This article explains the differences between a tax audit and a statutory audit of a company along with their primary functions.
The audit is associated with examining the company’s accounts to find out the proper accounting records of the company and whether its functions are legal. People often get confused about the purposes of choosing a tax audit and a statutory audit of a company.
The auditor conducts the tax audit under the Income-tax act, and the latter is an audit associated with the Company’s act of 2013.
Definitions of Statuary Audit and Tax Audit
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Statuary audit
The judiciary of India considers a statutory audit a mandatory audit for the corporate selector. The purpose of conducting the audit is to maintain the legal accounting records of the company. The law of companies act of 2013 has guided the appointment of auditors, removal of the auditor, The auditor’s rights and duties, and remuneration.
The auditor performs the audit according to the guidance of the law, and the audit will apply to the organisation. The companies can appoint the auditor by taking approval from its shareholders at the time of the annual meeting. In that case, they also have the authority regarding the auditor’s remuneration.
Under the Companies Act of 1956, the registered colonies could hire a chartered accountant. The company can hire such a person after preparing the final statements of the company’s account records. When the audit is done, the statutory auditor will submit his report.
The Secretarial audit report must also contain a fair view of the accounts with his personal opinions. The audit’s financial statements must follow the company act’s provisions.
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Tax audit
The purpose of a tax Audit is to find an audit of the accounts of the taxpayer. A Chartered Accountant also does the audit. The act that is associated with this audit is Section 44AB. Here the auditor needs to express his thoughts and opinions regarding the audit report. A tax audit is mandatory under the Income Tax Act of 1961.
However, there is a condition for performing the audit. The condition is that the Income Tax Act defines the assessment. The assessee generally carries on a business or profession that aims at making a profit from his job. He must also maintain an account record of his business.
Income tax return considers the profit as subject to tax, and there are chances for a loss in that operation—the chapter V of the Income-tax act details the tax audit. The minimum turnover of the company for performing a tax audit is more than ₹ 1 crore, and the gross receipt must not be less than ₹25 lakhs.
The Income Tax Assessee can easily choose to perform an audit for its accounts if the turnover and gross receipts exceed the aforementioned limit. The company can choose a tax audit even if the company’s income is less than a taxable amount. The auditor assesses the taxable income through the provisions of the Act.
The Primary Difference Between Tax Audit and Statutory Audit
There are several differences in the functions of a tax audit and a statutory audit. Here we are presenting a chart for a better understanding of the purposes and functions of performing these audits
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| Areas for comparison | Statutory audit | Tax Audit |
| What they stand for | Companies should compulsorily do the audit process | The Income Tax Act considers this audit compulsory if the company has a net turnover of more than ₹ 1 crore and its receipts are more than ₹25 lakhs. |
| The auditor who performs the audit | The company may hire an external auditor | Chartered accountant |
| Areas that covered in the audit process | The entire accounting record of the company | The accounts and other essential parts of the company that are subjected to tax |
| The function of the audit | Ensure transparency in the accountancy of the company | Maintaining the accounts and finding out the exact taxable income of the company |
Differences in Detail Between the Two Audits
- A statutory audit is done as a mandatory one according to the statute or law. However, a Tax Audit is also a compulsory audit if a company has certain species turnover and gross receipt.
- Any external auditor can perform a statutory audit, whereas the company can hire a practising Chartered Accountant to perform a tax audit for the company.
- The statutory audit comes under Section 143 of the Companies Act 2013. Moreover, a tax audit is subject to Section 44AB, The Income Tax Act of 1961. It is also important to learn about other sections like the Sec 80P of Income Tax Act
- Every company registered under the Companies act of 2013 is subject to a statutory audit. On the other hand, every company, LLP, or partnership firm, as well as Individuals or professionals, can choose a tax audit if their turnover or gross receipts exceed the threshold limit.
- The turnover or gross receipt threshold limit is not mandatory for performing a statutory audit. A statutory audit is compulsory for every company, even if the company has no turnover. Tax audit, on the contrary, is mandatory for every organisation whose annual turnover is more than ₹ 1 crore and the gross receipt is more than ₹25 lakhs.
- A company must perform a statutory audit within six months from the end of a financial year; However, before commencing the audit, the company must organise a general meeting with the company officials and shareholders. On the other hand, a company or an individual has to perform a Tax Audit and file the Tax Audit Report with the Income Tax Department on the 30th of September of a financial year.
- If the company does perform any non-compliance with a statutory audit, the company may be fined ₹25000 to ₹5,00,000. The penalty for officers for non-compliance with the audit is ₹10,000 to ₹1,00,000. In the case of a tax audit, the penalty maybe 0.5% of total sales, gross receipts, or turnover. If paid in money, the penalty will be a minimum of ₹1,50,000.
Conclusion:
Therefore, it is clear that statutory audits and tax audits are entirely different in their purposes. The purpose of a statutory audit is wider than a tax audit. In addition, one should also learn about Withholding tax rates in India before filing tax returns.
Moreover, a statutory audit is compulsory for every company, but a tax audit applies to companies under the Income-tax Act. Get connected to Vakilsearch and get the best legal assistance for your organisation, including statutory and tax audits.
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