To maintain compliance with Indian regulatory norms, foreign business houses venturing into the Indian market must be thoroughly aware of the intricacies of statutory and tax audits. The two audits have different goals and are required by other legislation. Here we are to explain the differences between tax audits and statutory audits in India:
Statutory Audit
As the Companies Act of 2013 requires, a statutory audit examines a company’s financial statements. The motive of a statutory audit is to review a company’s financial accounts and offer an unbiased assessment of their accuracy and fairness. This audit guarantees the accuracy, accountability, and openness of the available economic data to all parties involved, such as creditors, shareholders, and regulatory bodies.
Essential facets of India’s statutory audit for international companies include:
- It is out yearly by a certified chartered accountant or auditor with Indian registration.
- Focuses on confirming that financial records, transactions, and accounting standards are being followed.
- Demands that audited financial statements be sent to the Registrar of Companies (RoC) in the allotted time frame.
Tax Audit
In compliance with the Income Tax Act of 1961, a tax audit is a specialized audit type whose primary goal is to assess and validate the accuracy of businesses’ income tax returns. The income tax statute requires a tax audit for some enterprises, depending on turnover levels and other obligations.
Essential facets of Income tax return in India for international companies include:
- Carried out by a certified public accountant or auditor with experience in tax issues.
- Focuses on confirming adherence to income tax regulations, including deductions, exemptions, and provisions.
- The income tax return must be filed with the audit report (Form 3CD).
Principal Disparities:
- Mandatory: All firms registered under the Firms Act must undergo statutory audits, and enterprises that fulfill the Income Tax Act’s defined turnover thresholds must undergo tax audits.
- Objective: While tax audits ensure compliance with income tax rules and regulations, statutory audits guarantee the correctness and transparency of financial accounts.
- Reporting: In the event of a statutory audit, the Income Tax Department receives an audit report along with the income tax return, whereas in the case of a tax audit, audited financial statements are presented to the RoC.
In conclusion, international companies operating in India must manage both statutory and tax audit needs to comply with Indian regulatory frameworks effectively. Hence, at Bandraz, we highly advise you to seek expert advice from our seasoned chartered accountants, who are well-versed in Indian rules and regulations to guarantee seamless compliance and prevent fines. Comprehending these audits is essential to building a solid financial base and adhering to rules in the Indian industry.
