Accounting and Book-keepingITR

What is the Difference Between Tax Audit and Statutory Audit of a Company?

In this article, you will get an insight into the differences between a tax audit and a statutory audit and 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. The auditor conducts the tax audit under the Income-tax act and the latter is an audit that is associated with the Company’s act of 2013. 

Definitions of Statuary Audit and Tax Audit 

  • Statuary audit 

The judiciary of India considers a statutory audit as 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 the 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 organization.The companies can appoint the auditor by taking approval from its shareholders at the time of the annual meeting of the company. In that case, they have also the authority regarding the remuneration of the auditor. Under the Companies Act of 1956, the registered colonies can 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 will be done, the statutory auditor will submit his report. The forensic audit report must contain a fair view of the accounts with his personal opinions as well. The financial statements in the audit must follow the provisions of the company act. 

  • Tax audit 

The purpose of a tax Audit is to find an audit of the accounts of the taxpayer. The audit is also done by a Chartered Accountant. 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 a mandatory audit 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 assesse. The assesse 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 considered the profit as a subject to tax and there are chances for the 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 Rs 1 crore and the gross receipt must not be less than ₹25 lakhs. The assesse can easily choose for performing 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 taxable income is assessed by the auditor through the provisions of the Act.

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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 for performing these audits 

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Areas for comparison Statutory audit  Tax Audit 
What they stand for  The audit is a compulsory audit to be carried out by the companies  The Income Tax Act considers this audit to be a compulsory one if the company has a net turnover of more than 1 crore and its receipts is 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 the transparency in the accountancy of the company Maintaining the  accounts and find 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. On the other hand, 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 practicing Chartered Accountant for performing a tax audit for the company. 
  • The statutory audit comes under Section 143 of the Companies Act 2013. On the contrary, a tax audit is subject to Section 44AB The Income Tax Act of1961. 
  • 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 any Professionals can choose a tax audit if their turnover or Gross Receipts is more than the threshold limit.
  • The threshold limit of Turnover or Gross Receipt 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 organization 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 organize 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 within 30th 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 receipt, or turnover. The penalty if paid in money, will be a minimum of ₹1,50,000. 

Conclusion:-

Therefore, it can be said that statutory audits and tax audits are entirely different in their purposes. The purpose of a statutory audit is wider than a tax audit.

Moreover, a statutory audit is compulsory for every company but a tax audit is applicable for the companies that come under the Income-tax Act. Get connected to Vakilsearch and get the best legal assistance for your Organisation including a statutory audit and a tax audit.

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