Financial Audit vs Tax Audit in India: Key Differences Explained
Introduction
In the Indian regulatory landscape, businesses often confuse two crucial compliance requirements: financial audits and tax audits. While both serve as important tools for accountability and transparency, they differ in terms of purpose, legal requirements, applicability, and process.
In this article, the experts at Makwana Sweta & Associates explain the major differences between financial vs tax audit in India, helping business owners understand their obligations under the law.
What is a Financial Audit?
A financial audit is an independent examination of a company’s financial statements. The primary objective is to ensure that the records present a true and fair view of the financial performance and position of the company.
Key Features:
- Conducted under: Companies Act, 2013
- Applicability: All companies registered under the Companies Act
- Performed by: Chartered Accountant in Mumbai or elsewhere, appointed as statutory auditors
- Objective: Ensure accuracy and transparency of financial reporting
When is a Financial Audit Mandatory?
- For private limited companies, LLPs, and public limited companies
- Turnover or capital contribution thresholds as per the Companies Act
Did You Know? All companies, regardless of their turnover, are mandated to conduct a financial audit annually.
What is a Tax Audit?
A tax audit, on the other hand, is conducted to verify the correctness of income declared and the deductions claimed under the Income Tax Act, 1961.
Key Features:
- Conducted under: Section 44AB of the Income Tax Act
- Applicability: Businesses with turnover > Rs. 1 crore and professionals with gross receipts > Rs. 50 lakhs (as of AY 2025-26)
- Performed by: Chartered Accountant registered with ICAI
- Objective: Ensure correct calculation of taxable income
Types of Tax Audit Forms:
- Form 3CA & 3CD: For companies already audited under any other law
- Form 3CB & 3CD: For those not audited under other laws
Latest Update (2025): The threshold for tax audit has increased to Rs. 10 crores for businesses opting for digital payments (at least 95% of receipts and payments).
Financial Audit vs Tax Audit: A Comparative Table
| Basis | Financial Audit | Tax Audit |
|---|---|---|
| Governing Law | Companies Act, 2013 | Income Tax Act, 1961 |
| Applicability | All companies | Businesses > Rs. 1 Cr or professionals > Rs. 50 Lakhs |
| Objective | Fairness of financial statements | Accuracy of income declared |
| Auditor | Statutory CA | Tax Auditor CA |
| Audit Report | Audit Report & Financial Statements | Form 3CA/3CB & 3CD |
| Frequency | Annually | Annually (if criteria met) |
Importance of Each Audit
Why Financial Audit is Important:
- Builds investor confidence
- Required for loan approvals
- Ensures compliance with company laws
Why Tax Audit is Crucial:
- Reduces chances of tax penalties
- Required for tax return filing
- Assures compliance with income tax provisions
How Makwana Sweta & Associates Can Help
Our experienced team of Tax Consultants in Mumbai and Chartered Accountant Services Mumbai ensure your audits are accurate, timely, and compliant. Whether you need a CA in Mumbai for annual statutory audits or assistance with tax audits, we provide end-to-end support.
Common Mistakes to Avoid
- Not appointing an auditor on time
- Missing tax audit deadlines (usually 30th September)
- Incorrect form selection (3CA vs 3CB)
Expert Tip: Consult a qualified Chartered Accountant in Mumbai early in the financial year to avoid last-minute audit stress.
Final Thoughts
While both audits serve different purposes, each plays a vital role in your business’s regulatory framework. Ignoring either can lead to penalties and credibility loss.
If you’re unsure which audit applies to your business, consult the experts at Makwana Sweta & Associates, your trusted provider of CA services in Mumbai and beyond.
Useful Links
- Outbound: Income Tax Act, Section 44AB
- Inbound: How to Register an LLP