GST Audit procedure
Gaurav Yadav

Updated on February 9th, 2024

GST structure and filing can sometimes be complex for businesses with multiple branches and each of them having a GST registration. Article briefly speaks on GST audit checklist also why we need the GST audit and GST audit procedure step by step.

A taxpayer files his calculated GST as per the frequency of the  GST return.

But there are many instances when there is a difference between the filed GST and the actual GST. This issue is prominent with the businesses having multiple units or depots with individual online GST registration.

To identify such discrepancies, it becomes essential to have a scrutinising mechanism in place so that the business protects itself against potential threats like ITC leakages, incorrect GST return filing, loss of revenue and in the worst case, GST audit by department.

In this article, we will submit the necessity of an internal audit of your entire business to identify the gaps and rectify them.

GST Audit Procedure (Internal) - Why is it necessary for your business

in-house GST audit

It is a routine process for large enterprises to run routine scrutiny of all their taxation procedures.

However, senior management officials like CFOs, Tax Managers, CAs, and Tax Consultants have to invest a lot of time & effort in scrutinising every return filed by the company's headquarter and the sub-units of the company.

Even if the senior management uses any GST return filing software, there is always a void of a comprehensive report that gives you a detailed summary of all the sub-units and the factors like GST liability, liability paid in cash, liability paid through Input Tax Credit under GST , ITC accumulated, etc.


According to a survey conducted by GSTHero in 2021, about 75% of the businesses of larger size tend to ignore the regulatory compliance of their smaller business units or depots.

Also, 6 out of 10 large companies are prone to the GST Audit by department as they miss out on the small gaps in their GST regulatory compliance.

Hence, it must be a priority for the businesses with multiple units to have a proper In-house audit routine’ in place to mitigate all the future risks and save losses to the revenue of your business.

Five potential threats to your business due to GST non-compliance

GST threats

1. Businesses claiming ineligible ITC

Although GST Input Tax Credit is the concrete base of the GST structure, some businesses may misuse this provision for greater profits.

In the FY 2021-22, about 8,000+ cases of ITC frauds summing up to about Rs. 35, 0000 Crore have been unearthed with higher management individuals like Chartered Accountants, Cost Accountants, etc. have their involvement.

Hence, businesses need to restrict themselves from engaging in such malpractices as claiming ineligible ITC can cost them their GST registration cancellation.

The upper management and decision-makers need a comprehensive report of all the ITC details from all the depots of their business.

This scrutiny of minute details of ITC can help the decision-makers to identify such cases of ineligible ITC claims and reverse the ineligible ITC claimed in the upcoming filing of the GSTR 3B form.

A robust GST Audit Tool like GSTHero Third Eye will generate a report which will be a detailed summary of all the GST returns filed throughout the year.

It will also show red flags to the ambiguous transactions. This will help the decision-makers to act on it readily.

2. Outward GST liabilities paid in cash

When companies have multiple sub-units with individual registrations, the sum of GST Input Tax Credit accumulated by all the units will be very high.

Let’s understand with an example:

A company, Moppo Traders, has three registrations:

Unit name

Outward GST liability

ITC accumulated

Liabilities paid with ITC

Liabilities paid with cash

Unit A





Unit B





Unit C





From the above table, we can infer that the accumulated ITC is not appropriately utilised.

When a business pays off its outward GST liabilities in cash, it digs a hole in the company's revenue.

A tool for GST audit checklist will show the data similar in the table above, only more detailed and minutely fashion.


When we refer to paying GST liabilities in cash, it does not necessarily mean the hard cash way. It simply means that paying your GST liabilities after your Input Tax Credit is exhausted.

3. Pending liabilities attracts high penalty

Whenever a business keeps an outward liability unpaid, it attracts interest as well as fines.

Over time, this interest and fine pile up a considerable amount that could have been saved if the liability had been paid on time.

To learn more on late fees for GSTR 1 filing, visit our detailed blog.

Let us give you an example:

Moppo traders have an outward GST liability of Rs. 90,000 for FY21.

The accounting team has missed out on paying this liability. This unpaid liability is now being charged with an interest in the range of 18% to 24%.

So, if this liability remains unpaid for a long time, the business is losing about 18% interest in the best-case scenario.

This is an unrealised exposure business is sitting upon and goes on piling up if not addressed in time.

When a business shall have a detailed, comprehensive report of all such realised and unrealised exposures that the company is sitting upon, the decision-makers can take better decisions to minimise the exposure and neutralise all the probabilities of fines or interest on unpaid liabilities.

4. Absence of a detailed report restricts decisions of the business

All the problems discussed in the above three sections could have been avoided if they had been identified at the right moment.

Had there been a comprehensive report that runs a diagnostic test on all your GST return filing activities for a year and gives you a detailed summary of where your business is lagging, all these problems would have been nipped in the bud.

Hence, it should be an utmost priority of the businesses to put in place a GST audit tool that allows the decision-makers to get a Bird's Eye view of all the GST returns and GST-related activities to identify the threats the earliest.

GSTHero’s Third Eye is a GST Auditing tool that runs a diagnostics test on your GST related activities and generates an unbiased report that highlights the ups and lows of your GST return filing behaviour.

A business is just a report behind, to be 100% compliant with all the GST laws!

5. Risk of departmental audit

A GST audit by department is the last thing a business wants!

Although not all GST departmental audits end on a negative note, they are seen as a threat to the business's reputation.

The best way to be ready for the GST departmental audit is to have your documents in place and all your actions entirely compliant with the GST laws.

At any point in time, a business should have back-track of at least five years' GST data available with it.

According to the pathway followed by the government, it is evident that the businesses will have to stay compliant with all the GST laws & regulations.

Hence, businesses should brace up and stay compliant with the GST laws by all means so that even if the departmental audit takes place, your business will sail through it successfully.

How can GSTHero Third Eye benefit my business?

GSTHero’s Third Eye checks all the essential points in the GST audit checklist.

GSTHero Third Eye Snapshot:

  • Pinpoints the potential risks that the business is sitting upon.
  • Month-wise and transaction-wise scrutiny of the GST data directly fetched from the GSTN server.
  • It gives you a clean and comprehensive report that gives you a Bird’s Eye View of all the GST return activities in just a single report!
  • The report will be 100% authentic and clean as the data will be fetched from the GSTN server directly. (GSTHero is a Government authorised GSP, and hence, we are 100% compliant with all the GST laws and regulations).

Direct impact of GSTHero Third Eye report on your profits!

  • Save on interests & fines: Identify unpaid liabilities and paying them immediately will save the monetary resource of the business that would have gone into paying penalties and interests had the liability not been paid.
  • Solid financial control: Decision-makers will have a mechanism of internal financial management and a check system to address the gaps in GST returns.
  • Capital Management: When business sub-units do not optimally use the ITC, the entire business setup is losing its working capital. GSTHero's Third Eye report will show the details of the same and help businesses optimise their Input Tax Credit utilisation.
  • Primitive level reporting: The report does not work on a sampling basis. It processes the entire data in few minutes and gives you the complete picture for each and every GST return. Hence this report becomes essential for the minute-level details of the business and its sub-units.

To get a free demo on GSTHero Third Eye, feel free to talk to us via:

Phone: +91 800 7700 800


In a snapshot…

Granular level diagnosis of the multiple units of your business is a mammoth task when done manually.

Hence, businesses are advised to choose a GST auditing tool that allows them to see through their business with a single report that identifies all the risks and exposures and enhances the company's profits.

It is always better to be ready than to see things go haywire when the departmental audit takes place!

Stay updated; stay ahead!

 Until the next time….

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Super-Audit Tool 
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Gaurav Yadav

About the author

Gaurav is an Engineer by training with a deep interest in Economics & Finance. He has been associated with the Fin-Tech industry for quite some time now. He writes for GSTHero for topics including GST Compliance, GST Structure, etc & aims to break down complicated technical jargon into simple terms for the taxpayers.

His expertise includes GST Laws, Corporate Finance & Macro-Economics.

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