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IFC & Income Tax Audits | SG Legals

IFC & Income Tax Audits

Internal Financial Controls audit and Income Tax audit services ensuring your organization meets statutory requirements and maintains robust financial governance.

IFC & Income Tax Audits

Internal Financial Controls (IFC) audit is a mandatory requirement under the Companies Act, 2013 for certain categories of companies. It assesses whether the company has adequate internal financial controls in place and if such controls are operating effectively.

Income Tax Audit under Section 44AB/Section 63 of the Inceome Tax Act, 2025 of the Income Tax Act, 1961 is a mandatory audit requirement for businesses and professionals whose turnover or gross receipts exceed the prescribed threshold limits.

Mandatory compliance under Companies Act, 2013 & Income Tax Act, 1961
IFC Income Tax Audits
IFC Income Tax Audits

Internal Financial Controls (IFC) Audit

MCA vide its notification dated 13th June 2017 [G.S.R. 583(E)] amended the notification of the Government of India, In the ministry of corporate of affair, vide no G.S.R. 464(E) dated 05th June 2015 providing exemption from IFCs to following private companies:

OPC or Small Companies

All One Person or Small Companies are exempt from maintaining adequate internal financial controls and have them audited.

Turnover less than Rs.50 Crore

Companies with annual turnover of less than Rs.50 crore as per latest audited financial statements are exempt from IFC audit requirements.

Borrowings less than Rs.25 Crore

Companies with outstanding loans or borrowings from banks or public financial institutions or any body corporate at any point of time during the financial year less than Rs.25 crore are exempt from IFC audit requirements.

The auditor is not required to report about the IFCs of the above exempted companies with reference to financial statements in place. However, the exemptions available to Private Company under section 143(3)(i) would be available only if private company has not committed a default in filing its financial statements under section 137 of the Companies Act, 2013 or annual return under section 92 of the Companies Act, 2013 with the Registrar.

Income Tax Audit (Section 44AB/Section 63)

Section 44AB/Section 63 of the Inceome Tax Act, 2025 of the Income Tax Act mandates certain taxpayers to get their accounts audited by a Chartered Accountant and submit the audit report along with the return of income.

Business Turnover Threshold

A person carrying on a business is required to get their accounts audited if the total sales, turnover, or gross receipts from business exceed Rs.1 crore in any previous year (Rs.10 crore if cash transactions are up to 5% of total transactions).

Profession Receipts Threshold

A person carrying on a profession is required to get their accounts audited if the gross receipts from profession exceed Rs.50 lakh in any previous year under the provisions of Section 44AB/Section 63 of the Inceome Tax Act, 2025.

Key Deadline: The tax audit report must be filed by 30th September of the assessment year, and by 31st October for entities with international transactions or specified domestic transactions.

Documents Required

The following documents are typically required to conduct a comprehensive IFC and Income Tax Audit:

01
Financial Statements
02
Books of Accounts
03
Trial Balance
04
Bank Statements
05
Tax Computation Statement
06
Previous Year Tax Returns
07
TDS Certificates
08
Loan & Liability Statements
09
Fixed Asset Register
10
Internal Policy Documents

Audit Process

1

Engagement & Planning

Understand the entity's business, identify key risk areas, and prepare a comprehensive audit plan aligned with statutory requirements.

2

Evidence Gathering & Testing

Review financial records, test internal controls, verify transactions, and gather sufficient audit evidence to support the audit opinion.

3

Report Preparation

Prepare Form 3CA/3CB and 3CD (for income tax) and IFC audit report in the prescribed format with findings and observations.

4

Filing & Submission

Submit the audit report electronically on the Income Tax portal and file the required forms within the prescribed due dates.

Benefits of IFC & Tax Audits

Statutory Compliance

Ensures full compliance with the Companies Act and Income Tax Act requirements, avoiding penalties.

Financial Accuracy

Ensures financial statements are accurate, complete, and prepared in accordance with applicable standards.

Fraud Prevention

Identifies weaknesses in internal financial controls and helps prevent financial fraud and misstatements.

Investor Confidence

Boosts investor and stakeholder confidence through transparent and reliable financial reporting.

Tax Optimization

Helps identify legitimate tax optimization opportunities and ensures correct tax computation and compliance.

Note: Also note that the Income-tax Act, 2025 becomes effective from 1 April 2026 (AY 2026-27 onwards). For AY 2025-26, tax audits are still governed by Section 44AB of the Income-tax Act, 1961.
 
     
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