Section 35 CGST Act — Accounts and Records, GST Books & Records Rules

1. Why Section 35 matters

Searches such as “Section 35 CGST Act”, “GST books of accounts”, “GST records to maintain”, “Rule 56 GST”, “electronic records under GST”, “GST stock register”, “GST audit trail”, “warehouse records under GST” and “transporter records GST” all lead to one core compliance requirement: maintaining a reliable evidence trail for every important GST transaction.

Section 35 is the foundation of the GST accounts-and-records framework. It requires registered persons to maintain true and correct accounts covering production or manufacture, inward and outward supplies, stock, input tax credit and output tax. It also imposes specific record obligations on warehouse/godown operators and transporters.

Section 35 must therefore be read together with Rules 56, 57 and 58 and with Section 36, which governs retention of accounts and records.

2. What Section 35 covers

The current CBIC tax-information database confirms that Section 35(5) was omitted by the Finance Act, 2021 with effect from 1 August 2021. It also records the current Section 35 framework. citeturn1search0

3. Complete statutory structure

Section 35(1) requires every registered person to keep and maintain, at the principal place of business mentioned in the registration certificate, a true and correct account of:

1. production or manufacture of goods;
2. inward and outward supply of goods or services or both;
3. stock of goods;
4. input tax credit availed;
5. output tax payable and paid; and
6. such other particulars as may be prescribed.

The section also provides that where more than one place of business is specified in the registration certificate, the accounts relating to each place of business are to be kept at those places, and electronic maintenance is permitted in the prescribed manner. citeturn1search0

4. Section 35(1) — records of every registered person

The phrase “true and correct account” is important. Section 35 is not satisfied merely because a company maintains a financial ledger.

The GST records should allow the business and the tax authority to trace:

• what was purchased;
• what was sold or supplied;
• what was manufactured;
• what stock was received and issued;
• what ITC was claimed;
• what output tax became payable;
• what output tax was actually paid; and
• how the underlying documents support those figures.

For a large business, the GST record system will normally involve ERP ledgers, purchase and sales registers, inventory modules, tax masters, invoice repositories, e-invoice data, e-way bill records, contracts and reconciliation schedules.

5. Principal and additional places of business

Section 35(1) starts from the principal place of business shown in the GST registration. Where multiple places of business are specified, the accounts relating to each place must be maintained at those places.

This is particularly important for companies operating through:

• head office;
• project offices;
• factories;
• construction sites;
• warehouses;
• branch offices; and
• additional places of business registered under the same State/UT GST registration.

6. The six core record categories

7. “Such other particulars as may be prescribed”

Section 35(1)(f) is deliberately broad. The detailed requirements are largely supplied through the CGST Rules.

Rule 56 expands the records framework substantially. The original GST Council drafting material contemplated separate records for stock, advances, tax payable/paid, ITC, invoices, suppliers/customers, storage locations, manufacturing, services and works contracts. citeturn0search0

Therefore, a Section 35 compliance review should never stop at the six words in the Act. The Rules must be reviewed for the taxpayer's business model.

8. Rule 56 — detailed GST records

Rule 56 is the principal operational rule for records maintained by registered persons.

Depending on the nature of the business, records can include:

• goods/services imported or exported;
• supplies attracting reverse charge;
• invoices, bills of supply and delivery challans;
• credit notes and debit notes;
• receipt vouchers and payment vouchers;
• refund vouchers;
• e-way bills;
• stock records;
• advances received, paid and adjusted;
• tax payable, tax collected and tax paid;
• ITC claimed;
• tax invoice registers;
• supplier and customer details;
• storage locations;
• manufacturing records;
• service-related records; and
• works-contract records.

The exact Rule 56 requirement should be matched to the taxpayer's business activities rather than applying one generic checklist to every entity.

9. Stock and quantitative records

Stock records are especially important for manufacturers, traders, contractors holding materials and businesses with significant inventory.

A useful stock record should allow reconciliation between:

For a construction company, “stock” may include project materials lying at sites, warehouses and other declared/controlled locations. The accounting team should be able to reconcile material procurement with site consumption, transfer and closing quantities.

10. Tax, ITC and invoice registers

Section 35 expressly requires accounts of ITC availed and output tax payable and paid.

For a business using an ERP, these records should be traceable back to the source transaction rather than existing only as a final spreadsheet prepared at return-filing time.

11. Advances and adjustment records

Rule 56 includes records of advances received, paid and adjustments made to them.

This becomes particularly important where the business receives mobilisation advances, customer advances, retention-related adjustments or other amounts before the final supply/invoice.

Construction example

A contractor receives a mobilisation advance of ₹1 crore. The finance system should track the receipt, GST treatment where applicable, receipt voucher, tax payment, subsequent adjustment against RA bills and remaining unadjusted balance.

12. Separate records for different activities

Businesses conducting manufacturing, trading and services should maintain records capable of separately identifying the relevant activities.

This helps with:

• stock control;
• tax-rate classification;
• ITC attribution;
• costing;
• output-tax reconciliation; and
• audit evidence.

A single consolidated ledger that cannot explain the underlying activity can create unnecessary difficulty during GST scrutiny.

13. Works contract records

Rule 56 specifically requires a registered person executing works contracts to maintain records for each works contract.

For each project, the records should cover, as applicable:

• name and address of the person for whom the contract is executed;
• description, value and quantity of goods/services received for execution;
• description, value and quantity of goods/services used in execution;
• payments received for the works contract; and
• names and addresses of suppliers from whom goods/services were received.

The GST Council's original detailed accounts-and-records design specifically contemplated separate works-contract records. citeturn0search0

Why this matters for infrastructure companies

A project-wise record system should reconcile purchase orders, GRNs, material consumption, subcontract invoices, RA bills, mobilisation advances, retention, client receipts, output GST and project-level ITC.

14. Agent and storage records

Where goods are held, supplied or handled through agents or third-party locations, the GST records should identify ownership, movement and responsibility clearly.

Rule 56 also addresses supplier/customer details and storage premises. Rule 58 separately deals with warehouse/godown operators and transporters.

15. Electronic accounts and records

Section 35 expressly permits a registered person to maintain accounts and other particulars in electronic form in the prescribed manner.

Modern GST compliance therefore commonly operates through ERP systems, accounting software, document-management systems, e-invoice systems, cloud storage and structured spreadsheets.

Electronic maintenance does not mean reduced compliance. The system should preserve:

• accuracy;
• accessibility;
• traceability;
• backup;
• authentication;
• source-document linkage; and
• audit trail where required.

16. Rule 57 — electronic backup and access

Rule 57 requires proper electronic backup so that records can be restored within a reasonable period if they are destroyed through accident or natural causes.

Where electronic records are maintained, the registered person must be able to produce relevant records in hard copy or electronically in the required form. The rule also requires the person, when demanded, to provide relevant file details, passwords where necessary for access, explanations of codes used and a sample print copy of stored information.

These requirements are reflected in the GST Rules published by the GST Council and CBIC. citeturn0search17turn0search18

17. Audit trail and data access

For an electronic accounting environment, the practical objective is that an auditor or tax officer should be able to trace an amount from the final GST return back to the source document.

The GST Council's drafting discussions specifically considered electronic audit-trail/interlinkage requirements and ultimately retained requirements for access to electronic files, passwords where necessary and explanations of codes. citeturn0search4

18. Section 35(2) — warehouse and godown records

Section 35(2) applies to every owner or operator of a warehouse or godown or other place used for storage of goods and to every transporter, irrespective of whether the person is registered under GST.

The required records concern:

• consignor;
• consignee; and
• other relevant details of the goods.

This is an important distinction from Section 35(1), which specifically applies to registered persons.

19. Transporter records

Transporters have independent GST record obligations. These requirements support the movement trail created by invoices, delivery challans and e-way bills.

A transporter should be able to identify:

• who handed over the goods;
• who is receiving them;
• what goods were transported;
• where the goods were delivered or stored in transit; and
• the relevant GSTIN information where prescribed.

This is particularly important when the transporter's physical movement records do not match the supplier's sales records or the recipient's goods-receipt records.

20. Rule 58 — warehouse and transporter requirements

Rule 58 contains the operational framework for persons required to maintain records under Section 35(2).

Among other requirements, the rule provides for electronic enrolment in FORM GST ENR-01 for persons required to maintain such records who are not already registered, subject to the prescribed process.

For transporters, Rule 58 includes records of goods transported, delivered and goods stored in transit, along with GSTIN details of registered consignors and consignees for branches as prescribed. Warehouse/godown operators must maintain records for the period goods remain stored, including dispatch, movement, receipt and disposal, and must store goods so they can be identified item-wise and owner-wise. citeturn0search17

21. Section 35(3) — additional accounts and documents

Section 35(3) allows the Commissioner to notify a class of taxable persons to maintain additional accounts or documents for specified purposes.

This is an enabling provision. It recognises that some industries require more detailed records than the generic Section 35(1) list.

A taxpayer should therefore check whether sector-specific notifications or prescribed records apply to its business.

22. Section 35(4) — simplified or alternative record-keeping

Section 35(4) gives the Commissioner power, for reasons recorded in writing, to permit a class of taxable persons that is not in a position to keep and maintain accounts under the normal provision to maintain accounts in the prescribed manner.

This is not a general individual waiver from GST record requirements. It is a statutory power subject to the prescribed framework and should not be assumed to exist merely because a business finds the normal record system difficult.

The GST Council's 25th meeting considered simplifying accounts and records for specified classes of smaller taxpayers, reflecting the policy background for this type of enabling provision. citeturn0search1

23. Section 35(5) — mandatory GST audit was omitted

This is one of the most important historical points when researching Section 35.

Originally, Section 35(5) required a registered person above the prescribed turnover threshold to get the accounts audited by a chartered accountant or cost accountant and submit the audited annual accounts and reconciliation statement.

That statutory provision was omitted by the Finance Act, 2021 with effect from 1 August 2021 through Notification No. 29/2021-Central Tax dated 30 July 2021. citeturn1search0

This does not mean that businesses no longer need proper books, tax reconciliations or financial-statement audits under other applicable laws. It means the former mandatory GST audit requirement under Section 35(5) is no longer operative.

24. Section 35(6) — unaccounted goods or services

Section 35(6) deals with a serious record-keeping failure.

Where a registered person fails to account for goods or services in accordance with Section 35(1), the proper officer can determine the amount of tax payable on the goods or services not accounted for as if those goods or services had been supplied by the registered person.

The provision therefore creates a direct revenue consequence for inadequate accounting of goods or services.

Example

A trader's books show 10,000 units purchased and 7,000 units sold, but the stock records cannot explain the missing 3,000 units. If the business cannot satisfactorily account for the difference, the proper officer may apply Section 35(6) to determine tax on the unaccounted quantity according to the applicable statutory framework.

25. Section 35(6) and Section 74A — 2024 amendment

Finance (No. 2) Act, 2024 amended Section 35(6) by adding a reference to Section 74A after Sections 73 and 74.

The amendment was brought into force from 1 November 2024 through Notification No. 17/2024-Central Tax dated 27 September 2024. citeturn3search1turn3search2

The practical significance is that the statutory tax-determination cross-reference in Section 35(6) now accommodates the newer Section 74A framework for the periods to which Section 74A applies.

26. Section 35 vs special audit under Section 66

These provisions should not be confused.

Under Section 66, an officer not below the rank of Assistant Commissioner, with prior Commissioner approval, may direct a registered person to get records examined and audited by a CA/CMA nominated by the Commissioner where the statutory conditions concerning complexity/value/credit and revenue interest are satisfied. citeturn1search17

27. Section 35 and record retention

Section 35 tells the taxpayer what records must be maintained. Section 36 determines how long those records must be retained.

The current Section 36 framework requires records to be retained for 72 months from the due date of furnishing the annual return for the relevant year, subject to the special extension rule where the taxpayer is involved in an appeal, revision, other proceedings or investigation concerning the records. citeturn1search4

This distinction is important:

28. Construction and infrastructure examples

For construction, mining, roads, irrigation and infrastructure businesses, Section 35 is particularly important because project accounting often involves multiple physical locations and large volumes of material and subcontractor records.

29. Detailed practical examples

Example 1 — manufacturer

A manufacturer maintains purchase invoices but cannot reconcile raw-material consumption with finished goods. Section 35 and Rule 56 require a broader production/stock record trail.

Example 2 — trader

A trader's sales register shows 1,000 units sold while the stock register shows only 800 units available. The 200-unit difference must be supported by returns, transfers, wastage, samples, job work or another legitimate explanation.

Example 3 — construction company

A contractor maintains accounting records centrally but materials are physically held at five project sites. Site-wise stock and movement records should remain accessible and reconcilable with the central books.

Example 4 — warehouse operator

A third-party warehouse stores goods belonging to several registered suppliers. The operator has independent Section 35(2)/Rule 58 responsibilities even if it is not itself registered for the underlying supplies.

Example 5 — transporter

A transporter carries goods for multiple GST-registered customers. Transport records should identify consignor, consignee and required goods movement details.

Example 6 — electronic accounting

A company keeps all GST records in an ERP. A proper backup and recovery process must exist, and the company must be able to produce records in an accessible format when demanded.

Example 7 — ERP deletion

An employee deletes a sales entry and recreates it with a different value. A robust audit trail should identify the original entry and the modification. Electronic systems should not be treated as compliant merely because they produce a final report.

Example 8 — unaccounted stock

A physical verification finds goods not recorded in the books. The company should immediately investigate purchase timing, stock transfers, unposted GRNs, returns, job work and other explanations before concluding that the goods are unaccounted.

Example 9 — old GST audit requirement

A finance team believes that Section 35(5) still requires a CA/CMA GST audit merely because turnover exceeds the historical threshold. That conclusion is outdated because Section 35(5) was omitted from 1 August 2021.

Example 10 — Section 74A

A post-1 November 2024 proceeding involves unaccounted goods under Section 35(6). The amended provision now includes an express reference to Section 74A, subject to the period and statutory conditions applicable to the case.

30. Legislative development

The omission of Section 35(5) is specifically recorded by the current CBIC statutory database. citeturn1search0 The 2024 Section 35(6) amendment was brought into force from 1 November 2024. citeturn3search1turn3search2

31. GST Council background

16th GST Council — detailed accounts and records architecture

The 16th GST Council detailed agenda contains the original detailed framework for manufacturing, trading, services, stock, advances, tax payable/paid, ITC, invoices, supplier/customer records, storage locations, works contracts and electronic records. citeturn0search0

17th GST Council — electronic record access

The 17th Council material records discussion around retaining electronic audit-trail/interlinkage requirements while refining the wording to require access to electronic files, passwords where necessary and explanations of codes. citeturn0search4

25th GST Council — simplification of accounts

The 25th Council considered simplifying accounts and records for specified classes of smaller taxpayers and suppliers, reflecting the policy basis for the Commissioner's enabling power under Section 35(4). citeturn0search1

39th GST Council — GST audit reform

The 39th Council agenda proposed omission of Section 35(5), along with changes to the annual-return/reconciliation framework. The Section 35(5) omission was subsequently enacted and brought into force from 1 August 2021. citeturn0search2turn1search0

32. Legal authorities to check

This article intentionally does not embed external reference hyperlinks. For a transaction-date-specific review, check the current text of:

33. Professional GST records workflow

34. Internal controls for Section 35 compliance

35. Common mistakes

• Maintaining only financial accounts and ignoring GST-specific records.
• Assuming GSTR-1 and GSTR-3B themselves replace books and records.
• Not maintaining project/site-wise stock records in infrastructure businesses.
• Failing to record advances and subsequent adjustments.
• Not maintaining works-contract records separately for major projects.
• Allowing employees to delete or overwrite electronic transactions without an audit trail.
• Keeping electronic records without tested backups.
• Being unable to produce system data in an accessible format when demanded.
• Assuming the old Section 35(5) CA/CMA GST audit is still mandatory.
• Confusing Section 35 record maintenance with Section 65 departmental audit or Section 66 special audit.
• Failing to investigate stock differences promptly.
• Destroying records after the normal retention period even though proceedings remain pending.

36. Section 35 GST FAQs

What is Section 35 of the CGST Act?

Section 35 deals with accounts and other records that must be maintained by registered persons and with specified records required from warehouse/godown operators and transporters.

What books of accounts are required under Section 35?

Section 35 requires records of production/manufacture, inward and outward supplies, stock, ITC availed, output tax payable and paid, and other particulars prescribed by the Rules.

What is Rule 56 of GST?

Rule 56 provides detailed requirements for maintaining accounts and records by registered persons, including stock, advances, tax, ITC, invoices, suppliers/customers, storage, manufacturing, services and works-contract records as applicable.

Can GST books be maintained electronically?

Yes. Section 35 permits electronic maintenance in the prescribed manner, and Rule 57 provides requirements for electronic backup, production and access.

What is Rule 57 of GST?

Rule 57 deals with generation and maintenance of electronic records, including proper backup, production of records and access information.

What is Rule 58 of GST?

Rule 58 deals with records maintained by warehouse/godown operators and transporters under Section 35(2).

Is GST audit under Section 35(5) still mandatory?

No. The former Section 35(5) mandatory turnover-based CA/CMA audit was omitted with effect from 1 August 2021.

Does GST still have special audit?

Yes. Section 66 separately provides for special audit by a CA/CMA nominated by the Commissioner when the statutory conditions are satisfied.

What happens if stock is not accounted for under GST?

Section 35(6) allows the proper officer to determine tax on goods/services not accounted for as if they had been supplied, subject to the statutory framework.

Does Section 35(6) now refer to Section 74A?

Yes. Finance (No. 2) Act, 2024 added Section 74A to the Section 35(6) cross-reference, effective 1 November 2024.

How long should GST records be kept?

Section 36 currently provides a 72-month retention period from the due date of the relevant annual return, subject to a longer period where the records relate to pending proceedings or investigation as specified in the proviso.

Do warehouse operators need GST registration to maintain records?

Section 35(2) applies to warehouse/godown operators and transporters irrespective of whether they are registered. Rule 58 provides the related enrolment and record framework.

Do construction companies need project-wise GST records?

Where the business executes works contracts, Rule 56 requires specified records for each works contract. Project-wise records are therefore an important part of GST compliance.

37. Related provisions