Tax and audit deadlines in India in 2023
Statutory audit
A statutory audit is a legally mandated form of audit, required by specific statutes or laws, to ensure that the true and fair view of the book of accounts of a business is presented to the regulatory standards. In contrast to internal audits, statutory audits are obligatory and become necessary when a business satisfies certain predefined criteria. These audits are conducted by certified chartered accountants who maintain independence from the business being audited. Additionally, the audit report, compiled by the auditors based on their findings should be presented in the format specified by the regulatory body.
Scope of statutory audit
The scope of the statutory audit outlines the specific tasks and responsibilities that a statutory auditor must undertake when conducting an audit. Here are the various measures and responsibilities typically associated with a statutory audit:
- Identify and examine all the overall aspects that need to be audited of an enterprise pertaining to the financial statements. The auditor needs to ascertain the correctness, sufficiency, and reliability of the information and source data. For this purpose, the auditor should evaluate accounting systems and internal controls.
- Auditors should determine that disclosure of overall relevant information in the financial statements has been made in accordance with statute and accounting standards.
- A detailed study and analysis of internal control and accounting systems.
- Verification of accounting transactions and balances through necessary tests on check basis, inquiries, and verification.
- Financial statements are compared to the summary of transactions and events recorded in the underlying accounts.
- Assessing the consistency of accounting policies that are applied while the financial statements are prepared by the management and the disclosure to the effect should be adequate.
However, a statutory auditor cannot be held accountable for tasks beyond the audit's designated scope. Additionally, if limitations within the audit's scope affect their ability to provide an unqualified opinion, they should indicate this by issuing a qualified or disclaimer opinion in their report.
A statutory audit involves examining financial and operational documents, including bank accounts, financial statements, transactions, bookkeeping records, ledgers, invoices, purchase orders, bills, challans, and more. These documents are scrutinized to ensure compliance with tax regulations and government disclosure requirements.
Statutory audits can be mainly classified into two main types: company audits and tax audits.
- Company Audits: According to the Companies Act, 2013, every company, regardless of its sales turnover, nature of business, or capital, is required to have its book of accounts audited every financial year. The board of directors must appoint an auditor within 30 days of incorporation, and an audit of the company's financial statements must be conducted each financial year. The accounts of a limited liability partnership (LLP) must be audited if it has an annual turnover of INR 4 million or more or INR 2.5 million or more in capital contribution.
- Tax Audits: Tax audits are primarily applicable to proprietorships and partnership firms that have crossed a specified threshold of sales or turnover.
Types of statutory audit
India's regulatory framework encompasses various forms of statutory audits, each serving a specific purpose. Let's explore the different types of statutory audits prescribed under the Companies Act of 2013 and other relevant laws:
- Financial audit: as prescribed under Section 139 of the Companies Act, 2013.
- Cost Audit as prescribed under Section 148 of the Companies Act, 2013.
- Secretarial audit as prescribed under Section 208 of the Companies Act, 2013.
- Tax Audit as prescribed under Section 44AB of the Income Tax Act, 1961.
- GST Audit as prescribed under 35(5) of the GST Act, 2017.
- Concurrent audit, branch audit, stock audit, etc. as prescribed under the Banking Act.
- Telecom Regulatory Authority of India (TRAI) recommends Billing & Metering Audit.
- National Health Mission (NHM) mandates Internal Audit/Concurrent Audit.
- Financial audit of banks, insurance companies, cooperative societies, partnership firms, LLPs, proprietorships, HUFs, societies, trusts, etc.
- A performance audit of cooperative societies under the Cooperative Societies Act.
- Audit of Stockbrokers and Credit Rating Agencies as prescribed by the Securities & Exchange Board of India (SEBI).
- Internal and Concurrent audit for Depository Operations under the National Securities Depository Limited (NSDL).
What is a tax audit?
A tax audit is a review and examination of the financial records and accounts of a business or profession from an income tax perspective, as mandated by income tax laws. The primary purpose of a tax audit is to ensure compliance with tax laws and regulations, as well as to verify the accuracy of the income and deductions reported by taxpayers on their income tax returns.
Objectives of the tax audit
A tax audit is conducted to achieve the following objectives:
- Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor.
- The tax auditor systematically examines the books of account and reports any observations or discrepancies they find. This helps in identifying any errors or discrepancies in financial reporting.
Tax audits also require the reporting of specific information, such as tax depreciation, compliance with various provisions of income tax law, and other relevant details as mandated by tax authorities.
In summary, a tax audit is a systematic review of a taxpayer's financial records and accounts from an income tax perspective.
Who is mandatorily subjected to tax audit?
A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of their business exceed INR 10 million in the financial year. However, a taxpayer may be required to get their accounts audited in certain other circumstances.
Finance Act 2021: The threshold limit of INR 10 million turnover for a tax audit is increased to INR 100 million with effect from AY 2021-22 (earlier it was INR 50 million for AY 2020-21), if the taxpayer's cash receipts are limited to 5 percent of the gross receipts or turnover, and if the taxpayer's cash payments are limited to 5 percent of the aggregate payments.
The below table shows the respective category of taxpayers with their corresponding threshold limit for tax audit:
| Category of person | Threshold | |
|---|---|---|
| Business | Carrying on business (not opting for presumptive taxation schemeFootnote *) | Total sales, turnover or gross receipts exceed INR 10 million in the FY If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to INR 100 million (w.e.f. FY 2020-21) |
| Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB | Claims profits or gains lower than the prescribed limit under presumptive taxation scheme | |
| Carrying on business eligible for presumptive taxation under Section 44AD | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit. | |
| Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e., 5 consecutive years from when the presumptive tax scheme was opted | If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for | |
| Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD | If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for | |
| Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD | If the total sales, turnover or gross receipts does not exceed INR 20 million in the financial year, then tax audit will not apply to such businesses. | |
| Profession | Carrying on profession | Total gross receipts exceed INR 5 million in the FY |
| Carrying on the profession eligible for presumptive taxation under Section 44ADA |
| |
| Business loss | In case of loss from carrying on of business and not opting for presumptive taxation scheme | Total sales, turnover or gross receipts exceed INR 10 million |
| If taxpayer's total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme) | In case of loss from business when sales, turnover or gross receipts exceed INR 10 million, the taxpayer is subject to tax audit under 44AB | |
| Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limit | Tax audit not applicable | |
| Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limit | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit | |
What is in the audit report?
The audit report prepared by the tax auditor contains essential information and is presented in a specific format, which may take the form of either Form 3CA or Form 3CB, depending on the circumstances:
- Form No. 3CA: This form is used when a person engaged in a business or profession is already required to have their accounts audited under any applicable law.
- Form No. 3CB: This form is utilized when a person engaged in a business or profession is not obligated to have their accounts audited under any other law.
In both cases, the tax auditor is required to provide the prescribed particulars in Form No. 3CD, which is an integral part of the audit report.
Penalty of non-filing or delay in filing tax audit report
Failure to comply with the requirement of a tax audit can result in penalties. The penalty amount is determined as the lesser of the following:
- 0.5 percent of the total sales, turnover or gross receipts
- INR 1,50,000
Due date for tax audit
The auditing of accounts, as well as the submission of reports, must be completed on or before the 30th of September of the subsequent financial year.
Due date for income tax return filing in case of applicable tax audit
The due date to submit the return of income for the Assessment Year 2023-24 is October 31, 2023, in case of an applicable tax audit.
Transfer pricing report
It is mandatory for all taxpayers, without any exception, to obtain an independent accountant's report in respect of all the international transactions between associated enterprises or specified domestic transactions. The report has to be furnished by the due date of the tax return filing. The report requires the accountant to give an opinion on the proper maintenance of prescribed documents and information by the taxpayer.
Advance income tax payment due dates
Applicable on all taxpayers except for those who opted for presumptive taxation scheme:
| Advance tax payment due date | Advance tax liability |
|---|---|
| On or before June 15 | 15% of Advance tax |
| On or before September 15 | 45% of Advance tax less advance tax already paid |
| On or before December 15 | 75% of advance tax less advance tax already paid |
| On or before March 15 | 100% of advance tax less advance tax already paid |
Advance tax payment due date for taxpayers who opted for presumptive taxationFootnote **:
| Advance tax payment due date | Advance tax liability |
|---|---|
| On or before March 15 | 100% of Advance tax |
However, certain businesses are not eligible for presumptive taxation:
- Life insurance agents.
- Commission of any kind.
- Running the business of plying, hiring, or leasing goods carriages.
Disclaimer
The Canadian Trade Commissioner Service in India recommends that readers seek professional advice regarding their particular circumstances. This publication should not be relied on as a substitute for such professional advice. The Government of Canada does not guarantee the accuracy of any of the information contained on this page. Readers should independently verify the accuracy and reliability of the information.
Content on this page is provided by Dezan Shira & Associates a pan-Asia, multi-disciplinary professional services firm, providing legal, tax, and operational advisory to international corporate investors.
