GST Tax Audit Limit: GSTR-9, GSTR-9C, and Turnover Thresholds

The GST tax audit limit, in the sense of a mandatory audit by a Chartered Accountant or Cost Accountant, no longer exists. Section 35(5) of the CGST Act, which required businesses above a turnover threshold to get their accounts audited by a CA and file a certified reconciliation, was omitted by the Finance Act, 2021, effective August 1, 2021.¹ In its place, businesses with aggregate turnover above Rs. 5 crore in a financial year file a self-certified reconciliation statement in Form GSTR-9C alongside their annual return.² Separately, tax authorities keep independent power to audit any registered person at any time, with no turnover floor.

How Aggregate Turnover Is Calculated

The thresholds all sit on top of one number, so getting that number right matters. The CGST Act defines aggregate turnover as the combined value of all taxable supplies, exempt supplies, exports, and inter-state supplies made by persons sharing the same Permanent Account Number, calculated on an all-India basis.³ Multiple branches or GST registrations under the same PAN roll into a single figure.

Two exclusions catch people out. Inward supplies on which you pay tax under the reverse charge mechanism do not count toward aggregate turnover, and neither do the tax components themselves (CGST, SGST, UTGST, IGST, and cess).³ Including reverse charge inward supplies inflates the figure and can push a business into a higher compliance bracket unnecessarily.

Rs. 2 Crore: The Annual Return (GSTR-9) Threshold

Section 44 of the CGST Act requires every registered normal taxpayer to file an annual return in Form GSTR-9.⁴ The government has used its notification powers to exempt businesses with aggregate turnover up to Rs. 2 crore. If turnover stays at or below Rs. 2 crore, GSTR-9 is optional.

Composition scheme taxpayers file GSTR-9A instead. Casual taxable persons, non-resident taxable persons, Input Service Distributors, and OIDAR service providers are not required to file GSTR-9.⁵ Government departments whose accounts the Comptroller and Auditor-General audits are also excluded.⁴

The deadline is December 31 of the year following the financial year. For FY 2025-26, GSTR-9 is due by December 31, 2026. The return can only be filed once all GSTR-1 and GSTR-3B returns for the year are in, so a late scramble for a pending monthly return often becomes the real obstacle.

Rs. 5 Crore: The Reconciliation Statement (GSTR-9C) Threshold

Above Rs. 5 crore in aggregate turnover, GSTR-9C is required in addition to GSTR-9.² The reconciliation threshold was raised from Rs. 2 crore to Rs. 5 crore, and many medium-sized businesses that once filed the form no longer need to.

Before August 2021, crossing this threshold triggered a formal GST audit: a Chartered Accountant or Cost Accountant had to examine the books and certify the reconciliation. That obligation went away when Section 35(5) was omitted.¹ The reconciliation is now self-certified by the taxpayer. Engaging a CA voluntarily is still permitted, and many businesses with complex operations still do, but the law does not require it.

GSTR-9C reconciles audited financial statements against the GST returns filed during the year. Every gap between the books and the reported figures needs an explanation you can support with documentation. The statutory deadline matches GSTR-9: December 31 following the financial year. Extensions have been notified in past years, but planning around one is risky.

Departmental Audit Under Section 65: No Turnover Limit

The removal of the CA audit does not mean audits stopped. Under Section 65 of the CGST Act, the Commissioner or any officer authorized by the Commissioner can initiate an audit of any registered person, for any period, at any frequency.⁶ No turnover threshold applies. A small business can be audited just as a large one can.

You get at least 15 working days’ notice before the audit begins. It can be conducted at your place of business or at the tax office, and officers can require access to books of account and other documents and information they need to complete the audit.⁶

The audit must be completed within three months from its commencement. The Commissioner can extend that period by up to six months where needed. Within 30 days of wrapping up, the officer must inform you of the findings, your rights, and the reasons behind those findings. If the audit turns up unpaid tax, short-paid tax, wrongly claimed refunds, or incorrectly availed input tax credit, the officer can initiate recovery proceedings.⁶

Special Audit Under Section 66

A second route to an audit sits inside Section 66. During an ongoing scrutiny, inquiry, or investigation, an officer of at least Assistant Commissioner rank who believes that the value of supplies has not been correctly declared, or that input tax credit claimed is outside normal limits, can direct a special audit with the Commissioner’s approval.⁷

You do not choose the auditor. The Commissioner nominates a Chartered Accountant or Cost Accountant, who has 90 days to submit a report and can get one 90-day extension. The government pays the auditor’s fees.⁷ You get an opportunity to be heard before any findings are used against you in proceedings, and any tax detected as unpaid or short-paid can lead to recovery.

Late Fees for Missing the Deadline

Missing December 31 for the annual return triggers an automatic late fee under Section 47 of the CGST Act. The fee runs at Rs. 100 per day under the CGST Act and another Rs. 100 per day under the SGST or UTGST Act, for a combined Rs. 200 per day.⁸

There is a cap. Under the CGST Act, the late fee cannot exceed 0.25% of your turnover in the relevant state or union territory. With the matching SGST cap, the combined maximum is 0.50% of state-level turnover.⁸ For a business with Rs. 10 crore turnover in a state, the cap works out to Rs. 5 lakh, and Rs. 200 per day gets there faster than it seems.

Section 125 of the CGST Act provides a general penalty of up to Rs. 25,000 for any contravention of the Act or its rules where no separate penalty has been prescribed. The Section 47 late fee is the primary consequence for missed annual return deadlines, but persistent non-compliance or unrelated irregularities surfaced along the way can attract this additional penalty.

How Long to Keep Your Records

Every registered person must retain books of account and related records for at least 72 months (six years) from the due date of the annual return for the year those records pertain to.⁹ For FY 2025-26, where the annual return is due December 31, 2026, records need to be kept until at least December 31, 2032.

If any appeal, revision, or investigation touches those records, the retention period extends to one year after the final disposal of those proceedings, or the standard 72 months, whichever is later.⁹ Because tax disputes tend to run long, the safe practice is to hold GST records while any related proceeding is even possible.

1
Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 35
2
GST Council. GST Annual Returns
3
Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 2 Definitions
4
Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 44 Annual Return
5
Goods and Services Tax. FAQs – About Form GSTR-9
6
Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 65 Audit by Tax Authorities
7
Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 66 Special Audit
8
Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 47 Levy of Late Fee
9
Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 36 Period of Retention of Accounts