Statutory Audit vs Tax Audit: Which Thresholds Apply
Clear comparison of statutory audit under the Companies Act and tax audit under Section 44AB - who needs which audit, at what turnover, and why some businesses need both.
Statutory audit and tax audit are two different requirements governed by two different laws, and businesses regularly conflate them or assume that being below a turnover threshold gets them out of both.
Key facts at a glance
- Statutory audit under the Companies Act, 2013 applies to every company, with no turnover threshold - even a dormant or loss-making company must get audited.
- Tax audit under Section 44AB of the Income Tax Act generally applies once business turnover exceeds Rs 1 crore.
- That tax audit threshold rises to Rs 10 crore if cash receipts and cash payments each stay within roughly 5% of total transactions.
- For professionals, tax audit generally applies once gross receipts exceed Rs 50 lakh, subject to presumptive taxation exceptions.
- Both audits must be conducted by a practising Chartered Accountant.
- LLPs and firms are not covered by Companies Act statutory audit, but may still need an audit under the LLP Act or a tax audit under the Income Tax Act.
- All these turnover thresholds are revised periodically in the Union Budget - confirm the current figures before relying on them.
What statutory audit actually checks
Statutory audit exists to give shareholders and other stakeholders confidence that a company's financial statements present a true and fair view of its financial position. It is mandated by the Companies Act and applies to a company from the moment it is incorporated, regardless of whether it has started business, made any revenue, or turned a profit. The auditor is appointed by shareholders (typically for a five-year term, with the appointment intimated to the Registrar via Form ADT-1) and reports directly to them at the Annual General Meeting.
What tax audit actually checks
Tax audit, under Section 44AB of the Income Tax Act, exists to verify that the figures a taxpayer uses to compute income tax are accurate and properly supported. Unlike statutory audit, it is triggered by turnover or gross receipts crossing a threshold, not by legal structure - so it can apply to companies, LLPs, partnership firms, and even individual professionals or traders, once they cross the relevant limit. The audit report is filed in a prescribed format (commonly Form 3CA/3CB along with Form 3CD) as part of the taxpayer's income tax compliance.
Threshold comparison
| Aspect | Statutory Audit | Tax Audit |
|---|---|---|
| Governing law | Companies Act, 2013 | Income Tax Act, Section 44AB |
| Who it applies to | Every company | Businesses/professionals above turnover thresholds |
| Turnover threshold | None | Roughly Rs 1 crore (business), higher if mostly digital transactions; roughly Rs 50 lakh (professionals) |
| Who appoints/engages the auditor | Shareholders, at the AGM | Business/professional directly engages a CA |
| What it produces | Audited financial statements, auditor's report | Tax audit report (Form 3CD and related forms) |
| Applies to LLPs/firms? | No | Yes, if thresholds are crossed |
Why some businesses need both
A private limited company that crosses the tax audit turnover threshold does not get to choose one audit over the other - it needs its regular statutory audit under the Companies Act and a separate tax audit under Section 44AB. The two audits look at overlapping financial data but serve different purposes and different regulators, and the reports are filed separately: statutory audit outputs go to the Registrar of Companies via AOC-4, while the tax audit report goes to the Income Tax Department.
Presumptive taxation as a way out of tax audit
Smaller businesses and professionals can often avoid tax audit altogether by opting into presumptive taxation schemes (Sections 44AD for businesses and 44ADA for professionals), which let eligible taxpayers declare income at a prescribed percentage of turnover without maintaining detailed books or triggering audit, provided turnover and other conditions stay within the scheme's limits. These limits and conditions are also periodically revised, so eligibility should be checked each year rather than assumed to carry over.
Sources
- Income Tax Department - incometax.gov.in
- Ministry of Corporate Affairs - mca.gov.in
- Institute of Chartered Accountants of India - icai.org
If you are not sure which audit obligations apply to your business at its current size, ComplianceCheck's state-wise compliance assessment gives you a clear picture in a few minutes.
This guide is general information, not legal advice. Requirements vary by state, sector and headcount — confirm specifics with a compliance professional or the relevant authority.
Frequently Asked Questions
- What is the difference between statutory audit and tax audit?
- Statutory audit is required under the Companies Act for every company regardless of turnover, and examines whether financial statements give a true and fair view, while tax audit is required under the Income Tax Act once turnover crosses a specified threshold and focuses on verifying figures used for tax computation.
- Does every private limited company need a statutory audit?
- Yes. Every company registered under the Companies Act, including a company with zero turnover or one that has not started operations, must get its accounts statutorily audited every year.
- At what turnover does tax audit become mandatory for a business?
- Tax audit generally becomes mandatory once turnover exceeds Rs 1 crore, though this threshold is raised to Rs 10 crore for businesses where cash receipts and cash payments each stay within about 5% of total transactions, since these limits are periodically revised.
- Does a sole proprietor need a statutory audit?
- No. Statutory audit under the Companies Act applies only to companies. A sole proprietorship or partnership firm may still need a tax audit under the Income Tax Act once its turnover or receipts cross the applicable threshold.
- Can a business need both a statutory audit and a tax audit in the same year?
- Yes, this is common - a company crossing the tax audit turnover threshold needs both its Companies Act statutory audit and a separate Section 44AB tax audit, and the two reports serve different regulators and purposes.
- Who can perform a statutory audit or a tax audit?
- Both must be conducted by a practising Chartered Accountant, though the statutory auditor is formally appointed by the company's shareholders while the tax auditor is engaged for the specific tax audit assignment.
- Do LLPs need a statutory audit under the Companies Act?
- No, LLPs are governed by the LLP Act rather than the Companies Act, but many LLPs still require an audit under LLP rules once turnover or partner contribution crosses specified limits, separate from any Income Tax Act tax audit obligation.
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