This guide is general information. If you would rather a chartered accountant handled it, see Statutory Audit or Tax Audit (Section 44AB).
Business owners often mix up the three audits. They differ in purpose, law and who asks for them.
| Statutory audit | Tax audit | Internal audit | |
|---|---|---|---|
| Governing law | Companies Act or LLP Act | Income-tax Act, Section 44AB | Companies Act for specified companies; otherwise voluntary |
| Purpose | True and fair view of financial statements | Tax compliance reporting | Review of controls and processes |
| Who conducts | Independent chartered accountant | Chartered accountant | Internal team or outside firm |
| Report goes to | Members and the Registrar | Income Tax Department | Management or board |
| Mandatory for | All companies; some LLPs | Taxpayers crossing limits | Specified larger companies |
Do I need more than one?
Yes, often. A private limited company needs a statutory audit every year, and also a tax audit if its turnover crosses the limit. Internal audit is required for companies meeting specified thresholds and useful for anyone who wants better controls.
Choosing an auditor
Statutory auditors must meet independence rules. The same firm can often do statutory and tax audit, but internal audit by the statutory auditor is generally not allowed for companies where internal audit is mandatory.
A worked example
Consider a private limited company with a turnover of ₹3 crore that sells goods to other businesses. The company must get a statutory audit every year, because it is a company. It also needs a tax audit if its turnover crosses the limit under Section 44AB, which depends partly on how much of its receipts and payments are in cash. The directors may separately choose to hire an outside firm for an internal audit of inventory and purchases because they want better controls. Three different audits, three different purposes, and three different reports.
Who relies on each report
- Statutory audit report: shareholders, the Registrar of Companies, lenders and investors.
- Tax audit report: the Income Tax Department, which uses it in assessing your return.
- Internal audit report: the board and management, who use it to fix weaknesses.
Timing and effort
A statutory audit usually follows the year end, once the books are closed and before the annual general meeting. A tax audit is due before the date set for filing the audit report with the income tax return. Internal audit often runs throughout the year in periodic visits, so issues are found as they occur. Because the statutory and tax audits both use the same books, doing them together saves effort, and many businesses give both to the same firm.
Choosing between auditors
Statutory auditors must be independent. For companies where internal audit is mandatory, the law limits the services the statutory auditor can also provide, so that the two roles stay separate. Ask any prospective auditor to confirm their eligibility before appointment.
Mistakes business owners make about audits
- Assuming that a tax audit replaces a statutory audit, or the reverse.
- Leaving audit to the last month and then rushing the books.
- Hiring a statutory auditor who is not eligible under the Companies Act.
- Skipping internal audit until after a fraud or major error is discovered.
- Treating the auditor as an adversary and holding back information.
How to get more from an audit
A good audit is a conversation. Share information early, explain unusual transactions, and agree on a calendar. Ask the auditor for a short management letter that lists weak controls and simple fixes. Over a few years, this turns an annual obligation into a way to reduce errors, speed up closing and make lenders and investors more comfortable.
Sources for the rules
Statutory audit is governed by Sections 139 to 148 of the Companies Act, 2013 and the LLP Act, 2008. Tax audit is governed by Section 44AB of the Income-tax Act and the related rules. Internal audit requirements for specified companies sit in Section 138 of the Companies Act and the rules under it. Check the official sources of the Ministry of Corporate Affairs and the Income Tax Department for the latest text.
Questions to ask before appointing an auditor
- Are you eligible under the Companies Act and free from disqualifications?
- What is the scope of work, the timeline and the fee?
- Who will do the fieldwork, and who will sign the report?
- How will you communicate issues found during the audit?
- Do you provide any other services that might affect your independence?
Frequently asked questions
Can one firm do statutory audit and tax audit?
Yes, in many cases the same firm can do both, provided it meets the independence rules under the Companies Act and the professional guidelines.
Is internal audit mandatory?
It is mandatory for certain classes of companies that cross specified thresholds, such as listed companies and larger unlisted ones. For others it is voluntary but useful.
Does an LLP need a statutory audit?
Only if its turnover exceeds ₹40 lakh or its contribution exceeds ₹25 lakh. Otherwise there is no mandatory audit under the LLP Act, though a tax audit may still apply.
Which audit do banks ask for?
Banks usually want audited financial statements, which come from the statutory audit, and sometimes a stock audit or concurrent audit for the facility they have granted.
This content is for general information and does not constitute professional advice. Laws, rates and due dates change; confirm the current position for your case. Section references are to the Income-tax Act, 1961 unless stated; the Income-tax Act, 2025 applies to later periods with renumbered sections.