in many cases. For goods movement, we check e-way bill generation, validity period compliance relative to distance and vehicle type, and completion of Part B (vehicle details), since incomplete e-way bills are a common ground for detention and penalty during transit, independent of any underlying tax issue.

GSTR-2A is a dynamic, continuously updated statement reflecting supplier filings as and when they occur. GSTR-2B is a static, month-specific statement generated on a fixed date each month, showing ITC available for that specific return period based on supplier filings up to the cut-off — and it is the statement the law now anchors ITC eligibility to under Rule 36(4) read with Section 16(2)(aa). Reconciling ITC claims against GSTR-2B (not GSTR-2A) is the correct basis for eligibility, and this is one of the specific checks our health check performs, since businesses that still reconcile against GSTR-2A alone can end up with a materially different, and incorrect, ITC position.

Yes. Under Section 16(4) of the CGST Act, ITC for any invoice or debit note cannot be claimed after the earlier of 30 November following the end of the financial year to which the invoice pertains, or the date of filing the annual return (GSTR-9) for that year, whichever is earlier. ITC claimed beyond this window is time-barred and must be reversed if identified, regardless of whether the underlying purchase was genuinely eligible. Our health check specifically tests the timing of ITC claims against invoice dates to identify any time-barred claims.

In our experience, yes, proportionally. Zero-rated supplies (exports and supplies to SEZ units/developers) involve either payment of IGST followed by a refund claim, or supply under a Letter of Undertaking (LUT) without payment of tax. Both routes generate refund claims or the absence of tax payment on otherwise-taxable-looking transactions, both of which attract closer departmental scrutiny than domestic taxable supplies. Errors we commonly find include LUT validity lapses, incorrect shipping bill-to-GSTR-1 matching, and refund claims filed without adequate supporting documentation (FIRC/BRC, shipping bills, and the export invoice all need to align).

Manufacturing businesses typically carry higher-value ITC on capital goods (triggering Rule 43 reversal analysis), more complex job-work transactions (requiring ITC-04 tracking), inventory-related reconciliation between books and e-way bill-driven goods movement, and often higher RCM exposure on freight (GTA services). Services businesses tend to have simpler goods-movement profiles but more complexity around place-of-supply determination for interstate services, RCM on professional/legal fees, and, for export-of-services businesses, LUT and foreign remittance (FIRC) documentation for zero-rating. PNPC scopes the health check to your sector's specific risk profile rather than applying a single generic checklist.

Interest under Section 50(1) of the CGST Act is payable at 18% per annum on tax paid after the due date, calculated from the date the tax was originally due until the date of actual payment. Where the short-payment relates specifically to ITC wrongly availed and utilised, Section 50(3) prescribes a higher rate of 24% per annum on that specific ineligible ITC amount for the period it was utilised. Interest accrues automatically by operation of law and is payable regardless of whether the underlying error was identified voluntarily or by the department — the only variable a health check affects is how early the exposure is identified and stopped from accruing further.

Yes. Where a demand has already been raised — whether from a Section 61 scrutiny escalation, a Section 65 audit, or a direct show-cause notice — PNPC reviews the order, the underlying facts, and the legal basis for the demand, and advises on whether to pay, seek rectification, or file an appeal before the Appellate Authority under Section 107 of the CGST Act. Appeals must be filed within three months of the order (extendable by a further month for sufficient cause), along with a mandatory pre-deposit — 10% of the disputed tax amount for a first appeal in most cases. We coordinate with litigation counsel where the matter requires representation beyond the CA's scope.

Yes — each GSTIN is a distinct taxable person under GST law, even where multiple GSTINs share the same PAN across different states or business verticals within a state. Our health check is scoped per GSTIN, and specifically reviews inter-branch and inter-state stock or service transfers between distinct GSTINs of the same legal entity, since these constitute a taxable supply under Schedule I of the CGST Act (as "distinct persons") even without separate consideration, and are a category businesses frequently under-report or value incorrectly.

Section 36 of the CGST Act requires every registered person to retain books of account and other records for a minimum of 72 months (6 years) from the due date of filing the annual return for the relevant year — longer if the matter is under appeal, revision, or any other proceeding, in which case records must be retained until one year after the final disposal of that proceeding. This includes invoices, e-way bills, input/output registers, and any records relied upon for ITC claims.

Investors, acquirers, and lenders conducting financial or tax due diligence routinely request GST compliance evidence — reconciliation working papers, ITC eligibility support, and confirmation that no material undisclosed liability exists. A PNPC health check, performed proactively ahead of a transaction, gives you a documented, independently reviewed compliance position to present during diligence, rather than reacting to diligence questions with data assembled under deal-timeline pressure. Undisclosed GST exposure discovered during diligence is a common source of valuation adjustment (price chip) or indemnity negotiation in Indian M&A transactions.

Yes, though the focus shifts. For predominantly B2C businesses, the highest-value checks are usually around correct GST rate application (particularly where a business sells a mix of goods/services attracting different rates), place-of-supply rules for e-commerce or interstate B2C supply, correct HSN/SAC code classification (which affects both rate and e-invoicing requirements), and TCS compliance if selling through an e-commerce operator platform under Section 52. ITC review remains relevant but is typically a smaller part of the engagement for a B2C-heavy business.

Form DRC-03A allows a taxpayer to link a voluntary payment already made through DRC-03 against a specific demand order, so that the payment is properly adjusted against that liability in the department's records rather than sitting unlinked. This became particularly relevant where taxpayers had made voluntary payments before a formal demand crystallised and needed to ensure the payment was correctly reconciled against the eventual order. PNPC ensures any voluntary payment made as part of a health check remediation is properly documented and, where a subsequent order is issued covering the same liability, correctly linked.

Yes — this is a secondary but valuable output of many health checks. Common unclaimed refund scenarios we identify include excess balance in the electronic cash ledger, inverted duty structure refunds (where input tax rate exceeds output tax rate), and unutilised ITC on zero-rated supplies under LUT that has not been claimed as a refund. Refund claims are time-barred two years from the relevant date under Section 54, so identifying an eligible-but-unclaimed refund late can mean losing the entitlement entirely.

Yes. Every PNPC GST Audit & Health Check concludes with a structured written report: an executive summary of overall compliance health, a detailed findings section with each issue rated by materiality (financial exposure) and likelihood of departmental detection, the root cause for each finding, a specific remediation recommendation, and — where applicable — the quantified interest and penalty exposure under each resolution path. The report is designed to be presented to promoters, the finance team, or the Audit Committee directly, and to serve as the working file for any future departmental interaction.

A statutory financial audit under the Companies Act primarily tests whether the GST-related balances (input tax credit receivable, output tax payable, RCM payable) are fairly stated in the financial statements — a balance-sheet and materiality-driven test. A GST health check goes far deeper into the transaction and return-level detail: it tests every return period's reconciliation, RCM transaction-by-transaction, ITC eligibility line by line, and e-invoicing/e-way bill compliance — a depth of GST-specific testing that a general financial statement audit is not designed or scoped to perform.

For companies with an Audit Committee, we recommend the health check scope and, particularly, the final findings report be presented directly to the Committee — GST exposure is a financial risk item that falls squarely within its oversight remit. For closely-held businesses without a formal Audit Committee, we present findings directly to promoters or the CFO. In both cases, involvement at the findings stage (not just the initial scoping stage) ensures remediation decisions — particularly voluntary payment decisions — are made with full visibility at the appropriate level of the organisation.

Yes, and we often recommend it, particularly around the annual accounts finalisation period. Running the GST health check alongside the income-tax audit (Section 44AB, where applicable) and the statutory financial audit means the books-to-return reconciliation work is done once and shared across all three exercises, rather than three separate teams independently requesting the same underlying data at different times of the year.

Yes, where applicable. Section 51 TDS under GST applies to specified categories of deductors — primarily government departments, local authorities, and certain notified persons — deducting tax at 2% on payments to suppliers above the prescribed threshold. Section 52 TCS applies to e-commerce operators collecting tax at a prescribed rate on the net value of taxable supplies made through their platform by other suppliers. Where a business falls into either category as a deductor/collector, or is a supplier subject to TCS by an e-commerce operator, our health check verifies correct deduction/collection, timely deposit, and correct return filing (GSTR-7 or GSTR-8 as applicable) alongside the core reconciliation work.

We do not simply flag a high-value finding and move on. For material discrepancies, we schedule a direct discussion with promoters or the CFO to walk through the specific facts, the legal basis for our conclusion, the realistic range of interest/penalty exposure under different resolution paths (voluntary payment, negotiated response to a future notice, or contest on the merits), and a recommended course of action. Serious findings involving potential fraud allegations or criminal exposure are flagged immediately, not held until the final report, given the time-sensitivity of the available remedies.

PNPC's India GST Audit & Health Check specifically reviews Indian GST compliance under the CGST/SGST/IGST framework. For clients with UAE operations, our Dubai office separately reviews UAE VAT compliance under the UAE VAT framework administered by the Federal Tax Authority — the two are distinct tax systems with different rules, rates, and filing cycles, and are reviewed as separate (though coordinated) engagements. Where cross-border transactions between an Indian and UAE entity are involved — for example, export of services, royalty, or management fee payments — we look at both the Indian GST treatment (typically zero-rated export of services, subject to conditions) and the corresponding UAE VAT treatment together, so the two reviews are not run in isolation from each other.

An in-house team or existing accountant, however competent, reviews the same data they generated in the first place — the review lacks the independence that catches blind spots and habitual errors the team has stopped noticing. PNPC brings a dedicated, independent GST specialist's perspective built from reviewing GST compliance across many businesses and sectors, current with the department's actual audit and scrutiny patterns, and structured specifically to replicate what a departmental audit would test. We are also positioned to represent you if the health check leads to, or coincides with, actual departmental engagement — continuity that an internal review alone cannot provide.