Unit III

Company Audit and Tax Audit

3.1 Company Audit - Qualification, Disqualifications, Appointment, and Removal, Rights, Duties and liabilities of Company Auditor

Introduction

Who is an auditor?

An auditor is someone legal to confirm and confirm the accuracy of monetary facts and to make certain that agency complies with tax law. They guard organizations from fraud, factor out accounting discrepancies, and every now and then paintings on a representative foundation to assist corporations discover approaches to enhance operational efficiency. Auditor’s paintings in one-of-a-kind positions inside one-of-a-kind industries.

How to apply for the auditor

The auditor evaluates the monetary operations and guarantees that the corporation is working efficiently. They are tasked with monitoring coins float from begin to complete and making sure that the corporation's budget are well accounted for.

For public companies, the auditor's number one responsibility is to decide whether or not the monetary statements follow usually generic accounting principles (GAAP). To meet this requirement, the auditor inspects accounting data, monetary facts, and operational factors of the enterprise and takes targeted notes approximately every step withinside the process, known as the audit trail.

Upon completion, the auditor's findings can be displayed withinside the file displayed because the preamble to the monetary statements. Separate non-public reviews will also be issued to agency control and regulatory agencies.

Qualification

N Efficient auditors ought to have positive widespread qualifications similarly to their statutory qualifications. This lets in him to paintings effectively and smoothly. Auditor features labelled as follows.

1. Professional qualification, that is, criminal qualification.
2. Professional qualifications, that is, private qualifications.
3. Personal features, that is, widespread features.

The info of them is as follows.

1. Professional qualifications | Legal qualifications of auditors

In the case of best buying and selling worries and partnerships, the regulation does now no longer offer for auditor qualifications. However, withinside the case of an auditor of a joint-inventory company, the auditor ought to be a chartered accountant withinside the means of the Chartered Accountant Act of 1949.

He ought to by skip the Chartered Accountant (C.A) examination performed through the Institute of Chartered Accountants of India (ICAI). Certified accountants ought to achieve certificates of exercise from the ICAI Council for price of the prescribed annual club rate for you to qualify for exercise.

There are classes of ICAI individuals: Associates and Fellows.

A man or woman is taken into consideration a companion member of the Institute if his / her call seems withinside the Institute's Membership Register. This will permit him to apply the letters A.C.A.

Associates who're individuals of the Institute and had been practising constantly in India for as a minimum five years below different Associates who've the qualifications prescribed through the Council of the Institute may be registered as Fellows of the Institute. You have the proper to apply the FCA characters after his call.

b.    Professional Qualifications | Auditor's Personal Qualifications

Auditors are required to have many expert features, which range in nature. These are important for a hit audit effort. They are:

1. The auditor ought to have whole and whole expertise of accounting ideas, theories and practices. Auditors want to be acquainted with the diverse accounting structures and their aspects. He ought to be acquainted with all departments of accounting. He wishes to be privy to the trendy tendencies withinside the subject of accounting.

2. He ought to be acquainted with diverse legal guidelines governing commercial enterprise, inclusive of company regulation, Indian partnership regulation, financial institution coverage regulation, products income regulation, forex manage regulation, and Indian agreement regulation.

3. The auditor ought to have a whole expertise of auditing techniques. He wishes to be absolutely conscious of recent modifications and tendencies in audit ideas and practices.

4. The auditor ought to be acquainted with pc accounting and different computerized equipment used withinside the office.

5.  In addition to expertise of industrial regulation, auditors ought to have whole expertise of diverse provisions associated with earnings tax, wealth tax, VAT, present tax, etc.

6. The auditor ought to be acquainted with financial regulation and the ideas of financial regulation. This is due to the fact the commercial enterprise wishes to characteristic inside positive financial legal guidelines and social environments, and the effect is manifested withinside the commercial enterprise.

7. The auditor ought to have expertise of data and mathematics. This enables you cope with complicated issues.

8. He wishes to look at critical judgments in audit cases. This enables outline the auditor's obligations, responsibilities, and responsibilities.

9. The auditor ought to have enough expertise of commercial enterprise organization, economic management, and business management.

10. The auditor ought to have expertise of the technical info of the commercial enterprise being audited.

c. Personal features | General features of the auditor

Individual features ate the vital screen of a hit auditor. The private features required of the judges are as follows.

1. Honesty: The auditor ought to be sincere with the task for you to be triumphant withinside the task. He ought to keep top ethical standards.

2. Cleverness: The auditor ought to be smart in interacting with the client's staff.

3. Ability to paintings hard: Auditors ought to have a painstaking mind-set and willingness to paintings hard.

4. Fairness: The auditor has to now no longer be tormented by prejudice in appearing his obligations. He ought to be fair.

5. Be vigilant: Auditors ought to be vigilant of their paintings. He has to usually maintain his eyes open and be vigilant.

6. Orderly: He ought to carry out his obligations in an orderly manner, be thorough and whole his paintings.

7. Ability to music information and numbers: Auditors want to be practical approximately their paintings. He has to be capable of music information and numbers.

8. Always curious: The auditor has to now no longer be suspicious. He ought to usually be curious. He has to now no longer be suspicious.

9. Courage: The auditor ought to be ambitious sufficient to perform his obligations. He has to now no longer show what he suspects are genuine.

10. Ability to keep secrets: Auditors should have the ability to keep secrets and must not disclose the client's secrets to anyone.

11. Communication skills: Auditors must have the ability to produce audit reports correctly, powerfully, accurately, concisely and clearly.

12. Common sense: Auditors need to have good common sense. Auditors need to fully share common sense, which is the most valuable product. However, common sense is usually very rare in humans.

In addition to statutory and professional qualifications, auditors must comply with certain codes of conduct and professional ethics. The responsibility and attitude of a professional auditor can earn the trust and trust of the public.

Moreover, in the digital age, most commerce is done online. Your account is managed on your computer. The electronic data processing (EDP) system is running for account maintenance. No primary data is used to record the transaction. Therefore, the auditor needs to acquire knowledge of the EDP system. He himself must be capable of confronting the challenges of the new digital business world of E-Governance and E-Commerce.

Disqualification

According to the provisions of Article 141 (3) of the Companies Act 2013, the following persons shall not be qualified as corporate auditors.

a) Non-LLP corporations registered under the 2008 LLP Act

b) Company officers or employees.

c) A partner or employer of a company officer or employee.

d) A relative or partner

• Holds security interests / profits of the company or its subsidiaries, or its holding company or affiliates or subsidiaries of such holding companies. In addition, it is stipulated that relatives may hold collateral or profits of a company whose par value does not exceed 1 rupee.

• Beyond Rs, you owe a company or its subsidiaries, or its holding company or affiliates, or a subsidiary of such a holding company. 5 race rupee

• In connection with the incompetence of a third party, we provide a guarantee or guarantee for value in excess of Rs to the company or its subsidiaries, or its holding company or affiliates or subsidiaries of such holding companies.

e) An individual or company that has a business relationship (directly or indirectly) with a company or its subsidiary, or its holding company or affiliate, or a subsidiary of such holding company or affiliate.

The business relationship here shall be construed as a transaction conducted for commercial purposes except as follows.

• A commercial transaction of the nature of a professional service authorized by an auditor or audit firm by a specialized body that regulates such members.

• Commerce in the normal business process of a company at an independent business-to-business price as a customer.

f) A person whose relatives are directors or who are employed by the company as directors or key managers.

g) People

• Someone who works full time elsewhere, or

• An individual or partner appointed as an auditor is the date of appointment or reappointment as an auditor for more than 20 companies.

h) A person who has been convicted by a court of crime, including fraud, and often less than a few years after the date of such conviction.

i) A subsidiary or affiliate or other form of entity engaged in consulting or professional services on the date of appointment in connection with the provisions of Article 144 of the Companies Act 2013.

Furthermore, according to the provisions of Article 141 (4) of the Companies Act 2013, a person appointed as an auditor of a company shall be disqualified from any of the disqualifications stated in Article 141 (3) of the Companies Act 2013 after the appointment. He will leave his office as such an auditor and such vacancies shall be deemed to be temporary vacancies of the auditor's officers.

It should be noted that the above provisions apply to all types of auditors: cost auditors, statutory auditors, and secretarial auditors.

Appointment and Removal

Appointment:

1. All companies shall appoint individuals or companies as auditors at the 1st Annual General Meeting of Shareholders from the end of this meeting to the end of the 6th Annual General Meeting of Shareholders. However, the Company shall place matters relating to the appointment of ratification by such members at the Annual General Meeting. In addition, prior to such appointment, the company must obtain written consent from the auditor and a certificate indicating the criteria set forth in Section 141. The Company shall submit the appointment to the Company Registrar via e-Form ADT-1 within 15 days of the date of appointment.

2. Listed companies or companies belonging to the prescribed class may not appoint or reappoint the following: An individual as an auditor for one or more terms for five consecutive years. And b. Audit Corporation as an auditor for two or more terms for five consecutive years However, an individual or an audit corporation that has completed the term of office stipulated in Paragraph 2. 139 (2) (b) shall not be eligible to assume the position of Audit & Supervisory Board Member of the same company for five years after the end of the term of office. In addition, an audit firm that has a common partner / partner with another audit firm whose term has expired in the company immediately preceding the fiscal year shall not be appointed as an auditor of the same company for five years. All companies that exist at or before the inception of this Act and are required to comply with this section shall comply with the provisions of this Act within three years from the inception date of such Act.

3. In accordance with the provisions of this law, members of the company may resolve to provide:

a. At the audit firm appointed by it, the audit partners and their teams shall be replaced at intervals that the members can resolve.

b. Audits shall be conducted by multiple auditors.

4. The central government may stipulate how the company should replace auditors according to denominations.

5. Regardless of what is included in the section. 139 (1), the first auditor of a company other than a government company shall be appointed by the board of directors from the date of registration if the board of directors performs any of the above acts or if it is necessary to notify the members of the company. .. Such an auditor shall be appointed within 90 days at the extraordinary general meeting of shareholders and such auditor shall remain in office until the end of the first annual general meeting of shareholders.

6. In the case of government companies listed in Sec.139 (5), the Comptroller and Auditorium of India and Audit & Supervisory Board Members shall appoint an auditor within 60 days from the date of registration, otherwise directors. The meeting must appoint an auditor within 30 days. If the board of directors is also unable to meet, members must appoint an auditor at an extraordinary general meeting within 60 days. Audit & Supervisory Board Members will remain in office until the end of the first Annual General Meeting.

I. For companies other than those listed in Article 135 (5), the Board of Directors will fill them within 30 days, but if such temporary vacancies are the result of the auditor's resignation, such an appointment. Shall be approved. At a general meeting convened within three months of the recommendation of the board of directors, the company shall hold the position until the end of the next annual general meeting of shareholders.

II. For companies subject to audit by the Comptroller and Auditorium of India and auditors appointed by Auditors, this will be completed within 30 days by the Comptroller and Auditorium of India and the Director of the Auditorium.

7. If the Director of the Audit Institute of India does not fill the vacant seats within the above period, the Board of Directors shall fill the vacant seats within the next 30 days.

8. Follow the terms of the section. Under 139 (1) and the rules developed under it, the retired auditor may be reappointed at the Annual General Meeting of Shareholders in the following cases:

a. He is not disqualified for his reappointment

b. He has not informed the company in writing that he does not want to be reappointed. When

c. No special resolution has been passed at the meeting that appoints another auditor or explicitly states that he will not be reappointed.

9. If the auditor is not appointed or reappointed at the Annual General Meeting of Shareholders, the existing auditor shall continue to be the Auditor of the Company.

10. For companies that need to establish an audit committee under Article 177, all appointments, including the appointment of auditors due to temporary vacancies, shall take into account the recommendations of such committees. I can.

Removal

An auditor appointed under Article 139 may be dismissed from his office before the expiration of his term of office only by a special resolution of the company, after obtaining the prior approval of the central government on his behalf.

Mandatory requirements

The dismissal of the auditor requires the approval of the central government.

The auditors involved shall be given the opportunity to hear their opinions.

The company must obtain shareholder approval within 60 days of receiving the approval of the regional director.

You need to follow the steps below

1. Approval of removal from the Audit Committee

If the company needs to form an audit committee under Article 177, the proposal to dismiss the auditor shall be approved by the audit committee at a formal convened committee meeting.

2. Hold a board meeting [according to Section 173 and Secretarial Criteria-1 (SS-1)]

In consultation with the Chairman or Managing Director of the Company, the date of the Board of Directors dismissal of Audit & Supervisory Board Members will be decided.

Issue a board notice to all directors of the company at the address registered with the company at least 7 days prior to the date of the board of directors. For urgent businesses, you can issue shorter notifications.

Please attach the agenda, notes to the agenda, and the resolution to the notice.

To provide a hearing opportunity, please contact the relevant auditor regarding the date of the board of directors where his dismissal resolution will be passed.

Hold a board meeting and pass the following board resolutions

Consider dismissing the auditor before the expiration of the term.

To approve the CS, CFO, or company director submitting an application to the Regional Director (RD).

Approves the practicing CA / CS / CMA / Advocate to appear before the RD and perform the Vakalat nama or Memorandum of Appearance.

The listed company shall submit a disclosure to the stock exchange regarding the decision to apply for the dismissal of the corporate auditors within 24 hours from the date of the board of directors and post it on the Company's website within two business days. [Rules 30 and 46 (3) of the 2015 SEBI (LODR) Regulations]

Within 15 days of the end of the board of directors, a draft minutes will be drafted and circulated to all directors for comment by hand / speed post / registered mail / courier / email.

3. Submit the application to the regional director

The Company shall apply to the Regional Director for the removal of the Auditor, along with details of the reasons for requesting the removal of the Auditor, within 30 days of the resolution passed by the Board of Directors of Form ADT-2.

4. Hearings and orders by regional directors

Upon receipt of the application, the regional director shall give the date of the hearing.

After hearing, RD may approve the auditor's dismissal.

5. Notice to Stock Exchanges Regarding Orders [Rules 30 and 46 (3) of the SEBI (LODR) Regulations, 2015]

The listed company shall submit the disclosure of the RD order to the stock exchange within 24 hours from the date of hearing and post it on the company's website within 2 business days.

6. Submit a certified copy of your order to ROC

Company shall submit a certified copy of the order to ROC on Form INC-28 within 30 days from the date of issue of the certified copy of the order.

7. Hold a board meeting [according to Section 173 and SS-1]

1. Issue a board notice to all directors of the company at the address registered with the company at least 7 days prior to the date of the board of directors. For urgent businesses, you can issue shorter notifications.
2. Please attach the agenda, notes to the agenda, and the resolution to the notice.
3. Hold the Board of Directors of the Company and make necessary resolutions of the Board of Directors

Note the order of regional directors.

To determine when and where the company's general meeting will be held.

Approve the draft notice of the General Assembly and the description attached to the notice in accordance with the requirements of Article 102 of the Companies Act 2013

Approve that the director or company secretary signs and issues the notice of the general meeting and that he / she takes any action, act, or matter that may be necessary to implement the decisions of the board of directors.

Within 15 days of the end of the board of directors, a draft minutes will be drafted and circulated to all directors for comment by hand / speed post / registered mail / courier / email.

8. Holding General Assembly [Sections 96, 100 and SS-2]

1. Notification of the General Assembly shall be 21 days prior to the actual date of the General Assembly, in writing, by hand, by regular mail, speed post, registered mail, courier, facsimile, e-mail, or other electronic means or shorter notice. In accordance with Section 101, it may be issued with the consent of at least a majority of the paid-in share capital of the company giving the right to vote at such a meeting and 95% of such portion. ..
2. Notices are sent to all directors, members, company auditors, secretarial auditors, bond trustees, and others who are eligible to receive notice of the General Assembly.
3. The notice shall specify the day, date, time, and full address of the meeting venue and include a statement regarding the business traded at the meeting.
4. The General Assembly will be held within 60 days of the approval of the central government and a special resolution will be passed to dismiss the auditor before the expiration of the term of office.
5. The listed company shall disclose the minutes of the general meeting to the stock exchange within 24 hours after the end of the general meeting and post it on the company's website within 2 business days. [Rules 30 and 46 (3) of the 2015 SEBI (LODR) Regulations]
6. The listed company shall submit the details of the results of exercising voting rights to the stock exchange within two business days after the end of the meeting and post them on the Company's website. [Rule 44 of the SEBI (LODR) Rule, 2015]
7. Prepare the minutes of the General Assembly, have them signed, and edit accordingly.

9. Form MGT-14 file using ROC

Submit Form MGT-14 to the ROC within 30 days of passing the special resolution at the General Assembly and attach the fees specified in the 2014 Company (Registered Offices and Fees) Regulations and the following attachments.

1. A certified true copy of the special resolution passed with the description
2. Certified copy of RD order
3. A copy of the meeting notice sent to members with all annexes
4. Consent for shorter notices from members if the General Assembly is convened with shorter notices
5. A copy of the general meeting attendance sheet
6. Applicable other attachments.

Rights, Duties and liabilities of Company Auditor

Rights and powers:

Company auditor rights and authority

According to Article 227 (7) of the Companies Act, the corporate auditor has the following rights:

1. Access to accounting books: In accordance with Article 227 (1) of the Companies Act, all corporate auditors have the right to access the accounting books and vouchers of the company at any time, whether or not they are kept at the head office.  Under Section 209 (1) (d), the company auditor also has the right to investigate the cost records that a particular company needs to maintain in connection with production, sales, stores, etc.

2. Right to obtain information and explanations: Auditors may request information or explanations from various officers of the company who may be required to perform their duties.

Apart from the auditor's right to obtain information and explanations, all officers of the company are obliged to provide the information to the company auditor without delay. If a director or officer of a company refuses to provide information because it does not need to be provided, the auditor reserves the right to include that information in the audit report.

3. Right to receive and attend notices and other communications related to the General Meeting: According to Article 231 the Auditor of the Company reserves the right to receive notices and other communications related to the General Meeting as well. As a member of the company.

Similarly, the auditor also has the right to attend the Annual General Meeting of Shareholders and to be attended by him and to be heard at those meetings relating to him as an auditor.

The auditor also has the right to make statements or explanations regarding the audited account. However, his auditor is not expected to answer questions at the General Assembly.

4. Right to visit a branch office: According to Article 228 of the company, the company auditor has the right to visit a branch office of the company.

You can also audit such accounts at a company's office if no auditor is qualified to audit the accounts of the company's branches. In such cases, the auditor has the right to access the books at any time. The number of accounts and vouchers the company maintains at the branch.

In addition, Article 226 of the Companies Act explains that if a company acquires a branch account audited by some local auditors, even the auditors can access the books at any time, explaining the company's vouchers, he also visits. If he feels he needs a branch, he stipulates that he can.

5. Right to correct false statements: Auditors must report to members of the company the accounting he has investigated for the final accounting and related documents submitted prior to the company at the shareholders' meeting.

6. Right to sign audit report: A person appointed as an auditor of the company, or a company operating in India, acting only if the company is so appointed, in accordance with Article 229 of the company. Only partners can sign audit reports. Authenticates other documents of companies that are required to be signed by law.

7. Right to Compensation: Under Article 633 of the Companies Act, the auditor is considered an officer of the company and is entitled to compensation from the company's assets for his liability in self-defence. For civil and criminal proceedings by the company if the auditor proves to have acted honestly, or if the judgment is in his favor.

8. Right to seek legal and technical advice: Company auditors have the full right to seek expert opinion and obtain their legal and technical advice in order to carry out their duties efficiently.

9. Right to Remuneration: In accordance with Article 224 (8) of the Companies Act, company auditors are entitled to remuneration only when they have completed the work they have done.

Company Auditor Duties and Responsibilities (Section 227):

Duties:

Obligations to shareholders:

1. Report to shareholders approximately the trustworthy and truthful state of affairs of the employer

2. State that the stability sheet and profits announcement offer all of the facts required with the aid of using law

3. State that the stability sheet and profits announcement in shape the accounting books

4. State that the stability sheet and profits announcement meet accounting standards

5. State that he has acquired all of the essential facts

6. State whether or not the employer continues all of the books required with the aid of using law.

7. Please country the motive on your eligibility in his document

8. State which you have acquired an audit document on department money owed audited with the aid of using different auditors and what you've got got executed in getting ready the document.

9. The auditor shall country withinside the document that:

a) The mortgage you borrowed is nicely secured and the phrases of the mortgage aren't towards the pastimes of the employer.

b) The mortgage supplied is displayed as a set deposit and the phrases of the mortgage aren't towards the pastimes of the employer.

10. Transactions recorded as bookkeeping aren't towards the pastimes of the employer

11. The private prices of the administrators aren't charged to the employer's profits a / c.

12. The employer meets the necessities of CARO2003.

Obligations to the employer:

1. Prospectus: According to Article 56, the auditor has to show earnings or losses, belongings and liabilities, dividends paid, etc. withinside the prospectus.

2. Legal Report: Section one hundred sixty five calls for the auditor to certify the criminal document.

3. Public Deposits: Section 58AA calls for auditors to document whether or not the employer complies with all RBI regulations and hints concerning public deposits.

4. Signing the Audit Report: Section 229: It is the auditor's obligation to signal the audit document.

5. Bankruptcy (Section 488): It is the auditor's obligation to put together the profits announcement for the modern duration if the employer needs to be declared bankrupt.

Obligations to the government:

1. CARO-2003: The auditor have to Para wise document that the employer meets all of the necessities of CARO-2003.

2. Support Investigation u / s 237: It is the auditor's obligation to guide the research ordered with the aid of using CG u / s 237.

Obligations to the overall public:

1. His workplace has self belief and faith. He has to be dependable in each respect.

2. He desires to reveal all crucial facts approximately the employer's state of affairs to the employer and the overall public.

3. While issuing the prospectus u / s 56, he desires to make certain that the prospectus does now no longer include any deceptive facts or material.

Liabilities of an auditor:

Certified accountants are associated with valuable professions. His main task is to present reports on the accounts and statements he has submitted to members of the company. He is responsible not only for the members of the company, but also for the third parties of the company: creditors, bankers, etc.

Auditor responsibilities are usually based on his work as a professional accountant and carry out his work with due diligence, attention and diligence. The nature of the auditor's responsibilities is described below.

1. Civil liability:

1. Responsibility for negligence:

Negligence means breach of duty. The auditor represents the shareholders. He must perform his professional duties. He should take reasonable care and skill in performing his duties. If he does not, he will be liable for negligence. The auditor will be held liable if the client suffers a loss due to negligence. It should be noted that the auditor is not liable for any loss or damage if the negligence is not proven.

b.    Responsibility for fraud:

Cheating means a breach of trust. The auditor is accused of tort if the company suffers a financial loss as a result of the auditor's misconduct in performing his or her duties. In such cases, the company may regain damages from the auditor or officer due to a breach of trust or tort of the company. If there is a false statement in the prospectus, or if the company is liquidated, you can initiate tort proceedings against the auditor.

2.     Responsibility based on the Companies Act

The following are the responsibilities of the auditor under the Companies Act.

1. Responsibility for misrepresentation of prospectus [Sec.35]:

The auditor is responsible for indemnifying anyone who applies for company stock or bonds, relying on the prospectus, including false statements as an expert. The auditor shall be liable to indemnify him for any loss or damage he suffered due to the false statements contained therein. The auditor can be exempt from liability if he proves that:

The prospectus will be issued without his knowledge or consent.

• He withdrew his consent in writing before submitting the prospectus for registration.

• He should have withdrawn his consent after the prospectus was issued and before the allotment of shares and reasonable public notice in this regard.

b.    Criminal liability of auditors under the Companies Act:

i.       False statement of prospectus [Sec.34]

The auditor is responsible for approving false or false prospectuses. If the prospectus contains false statements, anyone who approves the issuance of the prospectus will be imprisoned for a period of 6 months to 10 years, and / or a fine of three times the amount involved in the fraud.

Ii.    Non-compliance by auditor [Sec. 143 and 145]:

If the auditor fails to comply with the preparation of the report, signs or approves the document and is deliberately neglected, the auditor shall be punished by imprisonment with work for not more than 1 year or a fine of not more than £ 1. Expandable up to £ 25,000. 5,00,000.

Iii.     Failure to support investigation [Section 217 (6)]:

When the central government appoints an inspector to investigate the business of the company, it is the auditor's duty to maintain all books and documents and assist the inspector. Failure of this by the auditor will result in imprisonment of up to one year and a fine of up to £ 1,00,000.

Iv.    Did not support the prosecution of the conviction [Sec.224]:

If the central government takes any action on a report submitted by an inspector, the auditor must assist in prosecution. If he does not, he will be convicted and punished.

v.     Failure to return property, book or document [Sec.299]:

If the company is liquidated, the auditor will be present and will be subject to private inspection by the court and will also be responsible for returning property, books or documents related to the company to the court. If the auditor

Vi.     Penalties for tampering with books [Sec.336]:

When the auditor destroys, cuts, falsifies, falsifies, or keeps the accounting books or documents belonging to the company confidential. He will be sentenced to imprisonment and fined.

Vii.     Auditor prosecution [Sec.342]:

If the court finds the company's auditor guilty of a crime during the process of liquidation of the company by the court, it is the auditor's duty to provide all assistance in connection with the prosecution. If he does not provide assistance, he is liable to be fined over £ 25,000, which can be extended up to £ .1,00,000.

Viii.     Intentional Fees or Penalties for Omission [Sec.448]:

If the auditor deliberately makes a statement containing false or material lack of facts in a report, certificate, balance sheet, outlook, etc., he will be imprisoned. It shall be punished by. For a period of 6 months to 10 years, you will be fined more than three times the amount involved in the fraud.

3. Criminal liability under Indian criminal law

If someone issues or signs a certificate related to the fact that such a certificate is false, he will be punished as if he had submitted false evidence. According to Article 197 of the Indian Criminal Code, the auditor is also responsible for falsification of books, materials and documents belonging to the company.

4. Responsibility under the Income Tax Act [Sec.278]

1. Severe imprisonment of 6 months to 7 years if tax evasion exceeds £ .1,00,000.
2. Anyone who causes another person to file a false tax return, a false tax return, or a false tax return will be punished by a fine of 3 to 3 months and imprisonment. Year. The auditor may also be charged if your account is authenticated incorrectly.
3. Certified accountants can represent clients in front of income tax authorities. However, if he is guilty of illegal activity, he may be disqualified from practice.
4. Auditors may be sentenced to up to two years in prison for providing false information.

5. Responsibility for professional illegal activity

The Certified Public Accountants Act of 1949 refers to a number of acts and omissions that constitute occupational offenses related to audit practice. The ICAI Council may remove the auditor's name for more than five years if the auditor is found guilty of professional misconduct.

6. Responsibility to third parties

Many people rely on the financial statements audited by the auditor to do business with the company without further inquiries. Creditors, bankers, tax authorities, future shareholders, etc.

1. Responsibility for negligence:

The court ruled that the auditor was not liable to the third party because there was no contract between the auditor and the third party. He has no obligation to them.

b.    Liability for fraud:

Even if there is no contractual relationship between the auditor and a third party, the third party can hold the auditor liable for any fraud on the part of the auditor. In some cases, the auditor's negligence can lead to fraud, which can hold the auditor liable to a third party. But we have to prove that the auditor did not act honestly and that he knew about it.

Key takeaways:

1. An auditor is someone legal to confirm and confirm the accuracy of monetary facts and to make certain that agency complies with tax law.
2. The auditor evaluates the monetary operations and guarantees that the corporation is working efficiently.
3. An Efficient auditor ought to have positive widespread qualifications similarly to their statutory qualifications.
4. In the case of best buying and selling worries and partnerships, the regulation does now no longer offer for auditor qualifications.
5. The auditor ought to have whole and whole expertise of accounting ideas, theories and practices
6. The auditor ought to have a whole expertise of auditing techniques.
7. In addition to expertise of industrial regulation, auditors ought to have whole expertise of diverse provisions associated with earnings tax, wealth tax, VAT, present tax, etc.
8. The auditor ought to be sincere with the task for you to be triumphant withinside the task
9. Auditors should have the ability to keep secrets and must not disclose the client's secrets to anyone.
10. Holds security interests / profits of the company or its subsidiaries, or its holding company or affiliates or subsidiaries of such holding companies.
11. An individual or partner appointed as an auditor is the date of appointment or reappointment as an auditor for more than 20 companies.
12. All companies shall appoint individuals or companies as auditors at the 1st Annual General Meeting of Shareholders from the end of this meeting to the end of the 6th Annual General Meeting of Shareholders.
13. In the case of government companies listed in Sec.139 (5), the Comptroller and Auditorium of India and Audit & Supervisory Board Members shall appoint an auditor within 60 days from the date of registration, otherwise directors.
14. . If the auditor is not appointed or reappointed at the Annual General Meeting of Shareholders, the existing auditor shall continue to be the Auditor of the Company.
15. If the company needs to form an audit committee under Article 177, the proposal to dismiss the auditor shall be approved by the audit committee at a formal convened committee meeting.
16. Upon receipt of the application, the regional director shall give the date of the hearing.
17. Auditors may request information or explanations from various officers of the company who may be required to perform their duties.
18. Under Article 633 of the Companies Act, the auditor is considered an officer of the company and is entitled to compensation from the company's assets for his liability in self-defence.
19. . Signing the Audit Report: Section 229: It is the auditor's obligation to signal the audit document.
20. Certified accountants are associated with valuable professions. His main task is to present reports on the accounts
21. The auditor is responsible for indemnifying anyone who applies for company stock or bonds, relying on the prospectus, including false statements as an expert.
22. If the company is liquidated, the auditor will be present and will be subject to private inspection by the court and will also be responsible for returning property, books or documents related to the company to the court.
23. The Certified Public Accountants Act of 1949 refers to a number of acts and omissions that constitute occupational offenses related to audit practice

3.2 Tax Audit

Provisions under Income Tax Act 1961 (Sec 44AA, 44AB, 44AD, 44ADA, 44AE) Recent Amendment made as applicable as per Income Tax Act 1961

Tax Audit

A tax audit is a full-time audit conducted by a certified accountant regarding tax matters only, and is a report confirming that taxpayers do not conceal their income and that they do not have to pay their tax obligations. It was paid on time. Tax audits are a taxpayer's legal obligation and apply in all cases where sales or gross income for the previous year exceed the limits set forth in Section 44AB for each valuation year. The deadline for submitting a tax audit report is September 30 of the assessment year. If the audit report is not submitted on time, the taxpayer will be required to pay a fine equivalent to 1.5% of total income / sales, but will be subject to a maximum fine of Rs. 15,000 rupees.

Provisions under Income Tax Act 1961 (Sec 44AA, 44AB, 44AD, 44ADA, 44AE)

Sec 44AA

Section 44 AA of Income Tax Act, 1961-Maintaining account by a specific person who runs a profession or business

1. Section 44AA defines two categories of books and other documents.

Category A: Accounting books that allow assessors to calculate total income in accordance with the provisions of the Income Tax Act of 1961.

Category B: Books specified under Rule 6f

2. Definition

Notified Occupations: Legal, Medical, Engineering, Architecture, Accounting, or Authorized Representatives, Technical Consultants, Upholstery, Film Artists, Company Secretaries, Information Technology, or Other Notices.

A competent representative means, for the time being, a person who represents another person by paying a fee or compensation in front of a court or authority composed or appointed by law, and is represented as such. Does not include human employees. A person who runs a legal profession or a person who runs an accounting profession

Film artists include actors, photographers, directors, music directors, and art directors, dance directors including assistants, editors, singers, lyric poets, story writers, screenwriters, dialogue writers, and dress designers.

Category A

1. The following person must maintain a Category A book:-

Informed occupation;

Business or occupation (except those notified):

Income exceeds Rs 120,000, or [Individual and HUF cap is 250,000]

Sales / Sales / Gross income exceeds 10 rupees [Individual and HUF limit is 25 rupees]

– Any of the last three years. Or

Set up a new business or profession (except those notified).

Income can exceed Rs 120,000, or [Personal and HUF limits are 250,000]

Sales / Sales / Gross income can exceed 10 rupees. Or [Personal and HUF limit is Rs 250,000]

The assessor claimed that he was subject to an estimated tax u / s 44AE / 44BB / 44BBB and was lower than the income considered under the estimated tax under the usual provisions of the Income Tax Act.

Assessors are subject to an estimated tax u / s 44AD and, under the usual provisions of the Income Tax Act, are lower than the income considered by the estimated tax if the income exceeds the maximum amount not levied on the previous year's income tax.

Category B

1. The following person shall maintain a Category B book (Rule 6f) if:

Informed occupation: Total income exceeded 150,000 in the last 3 years

Newly Setup has notified the profession: total income could exceed 150,000 in the previous year.

2. The books and other documents specified in Rule 6f are as follows:

Cash books, journals, ledgers.

A carbon copy of an invoice issued in excess of 25 rupees.

Original invoice for costs over 50 rupees.

3. Medical professionals: In addition to point 2 above, you need to maintain the following:

Daily case registration on Form 3C;

Inventory (opening and closing) of pharmaceuticals and consumables.

4. Maintenance Location: Applicable books or documents shall be stored and maintained in a professional carrying location. (Main location in case of multiple locations)

5. Maintenance Period: The relevant books or documents shall be maintained and maintained for 6 years from the end of the relevant AY.6. Resumption of Assessment u / s 147: All books and other documents that were retained and maintained at the time of resumption of the assessment shall remain so retained and maintained until the resumption of such an assessment is completed.

Section 44AB

Audit under the Income Tax Act of 1961

If a business's sales, sales, or gross income exceeds Rs 100 million and occupations exceed Rs 100 million, taxpayers must carry out a tax audit. 500,000 rupees in the fiscal year. Section 44AB of the Income Tax Act of 1961 sets out certain conditions regarding the application of tax audits in the provisions of Section 44AB (a). Sec 44AB (b); Sec 44AB (c) & Sec 44AB (d).

Section 44AB (a)

In order to be audited by a chartered accountant, a person who runs a business is required, and his total sales exceed 100 million rupees. However, the sales limit under Section 44AB (a) is INR 1 Cr, but under Budget 2020, the sales limit under Section 44AB (a) is INR 1 Cr to 5 Cr if cash payment transactions do not exceed 5% of the total. Was pulled up to. Fiscal year payments and cash receipts do not exceed 5% of total business year revenue.

Audit-Online tax payment

Section 44AB (b)

Individual assessors involved in vocational services with total income exceeding Rs. To be audited by a certified accountant, the previous year's 500,000 rupees are required. A profession is someone who engages in upholstery, technical consulting, engineering, accounting, legal, medical, architectural, or other services related to film artists (directors, singers, lyricists, storywriters, etc.).

Section 44AB (c)

If Sec 44AB (c) claims that the assessor is engaged in a business to which the provisions of Section 44AE, 44BB, or 44BBB apply and his profits are lower than the deemed profits of each section, he You are responsible. Tax audit when his total income exceeds the maximum non-taxable amount.

Section 44AB (d)

Sec 44AB (d) stipulates that Sec 44ADA applies and that tax audits apply to professionals who claim that their profits are lower than 50% of the estimated tax rate. Further subsection 4 of the section stipulates that if an assessor declares a profit of less than 50%, he is responsible for maintaining his books and auditing his accounting. Occupation is the same as mentioned in Section 44AB (b) ** Turn over whether to include GST

Sales for Sec 44AB / Sec 44AD purposes are not defined by law. The "Tax Audit Guidance Note" issued by ICAI stipulates that if the subject of assessment includes consumption tax and consumption tax in the selling price, sales will include consumption tax and consumption tax (comprehensive). Accounting method)) However, if the collected sales tax or sales tax is stored in a separate account and the payment to the authorities is deducted from the same account, the sales tax and the sales tax amount should not be included in the sales. .. (Exclusive accounting method) Seconds 145A is applied for the purpose of determining taxable income under the head of PGBP. The sales of the Assessed Person, which is an integral part of the income charged under the head of PGBP, shall be subject to the provisions of Section 145A for the purpose of calculating sales. Section 145A (ii), amended by Fin 2018, provides that sales, purchases, and inventory valuations are adjusted to include taxes, obligations, or tax amounts. Nevertheless, ICDS offers a comprehensive accounting method. From the above perspective, it can be inferred that sales should include the GST amount even if the evaluator follows an exclusive accounting method.

Section 44AD

Companies with an estimated tax system do not need to maintain regular accounting books. They can declare their income at a given rate.

The Income Tax Act constitutes an estimated taxation scheme based on Section 44AD, Section 44ADA, Section 44AE, Section 44BB, and Section 44BBB.

Those who have adopted the estimated taxation system can declare their income at a prescribed tax rate, and as a result, they are freed from the troublesome task of maintaining books.

Estimated taxation scheme based on various sections of the Income Tax Act of 1961

Sec. 44AD: Estimated basis for taxpayers [individual residents, resident Hindu families, or resident partnership companies (not limited liability companies)) engaged in a particular business under certain conditions. Income calculation.

Sec .44ADA: Calculation of professional income on an estimated basis when the subject is resident in India and engaged in the profession mentioned in Sec 44AA (1) according to certain conditions.

Sec 44AE: Estimated income calculation identification for taxpayers (individuals, HUF, AOP, BOI, companies, companies, co-operatives, or others may be resident or non-resident) Ply, lease, or hire the carriage of goods subject to the conditions of.

Sec 44B: Taxation of transportation profits from non-residents in India, subject to certain conditions.

Sec 44BB: Calculation of taxable income for non-residents (which may be Indian or foreign citizens) from activities related to mineral oil exploration, subject to certain conditions.

Sec 44BBA: Calculation of income for foreign airlines, subject to certain conditions.

Sec 44BBB: Calculation of profits and profits of foreign companies engaged in civil engineering construction projects, subject to certain conditions.

Who can adopt the estimated taxation scheme of Section 44AD?

The estimated taxation scheme of Sec 44AD can be adopted by:

1) Resident

2) Resident Hindu undivided family

3) Resident partnership company (not limited liability partnership company)

In other words, this scheme may not be adopted by anyone other than non-residents and individuals, HUF, or partnership companies (not limited partnership companies).

Example: ABC Pvt Ltd is involved in the trading business. Limited liability companies are not eligible under the provisions of the system and therefore cannot opt ​​for an estimated taxation system under Section 44A (assuming all other conditions are met).

In addition, this scheme cannot be adopted by anyone claiming a deduction under Sec 10A / 10AA / 10B / 10BA or Sec80HH to 80RRB in the relevant year.

When choosing an estimation scheme, you need to do the following-

1. Submit the estimation scheme continuously for at least 5 years.

2. If you decide to display and submit profits in accordance with your normal business before the end of these five years, you will lose your estimated profits and you will not be allowed to tax them for the next five years.

Please note that 5 years are counted from the year of first filing a regular tax on such a business.

The result of opting out of the scheme 5 years ago

If you choose the estimated taxation system, you will have to follow the same system for the next five years. If he does not, the estimated tax system will be unavailable for him for the next five years.

Example: Mr. A is involved in a trade business and claims to be taxed on an estimated basis under Article 44AD of 2019-20. For 2020-21 and 2021-22, he also provides income under the estimated taxation system. However, for 2022-23, he did not choose the estimated taxation system. In this case, he is not eligible to claim the benefits of the following five AYs, the estimated taxation schemes from 2023-24AY to 2027-28AY.

Businesses not subject to the estimated taxation system

The Sec 44AD scheme is designed to bail out small taxpayers engaged in any business except:

The business of ply, employment, or leasing of goods transportation mentioned in Sec 44 AE.

Those who are engaged in agency business.

Those who earn income due to the nature of commissions and intermediaries

Businesses with total sales or revenues in excess of 2 rupees.

For example, Mr. A is a manufacturing concern. Last year's annual sales were rupees. 980,000 rupees. He can adopt an estimated taxation scheme under Article 44 AD to avoid the tedious paperwork associated with tax filing at the end of the fiscal year.

Calculation of income under the estimated taxation scheme of Section 44 AD

For those who have adopted the provisions of Section 44 AD, income is calculated on an estimated basis. That is, it is calculated as 8% of the sales or total revenue of the target business for the year.

Income will be calculated at a charge of 6% with recognize to the overall income or earnings acquired thru the take a look at or draft of the recipient of the account, the usage of the digital fee device, or different certain digital modes.

Income at a better charge may be declared.

No want to pay as you go tax

Estimated taxation device deduction

Under the same old provisions of the Income Tax Act, taxable enterprise earnings is calculated after permitting deductions for deductible charges according with the Income Tax Act and now no longer permitting deductible charges according with the Income Tax Act.

Article forty four for the ones who've decided on the envisioned taxation device of AD, the permit / disapproval provisions stipulated beneath the Income Tax Act do now no longer practice and the earnings calculated at an envisioned charge of 8% / 6% is envisioned. It is the very last taxable earnings of the taxable enterprise and no similarly charges are authorised or prohibited. However, assessors can declare deductions beneath Chapter VI-A.

Partnership deduction

If the assessor is a partnership organisation, you could declare a deduction for hobby paid to the associate and reimbursement paid in the limits set forth in Section 40 (b) of the IT Act.

Example: XYZ is a partnership organisation engaged withinside the production industry. The organisation has declared earnings according with the provisions of the envisioned taxation scheme beneath Section forty four AD. After calculating the earnings primarily based totally at the quote, the organisation desired to assert a similarly deduction for the hobby paid to the associate. The XYZ workplace can declare a deduction for hobby paid to a associate as a deduction for hobby paid to the associate. In addition, remuneration paid in the limits set forth in Section 40 (b) of the IT Act is allowed as a deduction beneathneath the Estimated Taxation Scheme.

Depreciation Calculation Section 44AD for Estimated Taxation Schemes:

While earnings is calculated according with the provisions of Section 44AD, person depreciation deductions aren't to be had, however write-downs of belongings utilized in such organizations will be calculated. You want to calculate depreciation to calculate the write-down of belongings utilized in organizations or expert organizations which can be issue to the envisioned taxation device.

(For extra information, please touch 9654182791 or electronic mail caajay92@gmail.com. The writer is Solution Tax (https://www.solutiontax.in), a platform for submitting earnings tax returns. Founder of, Accounting / Bookkeeping, Audit-associated Compliance, etc.)

Disclaimer: The content material of this text is for informational functions simplest and does now no longer represent any recommendation or prison opinion, it's far the writer's non-public opinion. It is primarily based totally on applicable legal guidelines and / or statistics to be had on the time and has been created with suitable accuracy and reliability. Readers must evaluate and talk over with applicable provisions consisting of decree, trendy judicial declarations, circulations, and causes earlier than performing on the idea of the above statements. The opportunity of different perspectives at the issue can't be dominated out. By the use of the above information, the writer / Tax Guru concurs now no longer to be in charge in any manner for the authenticity, accuracy, completeness, error, or loss of such information. This isn't always an commercial or process solicitation of any type through an expert.

Section ADA

Section 44ADA was inserted after Section 44AD of the Income Tax Act of 1961, which came into effect from fiscal year 2016-17 and is on an estimated basis for the specific experts mentioned in Section 44AA (1) of the Income Tax Act. Provides special provisions for calculating profits and occupational profits. Total income from occupation does not exceed rupees. 500,000 rupees in the fiscal year.

Extract from Section 44 ADA

Special provisions for calculating occupational benefits and benefits on an estimated basis.

After Section 44AD of the Income Tax Act, Section 44ADA shall be validly inserted from April 1, 2017.

44ADA. (1) Regardless of what is included in Sections 28-43C, in the case of an assessor, in the previous year, he is a resident of India who is engaged in the profession mentioned in subsection (1) of Section 44AA and has no total income. If the amount exceeds 50 rupees, any amount equal to 50% of the total income of the person being assessed in the previous year for such a profession, or in some cases higher than the amount mentioned above, will be earned by the person being assessed. It shall be deemed to be the benefit and benefit of such a profession that is taxed under the heading "Business or Occupational Benefits and Benefits".

(2) Deductions permitted under the provisions of Sections 30-38 are considered to be fully valid for the purposes of Subsection (1) and further deductions under these sections.

(3) The write-down of assets used for professional purposes is deemed to have been calculated as if the valuator claimed and was actually granted a deduction for the depreciation of each relevant valuation year.

(4) Notwithstanding what is included in the above provisions of this Article, the claim that the profits and profits from the occupation are lower than the profits and profits specified in paragraph (1) and the total income exceeds the maximum amount. Assessor Income Tax is not levied and retains and maintains accounting books and other documents as required in Section 44AA subsection (1), audits them and reports of audits as required in Section 44AB.

Analysis of Provisions of New Section 44ADA

Section AE

Section 44AE of the Income Tax Act of 1961

Special provisions for calculating the profits and profits of the business of ply, employment, or leasing of goods.

This section is especially applicable to assessors who operate a good carriage ply, employment, or leasing business.

In this section, if the assessed person is engaged in any of the above businesses, the income of such businesses that are taxable under the heading "Business or Occupational Benefits and Profit" will be of profits and profits from all. It states that it is considered a total. Freight transport he owned in the previous year, calculated according to the following rules / parts:

Part I:

If the assessor owns a "heavy good car" *: The profit must be equal to Rs. 1000 per ton of gross vehicle weight or no-load weight for the month or part of the month in which the evaluated person owned a heavy-duty vehicle in the previous year

Also

The amount claimed to have actually been earned from such a vehicle,

Whichever is higher.

Part II:

If the assessor owns a "light car": the profit must be equal to rupees. 7500 for the month or part of the month in which the assessor owned a heavy-duty vehicle in the previous year

Section 44AE of the Income Tax Act of 1961

Special provisions for calculating the profits and profits of the business of ply, employment, or leasing of goods.

This section applies specifically to assessors who operate a good carriage ply, employment, or leasing business.

In this section, if the assessed person is engaged in any of the above businesses, the income of such businesses that are taxable under the heading "Business or Occupational Benefits and Profit" will be of profits and profits from all. It states that it is considered a total. Freight transport he owned in the previous year, calculated according to the following rules / parts:

Part I:

If the assessor owns a "heavy good car" *: The profit must be equal to Rs. 1000 per ton of gross vehicle weight or no-load weight for the month or part of the month in which the evaluated person owned a heavy-duty vehicle in the previous year

Also

The amount claimed to have actually been earned from such a vehicle,

Whichever is higher.

Part II:

If the assessor owns a "light car": the profit must be equal to rupees. 7500 for the month or part of the month in which the assessor owned a heavy-duty vehicle in the previous year

An  Amounts allegedly actually earned from such vehicles,

Whichever is higher?

However, to take advantage of this section, assessors must carry no more than 10 freight shipments at any time during the previous year.

* "Heavy cargo carrier" means a freight carrier with a total vehicle weight of more than 12 tons.

Now, what if the income so declared is less than the one specified in this section?

In that case, the assessor will not be able to benefit from this section, and he will also need to maintain proper accounting books and audit that accounting under 44AB.

What if he owns more than 10 freight cars?

In that case, he will be excluded from this section, will be considered a normal business and will be treated in accordance with normal income tax provisions.

An illustration:

1) K operates a freight leasing business. He owns 11 freight vehicles (14 tonnes each). He owned it for seven months the previous year. Is he eligible to benefit from Section 44 AE?

According to Section 44AE, qualified assessors must declare Rs. As his income to take advantage of Section 44 AE, 1000 per ton (for heavy goods transportation).

Rs. In this case it is 10,78,000. [1000 x 7 (Monday) x 11 (Vehicle) x 14 (Ton)]

However, Section 44AE specifically states that this section applies only if the evaluator owned 10 or fewer cargoes in the previous year.

As K owned 11 freight vehicles the previous year. Therefore, K is not eligible to enjoy the benefits under this section.

2) S is engaged in the freight leasing business. He owns eight freight vehicles (each with a capacity of 14 tonnes). He owned it for 6 months the previous year. Is he eligible to benefit from Section 44 AE?

Assessors are required to declare Rs in accordance with the provisions of Section 44AE. As his income to take advantage of Section 44 AE, 1000 per ton (for heavy goods transportation).

Rs. In this case it is 6,72,000. [1000 x 6 (Mon) x 8 (Vehicle) x 14 (Ton)]

Because S meets the basic condition of owning 10 or less freight transports in the previous year. Therefore, if S declares a minimum of Rs. 6,72,000 as his income from the business, and he can take advantage of the profits of this section.

Let's make it a little complicated.

3) Suppose S has earned the actual profit of Rs. The previous year was 730,000. Can he declare Rs now? His profit is 6,72,000 and would you like to take advantage of the profits in this section?

In the calculation of revenue from light freight, Rs is specifically mentioned in this section, so you do not need to consider tonnage per vehicle. For light freight, you have to pay 7500 per vehicle per month.

Some other provisions in this section:

In either case, depreciation cannot be deducted from the estimated net income under Section 44AE. However, according to the provisions of the Income Tax Act under Article 32, depreciation can be calculated and deducted from the value of the asset to determine the WDV of the block of assets.

Income calculated under Section 44AE is estimated and considered to be the net income of the assessed person and is not deductible.

However, if the assessed person is a partnership company, the compensation or interest paid to the partner can be claimed as a deduction under Section 40 (b). In other words, you can claim a deduction that is different from the estimated income calculated above.

Recent Amendment made as applicable as per Income Tax Act 1961

The Fiscal 2020 Act has resulted in various amendments to income tax related to fiscal year 2020-21. Some of the major amendments and new sections inserted by the 2020 Fiscal Law are explained in detail in the edits attached here. ..

It is based on information gathered from the 2020 Financial Law and a memorandum explaining the 2020 Financial Bill, and the analytical part is a completely personal opinion based on the interpretation of the law.

The compilation also consists of discussions for certain mitigations granted under direct tax for the COVID pandemic.

Major revisions to the Income Tax Act by the 2020 Finance Act

Note: This edit contains all amendments made by the 2020 Financial Act under the Income Tax Act relevant for 2020-21. In my opinion, the corrections and insertions that I think are important are detailed, but only the section references are included.

Important fixes at a glance:

1) Income tax rate

2) Sec 80 IAC-Rationalization of start-up regulations

3) Sec 80IBA – Deductions for builders under affordable housing

4) Sec80EEA-Deduction of interest on loans taken for housing assets

5) Sec 43CA, 50C and 56-5% to 10% increase in safe port limits

6) Section 35 AD-Provides assessors with the option of not taking advantage of deductions.

7) Section 115A-Exempt non-residents from filing certain income tax returns

8) Section 192-Deferr TDS or tax payments for income related to the ESOP of a start-up company.

9) Sec194J-Reduction of TDS charges relative to technical service charges

11) Sec206C-Expanded the scope of Sec206C for TCS taxation on certain other transactions

12) Streamline the tax treatment of employer contributions to the RPF, old-age pension fund, and NPS.

13) Section 6-Change of residence regulations

14) Article 194C-Amendment to the definition of a work under Article 194C

15) Sec 115O, 115R, 10,115UA, 115BBDA, Sec 57, 194,196A, 196C, 196D-Remove dividend distribution tax (DDT) and move to traditional system of taxing dividends in the hands of shareholders / unit holders To do.

16) Section 55-Rationalization of provisions for calculating acquisition costs.

17) Sec44AB-Rationalization of regulations related to tax audits

18) Article 288-Amendment to the provisions of the Act on Verification of Income Return and Appearance of Authorized Representatives.

19) Rationalization of provisions related to trusts, institutions and funds.

Insert new section / clause:

1) Section 194-O-TDS on E-Commerce Transactions

2) Penalty for fake invoices

3) Section 194K-TDS on Revenues from Investment Trust Units

4) Section 80M-Inter-company dividend

5) Section 285BB-Form 26AS for Providing Multiple Information

Specific corrections and mitigations with a corona pandemic

Income tax rate

1. In the case of an individual (resident or non-resident) or HUF or an individual group or an individual group or other artificial legal entity

Add:

a. Surcharge: Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:-

Marginal Relief:

A small remedy is also provided in all cases where additional charges are proposed.

1. Stopping health and education. Health and Education Cess is taxed at a rate of 4% on income tax and surcharges.

Note: Residents (net income not exceeding Rs 5,000,000) can take advantage of rebates under Section 87A. You can deduct it from your income tax before you calculate your educational tax. The amount of rebate is 100% of income tax or rupees. 12,500, whichever is less.

1. Special tax rates for individuals and HUF (new section 115BAC inserted)

The 2020 Finance Act provides individuals and HUF with the option to pay taxes at the following discount rates after the 2021-22 valuation year:

Add:

a. Surcharge: Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:-

Marginal relief:

A small remedy is also provided in all cases where additional charges are proposed.

b. . Health and Education Cess: Health and Education Cess is taxed at a rate of 4% of income tax and surcharge.

Note 1: Residents (net income not exceeding Rs 5,000,000) can take rebates under Section 87A. You can deduct it from your income tax before you calculate your educational tax. The amount of rebate is 100% of income tax or rupees. 12,500, whichever is less.

Note 2: The option to pay taxes at a lower tax rate is only available if the total income of the assessor has been calculated without claiming a specific tax exemption or deduction.

1. Domestic company

The income tax rates applicable to domestic companies in the 2020-21 and 2021-22 valuation years are as follows:

Addition:

a) Additional Charges: The amount of income tax will be increased by additional charges if the total income exceeds 1 crore rupees and not more than 10crore rupees, and at a rate of 12% of such tax and at a rate of 7% of such tax.If your total income exceeds 10 crore rupees

b) Health and education suspension: 4% of corporate tax

1. Special tax rate applicable to domestic companies

The special income tax rates applicable to domestic companies in the 2020-21 and 2021-22 valuation years are as follows:

Additional Charges: If you choose to tax based on Section 115BAA or Section 115BAB, the percentage of additional charges must be constant at 10% regardless of your total income.

Health and education suspension: @ 4% of corporate tax and surcharges

MAT: Domestic companies that choose a special tax system under Sections 115BAA and 115BAB are exempt from providing MAT. However, tax exemption does not apply if Section 11 5BA is selected.

In that case, the minimum alternative minimum tax (MAT) provisions apply and the tax payment must not be less than 15% (+ HEC) of the QBook profit calculated according to Section 11 5JB. However, MAT is a unit of the International Financial Services Center and is levied at a tax rate of 9% (and additional charges and fees, if applicable) for companies that earn income solely from convertible foreign exchange.

Fixes for Sec 115BAA and 115BAB: Currently Section 115BAA and Section

11 5BAB 5BAB of the Act, which provides an option to be taxed at a concessional tax rate if a domestic company does not use certain deductions and incentives. Deductions for Specific Income "Currently, the provisions of Section 115BAA and BAB have been amended to disallow deductions under the provisions of Chapter VI-A other than Section 80JJAA or Section 80M for domestic enterprises. Select taxation under these sections.

Effective date: April 1, 2020

2. Cooperative

Evaluation year 2020-21 and evaluation year 2021-22

Addition.

2) Extra charge. The amount of income tax shall be increased at an additional charge at a rate of 12% of the tax if the total income exceeds 1 crawl pee.

b) Health and education suspension: @ 4% of income tax and surcharge

Marginal relief:

A small remedy is also offered wherever an additional charge is offered. 2. Special tax rates applicable to co-operatives (new section 115BAD inserted)

Evaluation year 2021-22

Assessment Year 2021-22

Note:

The 2020 Finance Act has introduced a new section 115BAD into the Income Tax Act, giving co-operatives the option of being taxed at an additional charge of 22% plus 10% and a tax rate of 4%. Resident co-operatives have the option to choose taxation under the new section 115 BAD of the law. Evaluation year 2021-22. Options once exercised under this section cannot then be withdrawn in the same year or in any other year.

If the new scheme of Section 115 BAD is selected by the co-operative, its income shall be calculated without providing any specific tax exemption, deduction or incentive available under the law. Societies that choose this section are outside the scope of the Alternative Minimum Tax (AMT). In addition, the AMT Credit Calculation, Carryover and Set-off provisions shall not apply to these 6uthoriz.

The option to pay taxes at a lower tax rate shall only be available if the co-operative's total income is calculated without claiming a specific tax exemption or deduction.

Corporate / Municipal Income Tax Slabs: Not Changed.

Analysis of special tariff system:

1) If an individual or HUF chooses to pay tax at a concessional tax rate under Article 115 BAC, various conditions are stipulated. What are these conditions?

Individuals or HUFs who choose to tax under the newly inserted section 115 BAC of the Act shall not be eligible for the following tax exemptions / deductions: That is, the total income of an individual or HUF shall be calculated.

1) No tax exemption or deduction below:

(I) Leave the travel concessions contained in Section 10 (5).

(Ii) Rent allowance included in Section 10 Clause (13A).

(Iii) Part of the allowance contained in Section 10 Clause (14).

(Iv) Allowance for MP / MLA contained in Section 10 (17).

(V) Provisions for minor income included in Section 10 (32).

(Vi) Exemption from SEZ units included in Section 10AA.

(Vii) Standard deductions, entertainment allowances and employment / occupation tax deductions included in Article 16.

(Viii) Interest under Section 24 for private or vacant properties referred to in Subsection (2) of Section 23 (Loss on head income from residential assets of rental housing shall be offset under any other conditions. It cannot be the head and is allowed to be carried forward in accordance with existing law);

(Ix) Additional deprecation under clause (iia) of subsection (1) of section 32.

(X) Deductions based on sections 32AD, 33AB, 33ABA.

(Xi) Various deductions for donations or expenditures to scientific research contained in subsection (1) or subsection (2AA) sub clause (ii) or sub clause (iii) or sub clause (iii) of section 35;

(Xii) Deductions based on Section 35AD or Section 35CCC.

(Xiii) Deduction from family pension under Article 57

(Xiv) Deductions based on Chapter VIA (Sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80- IB, 80-IBA, etc.). However, you can claim a deduction under Section 80 CCD (employer's contribution by an employee of the notified pension plan) and Section 80JJAA (for new hires) subsection (2).

2) The following allowances are deducted:-

(A) Transportation allowances granted to divyang employees to meet commuting expenses between their place of residence and work.

(B) Transportation allowances granted to cover transportation costs in the performance of office duties.

(C) Allowance granted to cover travel expenses for tours or transfers.

(D) Daily allowance to meet normal daily charges incurred due to an employee's absence from his or her place of work.

3) Without offsetting the loss —

(A) In the case of loss or depreciation due to any of the deductions mentioned in Point 1 above, carry forward or depreciation from the previous valuation year.

(B) With other income managers under the heading "Income from Housing Assets".

4) Request depreciation determined by the prescribed method under Article 32, except for the provision (i) of its subsection

5) No tax exemption or deduction-

For the time being, any allowance or requirement, whatever the name, provided under other laws.

The losses and depreciation mentioned in Point 3 above are considered to be fully valid and no further deductions for such losses or depreciation shall be permitted in subsequent years. Asset blocks that are not fully effective prior to the valuation year beginning April 1, 2021 will be adjusted in a prescribed manner to the depreciation amount of the asset block as of April 1, 2020. It shall be. When the option is exercised in the previous year related to the evaluation year starting April 1, 2021

2) When and how can the concessional interest rate option be applied and can the option once exercised be changed?

In this regard, subsection 5 of section 115 BAC reads:

(5) Nothing contained in this section shall apply unless the person exercises the option in the prescribed manner.

(I) Such options, once exercised, in April 2021, earning income from a business or profession at or before the date specified in subsection (1) of Section 139, are subsequently evaluated. It shall apply to the year.

(Ii) If there is a refund of income other than the income mentioned in paragraph (i) and income provided under subsection (1) of Section 139 of the previous year related to the valuation year:

Options under clause (i) may be revoked only once in the previous year other than the year in which they were exercised after being exercised in the previous year, and are not eligible to exercise options under this section thereafter. Unless such person loses income from a business or profession, then options under clause (ii) shall be available.

So:

Method and timing: The choice to use the scheme is made when submitting a refund of income.

Can I change the options I have exercised once?

Yes,

Assessors with income other than income from business or profession have the right to choose between the old scheme and the new scheme of the previous year when submitting a refund of income in 139 (1).

However,

Assessors with income from business or profession will have access to this option for AYs beginning on or after April 1, 2021, and once exercised options shall apply in subsequent evaluation years. In such cases, an option exercised once in the previous year is not eligible to exercise an option under this section after the previous year other than the year in which it was exercised, unless there is no income from the business or occupation.

3) What percentage should the employer deduct TDS in such situations if it is not known which scheme employees are available?

CBDT has published Circular Video F.No.370142 / 13/2020-TPL dated April 13, 2020 in this regard. Circular said:

"For employees who have income other than business or occupational income, and if they intend to take advantage of the 115BAC preferential tax rate, they shall establish an intimate relationship with the deductor (employer) each previous year. In response to such notice, the deductor shall prepare the TDS according to the concessional rate. If the employee does not give such notice, the employer shall not consider the provisions of paragraph 115BAC. Suppose you want to create a TDS.

The notice so given to the deductor is for TDS purposes only in the previous year and cannot be changed during the year. However, this does not mean exercising the 115BAC option. The option to choose a scheme is always at the time of filing an income refund u / s 139 (1). Therefore, options when submitting an income refund and notification to the employer may differ. "

2. Sec 80IAC-Rationalization of start-up regulations

Existing Provisions: Section 80 of the Law-The existing provisions of the IAC provide a deduction of profits from eligible businesses and an amount equivalent to 100% of the profits, and eligible start ups will be incorporated after April 1, 2016. 7 years at the discretion of the assessor, provided that the total sales of the business do not exceed 25 crores , before April 1, 2021. ..

Amended Section: The section article has been amended.

(I) The deduction under Section 80-IAC above shall be available to eligible start-ups for the third consecutive valuation period of the ten years beginning from the year in which it was incorporated.

(Ii) Deductions under this section shall be available to eligible start-ups if the total sales of the business do not exceed 100 crores in any of the past years beginning from the year in which it was established.

Effective date: April 1, 2021

3. Sec 80IBA – Deductions for builders under affordable housing

Existing Provisions: The existing provisions of Section 80-IBA of the Act, among other things, where the total income of the assessed person includes benefits and benefits from the development and construction of affordable housing projects. Under certain conditions specified in, a deduction of the profits from such a business and an amount equivalent to 100% of the profits is permitted. The conditions contained in this section, among other things, stipulate that the project be approved by the competent authority during the period from June 1, 2016 to March 31, 2020.

Amendment: Under Amendment Section 80IBA, the approval period for projects by competent authorities to take advantage of deductions under this section has been extended to March 31, 2021.

Effective date: April 1, 2021

Key takeaways:

1. A tax audit is a full-time audit conducted by a certified accountant regarding tax matters only, and is a report confirming that taxpayers do not conceal their income and that they do not have to pay their tax obligations.
2. Section 44 AA of Income Tax Act, 1961-Maintaining account by a specific person who runs a profession or business
3. Film artists include actors, photographers, directors, music directors, and art directors, dance directors including assistants, editors, singers, lyric poets, story writers, screenwriters, dialogue writers, and dress designers.
4. Applicable books or documents shall be stored and maintained in a professional carrying location.
5. The "Tax Audit Guidance Note" issued by ICAI stipulates that if the subject of assessment includes consumption tax and consumption tax in the selling price, sales will include consumption tax and consumption tax (comprehensive).
6. Companies with an estimated tax system do not need to maintain regular accounting books.
7. In other words, this scheme may not be adopted by anyone other than non-residents and individuals, HUF, or partnership companies (not limited partnership companies).
8. The business of ply, employment, or leasing of goods transportation mentioned in Sec 44 AE.
9. Article forty four for the ones who've decided on the envisioned taxation device of AD, the permit / disapproval provisions stipulated beneath the Income Tax Act do now no longer practice and the earnings calculated at an envisioned charge of 8% / 6% is envisioned.
10. Section 44ADA was inserted after Section 44AD of the Income Tax Act of 1961, which came into effect from fiscal year 2016-17 and is on an estimated basis for the specific experts mentioned in Section 44AA (1) of the Income Tax Act.
11. Section 44AE of the Income Tax Act of 1961
12. Special provisions for calculating the profits and profits of the business of ply, employment, or leasing of goods.
13. If the assessor owns a "light car": the profit must be equal to rupees. 7500 for the month or part of the month in which the assessor owned a heavy-duty vehicle in the previous year
14. The Fiscal 2020 Act has resulted in various amendments to income tax related to fiscal year 2020-21.
15. Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits
16. The amount of income tax will be increased by additional charges if the total income exceeds 1 crore rupees and not more than 10crore rupees, and at a rate of 12% of such tax and at a rate of 7% of such tax. If your total income exceeds 10 crore rupees
17. The 2020 Finance Act has introduced a new section 115BAD into the Income Tax Act, giving co-operatives the option of being taxed at an additional charge of 22% plus 10% and a tax rate of 4%.
18. The existing provisions of Section 80-IBA of the Act, among other things, where the total income of the assessed person includes benefits and benefits from the development and construction of affordable housing projects.

Reference:

1. Fundamentals of Accounting and Auditing The Institute of Company Secretaries of India
2. Practical Auditing Spicer and Peglar