With GST audits becoming increasingly data-driven and automated, businesses must stay vigilant about key compliance areas that often trigger red flags. Experts warn that minor oversights or procedural lapses can result in audits, denial of Input Tax Credit (ITC), and demands for tax recovery. Here are the top GST audit triggers that businesses should avoid to stay compliant and audit-ready.
1. Delay or Failure to Declare Additional Business Locations
One of the most frequent GST audit triggers is the non-declaration or delayed reporting of additional places of business. Businesses operating from multiple premises must ensure all locations are properly registered under GST. Tax authorities often dispute ITC claims if such locations are not declared, citing jurisdiction and compliance gaps.
2. Non-Compliance with GST Notification No. 40/2017-CT(R)
This notification permits a concessional GST rate of 0.05% for supplies to merchant exporters, but the compliance requirements are stringent. Missing documentation, such as proof of export or failure to follow prescribed procedures, invites immediate scrutiny.
3. Failure to Generate Self-Invoice under Reverse Charge Mechanism (RCM)
Under RCM, the recipient is liable to pay GST and must generate a self-invoice. Many businesses mistakenly pay the tax through GSTR-3B and skip the self-invoice, resulting in denial of ITC and demand notices. Tax officers often insist on payment via DRC-03 for compliance correction, which does not allow ITC adjustment.
4. Errors or Non-Generation of E-Way Bills
E-Way bills are mandatory for the movement of goods above specified value thresholds. Discrepancies such as non-generation or incorrect details (e.g., vehicle numbers, delivery addresses) can break the compliance chain and raise suspicions of tax evasion.
5. Late Filing of LUT for Export Without Tax Payment
A Letter of Undertaking (LUT) is necessary for exporters wishing to export goods without upfront payment of IGST. Delayed or missing LUT filings—even when exports are genuine—draw audit attention and disrupt the compliance timeline.
6. Mismatch Between ITC Claimed and GSTR-2B
Input Tax Credit must match the supplier-uploaded details in GSTR-2B. Even timing mismatches—where suppliers delay filing their returns—can create visible discrepancies in the portal, automatically triggering audit flags.
7. Delay in Return Filing Despite Timely Tax Payment
Timely tax payment alone isn’t enough. Delayed return filing violates procedural rules and hinders cross-verification, making businesses susceptible to audit selection algorithms.
8. Unreflected ITC Reversals in GSTR-3B
ITC reversals due to partial exemptions or ineligible credits must be accurately recorded in GSTR-3B. Even if reversals are internally done, failing to reflect them correctly in returns can lead to inconsistencies that trigger audits.
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