Introduction
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Small and medium-sized enterprises (SMEs) in India may come across different types of audits under the Companies Act, Income-tax Act, and GST law. Although these audits involve examination of financial and tax records, their purpose, applicability, scope, reporting requirements, and consequences are different.
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A common misconception among business owners is that completing one audit automatically satisfies all other audit requirements. This is not necessarily the case.
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For SMEs, understanding the difference between Statutory Audit, Tax Audit, and GST Audit is important for maintaining proper compliance and avoiding unnecessary interest, penalties, notices, and reporting issues.
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This article explains the key differences between these three compliance requirements for 2026.
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What is a Statutory Audit?
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A Statutory Audit is an audit required under the applicable law governing the entity.
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For companies registered under the Companies Act, 2013, statutory audit is generally mandatory irrespective of the company’s turnover or profitability, subject to the applicable provisions of the law.
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The objective is to obtain an independent opinion on whether the financial statements present a true and fair view of the company’s financial position and financial performance.
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Who Conducts the Statutory Audit?
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The statutory audit of a company is conducted by an independent Chartered Accountant\/CA firm appointed as statutory auditor in accordance with the Companies Act.
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What Does a Statutory Audit Cover?
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A statutory auditor generally examines:
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Balance Sheet
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Statement of Profit and Loss
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Cash Flow Statement, where applicable
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Accounting records
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Fixed assets
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Investments
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Loans and advances
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Trade receivables and payables
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Revenue and expenses
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Internal controls, to the extent relevant
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Statutory compliance
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Related-party transactions
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Other matters prescribed under applicable law
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The auditor then issues the applicable Independent Auditor’s Report.
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What is a Tax Audit?
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A Tax Audit is conducted under Section 44AB of the Income-tax Act when the prescribed conditions are satisfied.
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The objective is to verify and report information relevant to the computation of taxable income and compliance with the Income-tax Act.
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Unlike statutory audit, tax audit is primarily focused on income-tax compliance, rather than whether the financial statements present a true and fair view.
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Who is Required to Get a Tax Audit?
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Tax audit applicability depends on factors such as:
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Nature of business or profession
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Turnover or gross receipts
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Cash transaction thresholds
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Presumptive taxation provisions
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Income declared
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Other conditions prescribed under the Income-tax Act
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For businesses, the basic turnover threshold is generally \u20b91 crore.
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However, the threshold can increase to \u20b910 crore where the prescribed conditions relating to cash receipts and cash payments are satisfied.
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The applicability of tax audit should therefore be evaluated based on the facts of each taxpayer and the provisions applicable to the relevant assessment year.
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What Does a Tax Audit Cover?
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The tax auditor examines and reports matters such as:
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Turnover or gross receipts
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Gross profit and net profit
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Depreciation
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Expenses
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Loans and deposits
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Payments covered under TDS provisions
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GST and other statutory dues
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Specified payments
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Accounting methods
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Quantitative details, where applicable
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Certain transactions with related or specified persons
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Compliance with various provisions of the Income-tax Act
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The audit report is generally furnished electronically in the prescribed forms, primarily Form 3CA\/3CB along with Form 3CD, depending on the circumstances.
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What About GST Audit?
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This area requires particular attention because the GST audit framework has changed significantly.
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Earlier, taxpayers meeting the prescribed turnover threshold were required to undergo a separate GST audit by a Chartered Accountant or Cost Accountant under Section 35(5) of the CGST Act, accompanied by reconciliation requirements.
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However, the requirement for a separate GST audit under Section 35(5) was omitted with effect from the relevant statutory changes.
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Therefore, businesses should not treat the old concept of a mandatory annual “GST Audit” by a CA\/Cost Accountant as continuing in the same form in 2026.
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Instead, GST compliance now focuses significantly on self-certification and reconciliation, including the filing of GSTR-9 and, where applicable, GSTR-9C, subject to the turnover thresholds and exemptions applicable for the relevant financial year.
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GSTR-9 and GSTR-9C
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GSTR-9
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GSTR-9 is the annual return containing a consolidated summary of:
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Outward supplies
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Inward supplies
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ITC
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Tax paid
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Amendments
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Other GST-related information
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Its applicability depends on the taxpayer category and the exemptions\/relaxations prescribed for the relevant year.
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GSTR-9C
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GSTR-9C is a self-certified reconciliation statement for taxpayers to whom the prescribed turnover threshold applies.
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It broadly reconciles:
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Books of accounts with GST returns
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Turnover
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Taxable turnover
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Tax liability
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Tax paid
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Input Tax Credit
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The applicability and turnover threshold should be checked for the specific financial year because GST annual return and reconciliation requirements may be amended through notifications.
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Key Difference Between the Three
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Particulars\tStatutory Audit\tTax Audit\tGST Annual Compliance \/ Reconciliation
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Primary Law\tCompanies Act, 2013 \/ applicable entity law\tIncome-tax Act, 1961\tCGST Act & Rules
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Main Objective\tTrue & fair view of financial statements\tIncome-tax compliance\tGST return and books reconciliation
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Applicable To\tCompanies and other entities where prescribed\tBusinesses\/professionals meeting conditions\tRegistered taxpayers subject to annual return\/reconciliation requirements
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Auditor\tStatutory Auditor\tTax Auditor\tGSTR-9C is self-certified under current framework
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Main Reporting\tAuditor’s Report\tForm 3CA\/3CB + Form 3CD\tGSTR-9 \/ GSTR-9C, as applicable
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Main Focus\tFinancial statements\tTaxable income & tax provisions\tGST turnover, tax & ITC
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Turnover-Based?\tGenerally no for companies\tYes, subject to prescribed conditions\tYes, for applicable annual return\/reconciliation requirements
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Separate GST Audit by CA\/CMA\tNot applicable\tNot applicable\tNo separate Section 35(5) GST audit in the earlier form
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Example: SME Company
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Consider ABC Private Limited, having:
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Annual turnover: \u20b98 crore
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Profit before tax: \u20b980 lakh
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Significant GST transactions
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Regular banking and vendor transactions
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Statutory Audit
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As a company, ABC Pvt. Ltd. will generally require a statutory audit under the Companies Act.
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Tax Audit
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ABC Pvt. Ltd. may also be subject to tax audit under Section 44AB, depending on the applicable turnover and other statutory conditions.
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GST Compliance
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ABC Pvt. Ltd. will need to evaluate its annual GST return and reconciliation requirements, including GSTR-9 and GSTR-9C wherever applicable.
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Therefore, one company may have to comply with all three frameworks, although they serve different purposes.
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Statutory Audit vs Tax Audit
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The biggest difference is their objective.
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Statutory Audit
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The statutory auditor primarily provides an independent opinion regarding the financial statements.
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Tax Audit
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The tax auditor reports prescribed information relevant to determining taxable income and compliance with income-tax provisions.
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Therefore, even if a company has completed its statutory audit, additional tax audit reporting may still be required.
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Tax Audit vs GST Reconciliation
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Tax audit focuses on the Income-tax Act, while GST reconciliation focuses on the GST framework.
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For example, a tax auditor may examine:
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Business expenses
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Depreciation
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TDS compliance
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Taxable profit
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Specified payments
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GST reconciliation may focus on:
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GSTR-1 vs books
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GSTR-3B vs books
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GSTR-2B vs purchase records
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Output tax
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Input Tax Credit
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Credit notes and debit notes
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GST turnover
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Why Reconciliation is Important for SMEs
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SMEs frequently face differences between accounting records and tax returns.
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Common reasons include:
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Timing differences
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Credit notes issued later
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Invoices reported in a different tax period
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Advances
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Wrong GST classification
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ITC appearing in a different period
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RCM transactions
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Export transactions
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Exempt supplies
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TDS\/TCS differences
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Unrecorded invoices
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Regular reconciliation helps identify these issues before annual compliance.
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Common Mistakes SMEs Should Avoid
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1. Assuming Statutory Audit Covers Tax Audit
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A statutory audit and tax audit are separate compliance requirements.
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2. Treating GST Returns as Completely Separate from Books
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GST returns should be reconciled with accounting records regularly.
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3. Ignoring GSTR-2B Reconciliation
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Differences in ITC can lead to disputes and cash-flow issues.
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4. Waiting Until Year-End
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Trying to reconcile the entire year at the time of annual filing can create unnecessary pressure.
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5. Incorrect Revenue Classification
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Businesses should properly classify:
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B2B sales
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B2C sales
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Exports
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Exempt supplies
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Nil-rated supplies
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Zero-rated supplies
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6. Ignoring TDS
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TDS deductions, payments, and reporting should be reconciled with the books and Form 26AS\/AIS wherever relevant.
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Recommended Compliance Process for SMEs
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SMEs can establish a monthly or quarterly compliance process:
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Step 1 \u2013 Close the Books
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Complete monthly accounting and bank reconciliation.
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Step 2 \u2013 Reconcile Sales
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Compare:
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Books \u2192 Sales Register \u2192 GSTR-1 \u2192 GSTR-3B
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Step 3 \u2013 Reconcile Purchases and ITC
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Compare:
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Purchase Register \u2192 GSTR-2B \u2192 ITC claimed in GSTR-3B
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Step 4 \u2013 Review TDS
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Reconcile:
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Books \u2192 TDS Ledger \u2192 TDS Returns \u2192 Form 26AS\/AIS
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Step 5 \u2013 Review Year-End Adjustments
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Check:
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Provisions
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Accruals
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Depreciation
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Outstanding expenses
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Prepaid expenses
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Closing stock
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Fixed assets
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Step 6 \u2013 Prepare for Audits
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Once books are finalized, provide the necessary schedules and supporting documents to the statutory auditor and tax auditor.
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How SMEs Can Reduce Compliance Risk
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Businesses should maintain:
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Proper accounting records
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Vendor and customer ledgers
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Bank reconciliations
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GST reconciliations
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TDS reconciliations
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Fixed asset registers
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Stock records, where applicable
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Invoice documentation
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Agreements and contracts
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Supporting documents for expenses
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A properly maintained accounting system makes statutory, tax, and GST compliance substantially easier.
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Conclusion
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Statutory Audit, Tax Audit, and GST annual compliance are different requirements with different objectives.
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A statutory audit primarily examines financial statements, while a tax audit focuses on information required under the Income-tax Act. GST compliance focuses on GST returns, tax payments, ITC, and reconciliation of GST data with accounting records.
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For SMEs, the key is not simply completing an audit but ensuring that books of accounts, income-tax records, GST returns, and supporting documents are properly reconciled.<\/p>\n","protected":false},"excerpt":{"rendered":"
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