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Many businesses undergo multiple audits during their financial year. However, a frequent question that many entrepreneurs have is why they face different types of audits?
Given that everything is connected to taxes, shouldn’t there be just one audit?
In this article, we will explain the distinctions between the three common types of audits that your organization might encounter: Tax Audit and GST Audit.
Tax Audit
A Tax Audit is a specific type of audit carried out in accordance with the Income Tax Act regulations. According to the Act, any enterprise with a turnover exceeding 1 crore, and professionals whose service value surpasses Rs. 50 lacs, are required to have their financial records audited by a Chartered Accountant.
The sole exception to this requirement is for enterprises that have chosen the Presumptive Taxation scheme, which allows them to forgo the audit of their financial records. However, this scheme does not apply to companies, meaning that any company with a turnover exceeding Rs. 1 crore in a financial year must have its financial records audited.
GST Audit
GST Audit represents a new category of audit, carried out in accordance with the Goods and Service Act. Entities with a turnover exceeding Rs. 2 crores in a financial year are required to have their financial records audited by a Chartered Accountant.
The purpose of this audit is to verify that the business has adhered to all the rules and regulations established by the CBEC regarding GST. Additionally, it assesses whether the organization has properly collected and remitted the GST in a timely manner.
Now, let’s examine a comparative analysis of the two types of audits.
Comparative Analysis
| Basis of difference | Tax Audit | GST Audit |
|---|---|---|
| Governing Act | Income Tax Act, 1956 | Goods & Service Tax, Act |
| Applicability | All | All |
| Conditions | Any entity whose business has a turnover of more than Rs. 1 Crore | Any entity whose business has a turnover of more than Rs. 2 Crore or if directed by the Dept. |
| Audit Type | To check all the income, expenses and related transactions so as to check whether all tax has been calculated fairly and all the disclosures are proper. | To check the whether all the disclosures and compliances have been made according to the GST Act and that the taxes on the same have been duly paid. |
| Auditor | Chartered Accountant | Chartered Accountant or Cost Accountant |
| Report Submission | Income Tax Department | CBEC |
| Nature of Audit | Conditional | Conditional |
I trust that with this article in hand, you will gain a clearer understanding of the specific audit applicable to your entity and the reasons behind it. Additionally, it will provide you with insight into the focus of each type of audit.
