• For Private Company-> Minimum 2 Directors, Maximum 15 Directors
• For Public Company -> Minimum 3 Directors, Maximum 15 Directors
• For One Person Company-> Only 1 Director, Maximum 15 Directors

• For Private Company -> Minimum 2 Members, Maximum 200 Members
• For Public Company -> Minimum 3 Members, Maximum- No Limit
• For One Person Company -> Only 1 Member

• For Private Company -> Minimum – No Limit, Maximum No Limit
• For Public Company -> Minimum –  5 Lacs, Maximum- No Limit
• For One Person Company -> Minimum- No Limit

• a) Proof of office address
• b) Copy of utility bills
• c) NOC for use premises for registered office of proposed Company from owner and person whose name mentioned in utility bill
• d) Proof of identity as well as the residential address of subscribers
• e) Proof of identity as well as the residential address of Directors

Registered office of the company is the place where all the communication regarding the  company is sent by the governmental departments.

To become the director of the Company one must have a valid DIN( Director Identification Number) . It is a unique number allotted by the Central Government to the person intending to become the director of the company.

RUN Service is a simple service which is used for reserving the name for change of name of an existing company. The charges to avail RUN Service is Rs. 1000/- and maximum of two names can be applied.

• a) Proposed Name should not be identical or resemble to the name of an existing company/LLP
• b) Proposed Name should not includes words which are registered under Trademark Act with a specific class(es)
• c) Proposed Name indicates words Finance/Investment/Capital/ Holding/ Insurance etc whereas the proposed objects of the Company do not indicate such activities.
• d) Objects mentioned in the form are vague and the TM cannot be ascertained. (E.g. manufacturing / development / producing of all type of goods etc.)
• e) Name contain words viz Board, National, Commission etc as given in Rule 8B of the Companies (Incorporation) Rules, 2014 for which previous approval of the Central Government is required.
• f) Application made with Restricted and Undesirable names (System may not allow filing of such applications)
• g) Proposed name if resembles closely the popular or abbreviated description of an existing company or limited liability as per rule 8A(1)(h) of Companies (Incorporation) Fifth Amendment Rules,2019.
• h) Previous approval of the Central Government has not been obtained and attached with application Where any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage of, the Government, or any local authority, corporation or body constituted by the any Government.

Spice+ is a single web based integrated form divided into two parts i.e. Spice+ Part A and SPICE+ Part B where all the services in regards to company formation is provided. This form acts as a simple procedure for company formation and saves cost and time.

Spice+ Part A represents the section for reservation of name for a new company. SPICe+ Part A can either be submitted individually for name reservation only with a fee of Rs. 1000/- wherein two names can be proposed or can be submitted together with SPICe+ Part B for both name reservation as well as incorporation and for availing other integrated services.

It offers following services:

1. Incorporation of a company
2. DIN Allotment
3. PAN and TAN Allotment
4. EPFO Registration
5. ESIC Registration
6. opening of bank Account of the Company
7. GST Number (if Applied)
8. Allotment of Shops and Establishment Registration Number (Only for Delhi Location).

The following documents are required to be enclosed:

For SPICe+:

• a) Memorandum of Association
• b) Articles of Association
• c) Declaration by the first director(s) and subscriber(s) (Affidavit not required)
• d) Proof of office address
• e) Copy of utility bills
• f) NOC for use premises for registered office of proposed Company from owner and person whose name mentioned in utility bill
• g) Copy of certificate of incorporation of foreign body corporate (if any)
• h) The interest of first director(s) in other entities
• i) Consent of Nominee (INC–3)(Applicable for one person Company)
• j) Proof of identity as well as the residential address of subscribers
• k) Proof of identity as well as residential address of the nominee
• l) Proof of identity and address of Applicant I,II,III (Subscriber or Director)
• m) Declaration in Form No. INC – 14(Applicable for section 8 Company)
• n) Declaration in Form No. INC – 15(Applicable for section 8 Company)
• o) Optional attachments (if any)

Following is the sequence of uploading linked forms to SPICE +:

• a) eMOA[if applicable]
• b) eAOA [if applicable]
• c) URC-1[if applicable]
• d) AGILE-PRO [mandatory in all the cases]
• e) INC-9 [if applicable].

Following is the sequence of uploading linked forms to SPICE +:

• a) eMOA[if applicable]
• b) eAOA [if applicable]
• c) URC-1[if applicable]
• d) AGILE-PRO (mandatory in all the cases)
• e) INC-9[if applicable].

Once the SPICe+ is filled completely, the same have to be converted into pdf format, for affixing DSCs. Thereafter all digitally signed applications can be uploaded along with the linked forms.

The version of the PDF should be latest.

1. The version of the PDF should be latest.
2. Form is digitally signed by the director as well as the Professional.
3. Digital signatures are validated and the same should be registered on MCA Portal under the specified category.
4. The directors are not disqualified under any provision of the Companies Act, 2013.
5. Size of the documents attached are within the prescribed limit.
6. Documents attached are legible and clear.
7. Signature are not copy pasted in any of the documents attached

Yes, Changes/modifications to SPICe+(even after generating pdf and affixing DSCs), can be made up to five times by editing the same web form application which has been saved, generating the updated pdf affixing DSCs and uploading the same.

Yes, it shall be mandatory for each one of them to obtain a DSC.

INC-9 shall be auto-generated in pdf format and would have to be submitted only in electronic form in all cases, except where:

(i) Total number of subscribers and/or directors is greater than 20 and/or

(ii) Any such subscribers and/or directors haven either DIN nor PAN.

AGILE-PRO-S is  a form for applying Goods and Service Tax Identification Number (GSTIN), Employee State Insurance Corporation (ESIC), Employees’ Provident Fund Organisation (EPFO) Registration, Opening of Bank Account and Shops and Establishment Registration Number.

The Fees for incorporation of   Company depends upon Authorised Share Capital of Company. Stamp duty rates will be different for different states. Applicant shall note that if Company attempts to first reserve the name of the proposed company by separately filing SPICe+part A for name approval then INR 1000/- shall be charged for name reservation Also for PAN-Rs.66/- and TAN-Rs.65/-becomes payable.

On approval of SPICe+ forms, the Certificate of Incorporation (Col) is issued with PAN as allotted by the Income Tax Department. An electronic mail with Certificate of Incorporation (Col) as an attachment along with PAN and TAN is also sent. Further PAN card shall be issued by the Income Tax Department.

For successful resubmission of forms, all the linked forms to SPICe+ are regenerated everytime even though no changes are made in such web-forms.

Maximum size of attachment in SPICe+ is 10 MB for each of the PDF form.

Two re-submission are allowed to rectify the defects.

The first step to incorporate Limited liability partnership (LLP) is reservation of name. Form 1,has to be filed for reservation of the name of a LLP business.

After reservation of a name, user has to file Form Fillip  for incorporating a new Limited Liability Partnership (LLP).

This Form Fillip contains the details of LLP proposed to be incorporated, partners’/ designated partners’ details and consent of the partners/ designated partners to act as partners/ designated partners.

LLP Agreement: Execution of LLP Agreement is mandatory as per Section 23 of the Act. LLP Agreement is required to be filed with the registrar in Form 3 within 30 days of incorporation of LLP.

Designated partner identification number (DPIN / DIN) has to be obtained along with Digital Signatures.

Yes, an existing partnership firm can be converted into LLP by filing Form 17 and Form Fillip.

Yes, an existing company can be converted into LLP by filing Form 18 and Form Fillip.

No, only a Private limited Company and Unlisted Public Company can be converted into LLP.

No, name of the LLP shall end with either ‘Limited Liability Partnership’ or ‘LLP’. Word ‘limited’ shall be allowed in name only within ‘Limited Liability Partnership’.

The approved name of LLP shall be valid for a period of 3 months from the date of approval. If the proposed LLP is not incorporated within such period, the name shall be lapsed and will be available for other applicant/ LLP. Please note that there shall not be any provision for renewal of the name.

There shall be atleast two Designated Partners, who shall be individuals and at least one of the Designated Partner shall be a resident of India.
In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners.

Form 8 (Statement of Account & Solvency) and Form 11 (Annual Return) annually. The ‘Annual Return’ is required to be filed within 60 days of close of the financial year and ‘Statement of Accounts & Solvency’ shall be filed within 30 days from the end of six months of the financial year to which it relates. Every LLP has to maintain uniform financial year ending on 31st March of a year.

Every LLP in India, whose annual turnover exceeds Rs. 40 Lakhs or the total contribution of its partners gets above the limit of Rs. 25Lakhs, is required to get its accounts audited every financial year.

The change has to be intimated within fifteen days of such change. The LLP, in turn, would be under obligation to file such details with the Registrar within thirty days of such change in Form 4.

A Limited Liability Partnership is a legal entity separate from its partners and therefore, offers limited liability to its partners whereby any debts and obligations of the LLP will be borne by the assets of the LLP. In the case of a conventional partnership, the partners are jointly and severally liable for each debt and obligation of the partnership firm.

Yes, a Limited Liability Partnership registered in India can carry on more than one business. The activities must be related or in the same field itself. Unrelated activities such as Interior Designing and Legal consultancy cannot be carried under same LLP. The business activities are mentioned in the agreement and must be approved from RoC.

No, one of the essential requirements for setting up LLP is ‘carrying on a lawful business with a view to profit’. Therefore, LLP cannot be incorporated for undertaking “Not-For-Profit” activities.

Yes, by filing Form 27 which will give the particulars of incorporation of foreign LLP, details of DPs/ partners of that foreign LLP and details of atleast two authorised representatives for complying with regulation of LLP act.

Foreign LLP can reserve and renew the name by filing Form 25. The name will be reserved for 3 Years and an application for renewal shall be filed before 3 years only.

In India, a liaison office is a type of office that can be set up by a foreign entity to undertake liaison activities on behalf of the parent company outside India. The primary objective of a liaison office is to promote the parent company’s business interests, act as a communication channel between the parent company and Indian companies, and facilitate technical/financial collaboration between Indian companies and the parent company. Some of the activities that a liaison office can undertake in India include gathering information about the Indian market, exploring business opportunities, providing information about the parent company’s products/services, promoting trade and commerce, and acting as a representative office for the parent company.

However, a liaison office is not allowed to carry out any commercial, industrial, or trading activity in India, earn income, or enter into any contract on behalf of the parent company. It can only incur expenses related to its functioning and must be financed by the parent company.

A Liaison Office (LO) in India can be established by any foreign company that intends to explore business opportunities in India or wants to represent its parent/group company in India. This may include companies engaged in manufacturing, trading, technology transfer, or providing professional or consultancy services.
However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Nepal and Bhutan are in general not permitted to open Liaison Office (with certain exceptions) in India.

• The entity must be a legally recognized entity in its home country.
• The foreign entity must have in the home country, profit making track record during the immediately preceding three financial years.
• The foreign entity should have a net worth of not less than USD 50,000 or its equivalent in the immediately preceding year, attested by their auditors.
• The company must have a clear business objective of establishing a liaison office in India.

• The entity must be a legally recognized entity in its home country.
• The foreign entity must have in the home country, profit making track record during the immediately preceding three financial years.
• The foreign entity should have a net worth of not less than USD 50,000 or its equivalent in the immediately preceding year, attested by their auditors.
• The company must have a clear business objective of establishing a liaison office in India.
• The name must be similar to that of the foreign parent company. In addition, a new approval is needed for each new liaison office from the Reserve Bank of India with complete justification.
• The parent company provides financial aid to all the operations of the liaison office since the liaison office is not allowed to earn any income in India.

The proposed activities of the Liaison Office must be limited to:

• Representing the parent company/group companies in India.
• Promoting export/import from/to India.
• Promoting technical/financial collaborations between parent/group companies and companies in India.
• Acting as a communication channel between the parent company and Indian companies.

The following activities are prohibited by Reserve Bank of India (RBI) for a liaison office in India:

• The Liaison Office cannot undertake any commercial or industrial activity, nor can it earn any income in India.
• It is not allowed to advertise and solicit customers.
• It is not allowed to make any investment in India.
• It is not allowed to purchase any immovable property like land or office.
• It cannot borrow or lend money.

The Liaison Office must be registered with the Reserve Bank of India (RBI) and obtain the necessary approvals from other regulatory authorities, such as the Registrar of Companies (ROC) and the Ministry of Home Affairs. Based on FEMA Regulations, the honourable Supreme Court of India thorough its various rulings has identified following requirements for a liaison office:

• Its name should be same as that of the parent company, which allows the potential customers and vendors to relate it with the brand.
• The Liaison Office must appoint an authorized representative who is a resident of India to act as a liaison between the office and the regulatory authorities.
• The Liaison Office must maintain proper books of accounts and submit regular reports to the RBI.
• The Liaison Office must also comply with all applicable laws and regulations in India, including tax and labour laws.
• The governing body of the liaison office is the RBI, which typically gives approval for opening of Liaison Office for 3 years, which can be renewed later.
• It should maintain a QA22C account with the Authorised Dealer (AD) Bank, which is a special account that allows only cash inflows from a foreign country.
• All the expenses of a Liaison office have to be met by its Head office i.e., parent foreign company.
• Considering that the liaison office is not allowed to make any investment and business operation in India, it is also not subject to taxation. However, if it earns profit in violation of law, the Income tax authorities have the right to impose income tax on the liaison office.

After the liaison office is established in India, it is required to adhere to certain compliances as per the guidelines of the RBI, such as:

• The liaison office must file with RBI an Annual Activity Certificate (AAC) obtained from a Chartered Accountant within 6 months from the due date of finalisation of Balance-Sheet. The AAC is used by the RBI to verify if the liaison office is functioning within its boundaries.
• A copy of AAC should also be submitted to the Directorate General of Income Tax (International Taxation), New Delhi.
• As per the RBI guideline, a liaison office is allowed to have only one account in India, however if it wishes to open more than one, then it need to obtain prior permission of the RBI through its AD, along with the reason for doing so.
• A liaison office can be upgraded to a Branch office structure only if its bank account is upgraded or re-designated as a Branch Office account. In this case, a new PAN card is not required.

1. Reserve Bank Route — Where principal business of the foreign entity falls under sectors where 100 per cent foreign direct investment (FDI) under automatic rout is permissible.
2. Government Route — Where principal business of the foreign entity falls under the sectors where 100 per cent FDI under automatic route is not permissible. Applications falling under this category are considered by the Reserve Bank, in consultation with the Government of India, Ministry of Finance.

Liaison offices (LOs) of foreign companies in India are not permitted to undertake any commercial or revenue-generating activities, and they are not allowed to earn any income. As a result, liaison offices are not subject to income tax in India.

As per the Indian Income Tax Act, a permanent establishment refers to a fixed place of business through which an enterprise carries on its business in whole or in part. The term “fixed place of business” typically refers to a physical location such as an office, a factory, or a warehouse. Liaison offices (LOs) in India of a foreign entity are generally not considered as a permanent establishment (PE) for tax purposes, provided that the LO is only engaged in activities that are considered preparatory or auxiliary in nature.

However, if an LO in India is engaged in activities that go beyond preparatory or auxiliary activities, it may be considered a PE for tax purposes. For instance, if an LO in India is engaged in activities that generate revenue, such as negotiating contracts or concluding business deals, it may be considered a PE in India. In such cases, the foreign entity may be subject to income tax in India on the income attributable to the PE, based on the provisions of the Indian Income Tax Act and any applicable Double Taxation Avoidance Agreement (DTAA) between India and the foreign entity’s country of origin.

Yes, as per the regulations of the Reserve Bank of India (RBI), a foreign entity that has established an LO in India must obtain a PAN from the Income Tax Department within three months of the LO’s establishment.

It is important for foreign entities with LOs in India to comply with the regulations of the RBI and the Income Tax Department and obtain a PAN in a timely manner. Failure to obtain a PAN or comply with other applicable regulations may result in penalties or other adverse consequences.

The AAC must include the following details:

• Details of the activities undertaken by the LO during the financial year.
• The number of employees working for the LO in India.
• Details of any remittances received from the parent company during the financial year.
• Details of any expenses incurred by the LO in India during the financial year.
• A declaration that the LO has complied with all applicable laws and regulations in India.

The Liaison office will be allotted Unique identification Number (UIN) (www.rbi.org.in/scripts/Fema.aspx) after which the AR of Liaison office would apply for the PAN card with the Income Tax Authorities.

The Liaison office shall obtain TAN along with PAN from the Income Tax Authorities, open the bank account on setting up the offices in India and report the same in Annual Activity Certificate.

All the documents translated in English language (if not already in English) and notarised either by Public Notary or Indian Embassy need to be submitted to RBI through Authorised Dealer-1 (AD-1).

The Liaison office will be allotted Unique identification Number (UIN) (www.rbi.org.in/scripts/Fema.aspx) after which the AR of Liaison office would apply for the PAN card with the Income Tax Authorities.

The Liaison office shall obtain TAN along with PAN from the Income Tax Authorities, open the bank account on setting up the offices in India and report the same in Annual Activity Certificate.

As per section 139 every person shall file a Returns of Income (RoI).

Person as per section 2(31) includes company and as per section 2(17) company includes foreign company having presence in India.  However, Liaison office (‘LO’) does not have a presence in India (refer the country DTAA which your company is in existence normally Liaison offices are not considered to have presence in India. Hence, there is NO need to file RoI.

However, there are certain other compliances which I have briefed below check whether you have complied this:

• A LO is required to file an Annual Activity Certificate (‘AAC’) with the Reserve Bank of India. The filing of the AAC is consequent to the financial year end adopted by the LO.
• Annual Information Statement in Form 49C – As per Section 285 of the Indian Income Tax Act, 1961 (‘the Act’), introduced with effect from June 2011, a LO is required to file an Annual Information Statement in Form 49C with the India tax authorities within 60 days of the end of the financial year.
• It is pertinent to note that in Form 49C the LO has to mention date of submission of AAC.
• Central Board of Direct Taxes (India) has issued an instruction in connection with the subject. As per the instruction, the due date for filing of Form 49C (Annual Information Statement) by the Liaison Office has been extended till 30 September 2012 instead of 30 May 2012 proposed earlier.  This is due to the fact that the electronic filing of Form 49C has not been made operational till date.  Additionally, as per the instruction, the filing of Form 49C for tax year 2011-12 is now required to be done in physical form (i.e., paper mode) instead of electronic filing.

Residential Status of Liaison Office in India:-

Under FEMA, 1999-Section 4(3)- The term ‘person resident in India’ means the following entities: AN office, branch or agency in India owned or controlled by a person resident outside India.

Under Income Tax Act, 1961–

With the introduction of Foreign Exchange Management Act, 1999, the accounts opened by foreign nationals who are resident in India are treated as resident accounts. Such accounts are at par with other resident Rupee accounts.

The branch, liaison and project office falls under the ambit of a “foreign company” in terms of the provisions of the Companies Act, 2013 (“Act”). Once an entity falls under the definition of foreign company, it is required to comply with the provisions as applicable to the foreign company under the Act including procuring the requisite registrations under the Act, filing of the financial statement and annual return prepared in accordance with the provisions of the Act.

The Act defines the term “foreign company” as “any company or body corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode; and conducts any business activity in India in any other manner”.  In order to be considered a “foreign company”, foreign entity has to fulfil both the criteria i.e. have a presence in India whether physical or electronic and conduct business activity in India.

• If any foreign bank wants to open a LO in India, it has to obtain approval from the Department of Banking Regulation (DBR), RBI.
• Foreign Insurance Companies can set up liaison offices in India after obtaining approval from Insurance Regulatory and Development Authority (IRDA).
• In other cases, approval under FEMA is required from RBI for setting up of a Liaison Office in India.

In case an applicant while setting up of Liaison Office is not financially sound and is a subsidiary of another company may submit a Letter of Comfort (LOC) from its parent company, subject to the condition that the parent company satisfies the prescribed criteria for net worth and profit.

A foreign company shall file the particulars of the principal business in eform FC-1 within 30 days of establishment of place of business in India alongwith the required documents to RoC, Delhi. The Registrar of the corresponding state shall have access to these documents filed with RoC , Delhi. [eForm No as per Companies Act, 2013-Form 44].

The Foreign company is required to obtain a Certificate of Establishment of place of business (E-Form FC-1) in India from the ROC. The jurisdictional ROC will allot Corporate Identity Number (CIN) to such company.

Form FC1 Help.pdf

Application for permission under Section 28 of Foreign Exchange Regulation Act. 1973 to act or accept appointment as agent in India for any person or company.

For more information the attached file is there to help:-

83311FNC1.doc

Activity for closure Liaison Office of a foreign company in India

• Overseas firms should conduct a formal due diligence process to evaluate the expectations and limitations of the Indian Associates to check the validity of the partner’s business operations, to review the validity of the documents produced by the prospective partners, and to evaluate any risk factors associated with the potential partners.
• Generally the Liaison Office license is given for 3 years, if at any time the Company plans to close the Liaison office to setup in India it shall file the necessary documents with the Authorized Dealer, and the application for the closure shall be forwarded by the Authorized Dealer.
• Copy of the Reserve Bank’s permission/ approval from the sectorial regulator(s) for establishing the Liaison Office.
• Auditor’s Certificate- i) indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposable of assets, ii) confirming that all the liabilities in India including the arrears of gratuity and other benefits to employees, etc., of the office have been either fully met or adequately provided for, and iii) confirming that no income accruing from source outside India (including proceeds of exports) has remained un-repatriated to India.
• No-Objection/ tax Clearance Certificate from Income Tax Authority for the remittance/s.
• Confirmation from the applicant/parent company that no legal proceedings in any court in India are pending and there is no legal impediment to the remittance
• A report from the RoC regarding the compliance with the provisions of the Companies Act, 1956, in case of winding up of India.
• Any other document/s, specified by the Reserve Bank while granting approval

A forensic audit is an in-depth examination and analysis of financial and other business records to detect and investigate potential fraud, embezzlement, misappropriation, financial mismanagement, or other irregularities and financial crimes.

It is typically conducted by a team of forensic accountants, who have specialized training and experience in investigating financial fraud and other white-collar crimes and use specialized investigative techniques and tools to identify any irregularities, inconsistencies or potential fraud in financial statements or accounting records.

Forensic audits are usually ordered by regulatory authorities, such as the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), or the Ministry of Corporate Affairs (MCA), in response to complaints or suspicions of financial wrongdoing. Besides this the management of a company may also require a forensic audit if they suspect fraud or other financial irregularities within the company, or if they want to ensure that their financial practices are compliant with regulations and best practices.

There are several techniques and methodologies used in a forensic audit to uncover financial fraud and mismanagement. Some common techniques used in a forensic audit include:

• Reviewing financial statements,
• Conducting forensic data analysis,
• Analysing transaction data,
• Reconstructing financial transactions and activities,
• interviewing employees and stakeholders,
• Fraud risk assessment,
• Experts’ opinion etc.

These techniques are used in combination to provide a comprehensive and detailed analysis of a company’s financial records and transactions, and to identify any fraudulent activity or financial irregularities.

The duration of a forensic audit can vary depending on the scope of the audit, the size of the organization, the complexity of the financial transactions being investigated, and the availability of relevant documents and information. The length of the forensic audit can also be affected by external factors, such as legal proceedings or regulatory requirements. Some forensic audits may take weeks or months or even years to complete.

If a forensic audit uncovers evidence of financial fraud or other irregularities, the outcome may include legal action against those responsible, changes to company policies and procedures to prevent future incidents, or the recovery of lost funds. In some cases, a forensic audit may also result in increased transparency and trust in the company’s financial practices.

A forensic audit can help an organization in several ways, including:

• Identify Fraud: A forensic audit can help identify instances of fraud or financial mismanagement within an organization. By examining financial records and transactions, a forensic auditor can uncover irregularities, inconsistencies, and other signs of fraudulent activity.
• Preserve Evidence: A forensic audit can help preserve evidence of financial wrongdoing. By documenting financial records and transactions, a forensic auditor can provide evidence that may be used in legal proceedings or regulatory investigations.
• Improve Internal Controls: A forensic audit can help identify weaknesses in an organization’s internal controls and policies. By examining how financial transactions are processed and monitored, a forensic auditor can provide recommendations for improving the organization’s internal controls and reducing the risk of future financial fraud.
• Restore Stakeholder Confidence: A forensic audit can help restore stakeholder confidence in an organization. By demonstrating a commitment to transparency and accountability, an organization can reassure stakeholders that it is taking steps to prevent and detect financial fraud.
• Mitigate Legal and Financial Risks: A forensic audit can help mitigate legal and financial risks associated with financial fraud. By identifying and addressing instances of financial fraud, an organization can avoid potential fines, penalties, and reputational damage.

Forensic audits require accounting and auditing procedures and expert knowledge about the legal framework of such an audit. The process of forensic audit involves planning, data collection, data analysis, interviews of employees and stakeholders, investigation and reporting. Forensic audits could also cover situations that do not include financial fraud, such as disputes related to bankruptcy filings, business closures, and divorces.

The relevance of forensic audits in current times is significant, especially given the increasing prevalence of financial fraud and white-collar crime. With the widespread use of technology and electronic transactions, financial fraud has become more sophisticated and difficult to detect. This has made forensic audits more important than ever before. Some of the reasons why forensic audits are relevant in current times:

• Prevent Financial Fraud: Forensic audits can help prevent financial fraud by identifying weaknesses in an organization’s internal controls and providing recommendations to strengthen them.
• Early Detection of Fraud: Forensic audits can help detect financial fraud at an early stage, which can prevent it from escalating and causing greater financial damage to an organization.
• Compliance with Regulatory Requirements: Forensic audits are often required by regulatory bodies, such as the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), or the Ministry of Corporate Affairs (MCA), to ensure compliance with regulatory requirements.
• Protection of Stakeholder Interests: Forensic audits help protect the interests of stakeholders, including shareholders, investors, and employees, by ensuring that financial records and transactions are accurate and transparent.
• Reputation Management: Forensic audits can help maintain an organization’s reputation by demonstrating a commitment to transparency and accountability.
• Legal Proceedings: Forensic audits provide evidence that may be used in legal proceedings to recover losses caused by financial fraud or to pursue legal action against those responsible for the fraud.

While there may be some similarities in the process of forensic audit and regular audit, the two processes are generally quite different due to their very nature and object. Where regular audit is meant to assure that financial statements reflect true and fair view the forensic audit is directed to detect and investigate potential fraud, embezzlement, misappropriation, financial mismanagement, or other irregularities and financial crimes.

Some of the regulations having bearing with forensic audit includes:

• Sections-235 & 237 of the Companies Act, 2013
• Provisions applicable to sick Industrial Companies under Companies Act, 2013
• Penalties given under the Income Tax Act, 1961 for tax evasions
• Prevention of Money laundering Act, 2002
• SEBI Act, 1992-(Regulation 11C)
• The Companies (Auditor’s Report) Order, 2003
• Section 43 and 44 of the Information Technology (IT) Act, 2000
• The penalty under the Prevention of Corruption Act, 1988 (PC Act)
• Provisions of Indian Penal Code including: –
  • Section 168 of the IPC- Public servant unlawfully engaging in trade.
  • Section 171B- Bribery, read with Section 7 of the PC Act
  • Section 403- Dishonest Misappropriation of property
  • Section 405- Criminal Breach of Trust
  • Section 417- Cheating
  • Section 463- Forgery
  • Section 477- Falsification of Accounts

Section 211 of the Companies Act, 2013, empowers the Central Government to establish an office called Serious Fraud Investigation Office (SFIO) to investigate frauds relating to companies. No other investigating agency shall proceed with investigation in a case in respect of any offence under the Act, once the case has been assigned to SFIO.

The concept of Forensic audit practices have evolved significantly over the last 10-15 years as India had witnessed financial frauds which affected the golden growth of India’s economy.

The team of Deloitte Forensic (India) Pointed out the need of the same and added that “earlier the investigations were restricted to books and records but now there is a significant element of intelligence gathering”.  Corporate Frauds which have forced the enforcement of forensic adit in recent times are PNB Scam, Dena Bank & Oriental Bank of Commerce Fraud, Vijay Mallya, Sahara Group Scam, Satyam Computers, Saradha Chit Fund, Ketan Parekh Scam etc.

Red flags are nothing but symptoms or indicator of situation of fraud, white collar crime and something detrimental to the interest of the organization.

1. A red flag is a set of circumstances that are unusual in nature or vary from the normal activity.
2. It is a signal that something is out of the ordinary and may need to be investigated further.

The signals lead to a greater sense of assurance and comfort in a scenario which may be potentially infused with fraud. These signals are referred as ‘green flags’. These are helpful in identifying unusual signs or inconsistencies, but apparently harmless or perhaps even helpful.

Cyber Forensics is applicable to the Cyber Crime or Digital Crime in accordance with International Guidance to Cyber Forensics Law.

The differences between Forensic Audit and Statutory Audit are tabulated below:

Sl. No.	Basis	Statutory Audit	Forensic Audit
1	Objective	To provide an opinion on the financial statements of an organization as to its ‘true & fair’ presentation	To investigate financial transactions to determine whether any fraud has actually taken place and collect evidence that may be used in legal proceedings
2	Scope	Limited to the financial statements of an organization	Broader than regular audit and may include an examination of financial records, interviews with employees, and a review of internal controls
3	Technique	‘Substantive’ and ‘Compliance’ procedures	Analysis of past trend and substantive or ‘in depth’ checking of selected transactions are done.
4	Methodology	follows generally accepted accounting principles (GAAP) and auditing standards	follows investigative procedures and may require specialized skills, such as forensic accounting, computer forensics, and legal expertise.
5	Timing	Typically conducted annually or quarterly	Conducted when there is suspicion of financial fraud or wrongdoing
6	Period	Normally all transactions for the particular accounting period are considered.	There are no such limitations while conducting forensic audit and accounts may be examined in detail from the beginning.
7	Management Representation	Auditor relies on the management certificate/ representation of management	Independent verification of suspected/selected items carried out.
8	Off Balance-sheet items (like contracts etc.)	Used to vouch the arithmetic accuracy & compliance with procedures	Regularity and propriety of these transactions/contracts are examined.
9	Adverse findings, if any	Negative opinion or Qualified opinion is expressed with/ without quantification.	The auditor aims at legal determination of fraud and also naming persons behind such frauds.
10	Reporting	results in an opinion on the financial statements of an organization	results in a report that provides evidence of financial fraud or wrongdoing.
11	Audience	typically the management, shareholders, and regulatory bodies	may include law enforcement agencies, attorneys, and the courts

As defined in scope of the Standards on Internal Audit, Internal audit means “An independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity’s strategic risk management and internal control system”.

The purpose of internal audit is to provide independent and objective assurance to the organization’s management and board of directors that its governance, risk management, and internal control processes are operating effectively and efficiently.

Internal audit provides several benefits, including identifying areas of risk and making recommendations for improving operations, enhancing compliance with laws and regulations, and providing assurance to stakeholders that the organization is operating effectively.

Internal audit can be performed by internal auditors who are employees of the organization or by an external auditor who is engaged by the organization for the purpose and who have expertise in audit techniques, risk management, and internal control.

Internal audit may be performed by employees within the organization or an independent auditor, whereas external audit is performed by an independent auditor outside of the organization. External audit provides an opinion on the accuracy and completeness of an organization’s financial statements, while internal audit provides assurance on the effectiveness and efficiency of an organization’s operations. Some of the main differences between internal and external audits are:

• Purpose: The purpose of an internal audit is to evaluate and improve the organization’s operations, while the purpose of an external audit is to provide an independent assurance on the accuracy and fairness of the financial statements.
• Relationship to the organization: Internal auditors are employees of the organization they are auditing, while external auditors are not. External auditors are usually hired by the organization to provide an independent assessment of the financial statements.
• Scope: The scope of an internal audit is broader than that of an external audit. Internal audit covers financial, operational, and compliance-related activities of the organization. External audit is limited to the financial statements and their compliance with accounting standards and regulations.
• Frequency: Internal audits are conducted on a regular basis, usually annually or biannually, while external audits are conducted once a year.
• Reporting: Internal auditors report to the management of the organization, while external auditors report to the shareholders or stakeholders of the organization. The reports of internal auditors are not made public, while the reports of external auditors are usually published in the organization’s annual report.
• Independence: Internal auditors may be part of the organization, which can create a potential conflict of interest. External auditors, on the other hand, are independent and have no stake in the organization.

The internal auditor’s role is to evaluate an organization’s operations, including its risk management, internal control, and governance processes. The internal auditor provides recommendations for improving operations and mitigating risk.

The scope of internal audit can vary depending on the organization’s needs and objectives. It typically includes evaluating the effectiveness and efficiency of operations, identifying areas of risk, and making recommendations for improvement.

There are several types of internal audit, including financial audit, operational audit, compliance audit, and Information Technology (IT) audit.

The frequency of internal audit depends on the organization’s risk profile, size, and complexity. It is typically performed on an annual basis, but may be performed more frequently in high-risk areas.

Internal audit evaluates an organization’s risk management processes to ensure that they are operating effectively and efficiently. Risk management is the process of identifying, assessing, and managing risks to the organization’s objectives. While both functions are related, internal audit is focused on providing assurance on the effectiveness of risk management processes.

An internal audit is to provide assurance that a company’s risk management, governance, and internal control processes are operating effectively. Some of the benefits of internal audit could be summarised as follows:

• Improved risk management: Internal auditors can identify and assess risks across the organization and recommend strategies to manage and mitigate those risks.
• Enhanced operational efficiency: Internal auditors can review and evaluate the organization’s processes, systems, and controls to identify areas for improvement and suggest ways to increase efficiency and effectiveness.
• Increased compliance: Internal auditors can help ensure that the organization is complying with legal and regulatory requirements, as well as internal policies and procedures.
• Better decision-making: Internal auditors can provide objective and independent information to management, which can help them make more informed decisions.
• Fraud prevention and detection: Internal auditors can help identify and prevent fraudulent activities within the organization.
• Cost savings: By identifying areas for improvement and recommending cost-saving measures, internal auditors can help reduce expenses and increase profitability.
• Improved stakeholder confidence: Effective internal audit can help improve stakeholder confidence by providing assurance that the organization’s operations are being conducted ethically, effectively, and efficiently.

Section 138 of Companies Act, 2013 read with Rule 13 of Companies Accounts Rules, 2014 mandates certain classes of companies to appoint an internal auditor. The following companies are required to appoint an internal auditor:

Types of Companies	Criteria based upon preceding financial year
	Turnover (in Rs.)	Outstanding loans/ advances from banks & other public financial Institutions (in Rs.)	Paid up share capital (in Rs.)	Outstanding Deposits (in Rs.)
Listed Companies	Every listed company is required to appoint Internal Auditor irrespective of any criteria.
Unlisted Public Companies	200 Crores or More	Exceeding 100 Crores at any point of time	50 Crores or More	25 Crores or More
Private Limited Companies	200 Crores or More	Exceeding 100 Crores at any point of time	Not applicable	Not applicable

The reporting of the Internal Auditor shall be to the Board of Directors, or the Audit Committee, who are responsible to appoint the Internal Auditors as per Rule 8 of “The Companies (Meetings of Board and its Powers) Rules, 2014”.

Independence, Integrity & Objectivity, Due Professional Care, Confidentiality, Skills and Competence, Risk Based Audit, System and Process Focus, Participation in Decision Making, Sensitive to multiple stakeholders Interests, Quality & Continuous Improvement.

The reporting of the Internal Auditor shall be to the Board of Directors, or the Audit Committee, who are responsible to appoint the Internal Auditors as per Rule 8 of “The Companies (Meetings of Board and its Powers) Rules, 2014”.

Considering the increasing importance of internal auditing, the Institute of Chartered Accountant of India (ICAI) has constituted a Committee on Internal Audit (CIA) with the object of formulating Standards and Guidance Notes on Internal Audit now it is known as Internal Audit Standard Board (IASB). The Board keeps on issuing standards and guidance based on the requirements and developments in the economic environment.

Yes, the work of an independent auditor becomes much easier in the presence of an internal audit. He may conduct test checks and accordingly choose to use the work done by the internal auditor for his audit. This saves both time and money for the company.

The entity’s internal audit function is likely to be relevant to the audit if its activities are related to the entity’s financial reporting. Also, if the auditor expects to use the work of the internal auditors to modify the audit procedures to be performed. When the auditor determines that the internal audit function is likely to be relevant to the audit, Standards on Auditing (SA)-610 “Using the work of an Internal Auditor” applies.

The objectives of internal audit typically include:

• Evaluating and improving the effectiveness of the organization’s internal controls
• Ensuring compliance with laws and regulations
• Assessing the accuracy and reliability of financial and non-financial information
• Identifying operational efficiencies and cost savings
• Providing assurance to stakeholders
• Monitoring and reporting on the implementation of corrective actions

The objectives of an internal audit function vary widely depending on the size and structure of the entity and the requirements of management.

As per section 138 of the Companies Act, 2013, the internal auditor shall be a Chartered Accountants or Cost Accountants (CWA) also known as Certified Management Accountants (CMAs) (whether engaged in practice or not), Company Secretaries (CSs) can also be appointed as internal auditors in certain circumstances or such other professional as may be decided by the Board to conduct internal audit functions and activities of the companies. The internal auditor may or may not be an employee of the company.

In addition to the above, the Companies Act, 2013, and other relevant regulations may have specific requirements for the appointment of internal auditors, including eligibility criteria, tenure, and independence requirements. Companies are required to comply with these regulations while appointing internal auditors.

The internal auditor should carefully review and assess the conclusions drawn from the audit evidence obtained, as the basis of his findings contained in his report and suggest remedial action. If internal auditor comes across any actual or suspected fraud or any other misappropriation of assets, it would be more appropriate for him to bring the same immediately to the attention of the management.

Inventory refers to the collection of goods and materials that a company or organization holds for the purpose of resale or use in its operations. As per Indian Accounting Standard (Ind AS-2) “Inventories” issued by Institute of Chartered Accountants of India (ICAI), inventories are defined as assets: a) held for sale in the ordinary course of business (also known as trading / finished goods), or b) in the process of production for such sale (also known as Work-in-process), or c) in the form of materials or supplies to be consumed in the production process or rendering of services (also known as raw material).

There are four main types of inventories: raw materials, work-in-progress (WIP), finished goods, and consumables (maintenance, repair, and operating (MRO) inventory).

An inventory or stock audit is a systematic and independent examination of a company’s inventory management processes, procedures, and controls. The primary objective of an inventory audit is to ensure that the company’s inventory records are accurate and reliable and that the company is effectively managing its inventory to meet its business needs.

Inventory audits are important for several reasons. First, accurate inventory records are essential for proper financial reporting and compliance with accounting standards. An inventory audit can help identify and correct any errors or irregularities in inventory records, which can prevent financial misstatements and help ensure that the company’s financial statements are reliable.

Second, effective inventory management is critical to a company’s operations and profitability. By reviewing inventory management processes and controls, an inventory audit can help identify areas where the company can improve its inventory management practices and reduce costs associated with excess inventory or inventory shortages.

Finally, an inventory audit can help detect and prevent inventory fraud, which can have serious financial and reputational consequences for a company. By verifying inventory records and physical counts, an inventory audit can help detect any discrepancies or irregularities that may indicate fraudulent activity.

Stock audit may be mandatory or voluntary depending on various factors, such as the industry, the type of business, and the regulations governing the business. In some cases, regulatory authorities or lending institutions may require stock audits to be performed periodically. Even if stock audits are not mandatory, they can be a valuable tool for companies to ensure the accuracy and reliability of their inventory records, detect and prevent inventory fraud, and improve their inventory management practices. This can help companies reduce the risk of financial misstatements, improve their operations, and enhance their reputation with stakeholders.

The scope of an inventory audit may vary depending on the size and complexity of the company’s inventory management practices and the audit objectives. The scope of an inventory audit typically includes a review of the company’s inventory management processes, procedures, and controls, and may involve the following activities:

• Evaluation of inventory management policies and procedures: The auditors review the company’s inventory management policies and procedures to ensure that they are consistent with the company’s business objectives and comply with accounting standards and applicable laws and regulations.
• Assessment of inventory valuation methods: The auditors evaluate the company’s inventory valuation methods and ensure that they are appropriate and consistent with accounting standards and company policies.
• Physical inventory counts: The auditors may conduct physical inventory counts to verify the accuracy of the company’s inventory records and identify any discrepancies or irregularities.
• Evaluation of inventory control systems: The auditors review the company’s inventory control systems, such as barcode scanning systems and inventory tracking software, to ensure that they are effective in controlling inventory levels and preventing inventory losses.
• Review of inventory obsolescence and write-offs: The auditors review the company’s inventory obsolescence and write-off policies to ensure that they are appropriate and comply with accounting standards.
• Identification of potential fraud: The auditors look for signs of potential inventory fraud, such as missing inventory or discrepancies between physical inventory counts and inventory records.
• Analysis of inventory turnover and aging: The auditors analyze the company’s inventory turnover and aging to identify slow-moving or obsolete inventory and recommend actions to improve inventory management practices.

Inventory audit involves reviewing the inventory count, tracing transactions, and ensuring that all items are properly classified and valued. Some typical steps followed during an inventory audit are:

• Plan the audit: The first step is to plan the audit, including determining the scope of the audit, selecting the audit team, and establishing a timeline for the audit.
• Conduct a physical inventory count: The next step is to conduct a physical inventory count to verify the actual inventory on hand. This involves counting all items in the warehouse or storage area and comparing the results to the inventory records.
• Reconcile discrepancies: If there are any discrepancies between the physical count and the inventory records, the audit team needs to investigate and reconcile the differences. This may involve tracing transactions or performing additional counts.
• Verify inventory valuation: The audit team needs to verify that the inventory is properly valued based on the organization’s accounting policies and procedures.
• Review internal controls: The audit team needs to review the organization’s internal controls over inventory to ensure that they are effective and adequate.
• Prepare audit report: Inventory audit report summarizing the results of the audit, including any issues or recommendations for improvement. This could be considered as crux of all the exercise referred above and hence need to be drafted carefully and should be addressed to the management/stakeholder for which it was meant.

An inventory audit can be conducted by either of the following parties:-

• Internal Auditors within the organisation
• External Auditors
• Inventory audit specialists e.g. MNRS & Associates, Chartered Accountants
• Management, where business is small and they are involved in day to day operations.

The benefits of an inventory audit include identifying discrepancies between inventory records and actual inventory, preventing losses due to theft or fraud, improving inventory accuracy, increased customer satisfaction and increasing efficiency in inventory management.

Potential drawbacks or limitations of an inventory audit include disruption to normal business operations, the cost of hiring an external auditor, and the possibility of uncovering errors or fraud within the company. Besides these stock audit may suffer from facts such as lack of independence of internal auditors, limited scope, resistance from management and may be regarded as time-consuming exercise.

The frequency of an inventory audit depends on the size and complexity of the business, as well as the level of risk associated with inventory management. Typically, businesses should conduct inventory audits at least once in a year to update and ensure that the physical stock is in agreement with what is recorded.

It is the responsibility of the management of the entity to ensure that the inventories included in the financial information are physically in existence an represent all inventories owned by the entity. This responsibility is not reduced even the auditor attends any physical count of inventories in order to obtain audit evidence. The appointment of a stock auditor is usually made by the company’s management or board of directors. However, in certain cases regulatory authorities may also appoint stock auditor in certain industries which promotes transparency and accuracy in financial reporting.

In carrying out an audit of inventories, the auditor is particularly concerned with obtaining sufficient appropriate audit evidence to corroborate the management’s assertions regarding the following:

• EXISTENCE-that all recorded inventories exist at the year-end.
• OWNERSHIP-that all inventories owned by the entity are recorded and that all recorded inventories are owned by the entity
• VALUATION-that the stated basis of valuation of inventories is appropriate and properly applied, and that the condition of inventories is recognised in their valuation.

In view of the matter the council of the Institute clarifies that despite the expression “As valued and certified by the management”, the duties and responsibilities of the auditor with regard to the audit of inventories does not diminish. Thus, in order that the auditor’s role with regard to inventories is properly appreciated by the users of the financial statements, the auditor may advise his clients to omit the words “As valued and certified by the management”, when describing inventories in the financial statements.

Some common inventory audit procedures are as follows:

• ABC Analysis- Grouping different value and volume inventory
• Analytical Procedure- Analysing inventory based on financial metrics
• Cut-off Analysis- Pausing operations such as receiving and shipping off inventory while making a physical count to avoid mistakes.
• Finished Goods cost Analysis- Applies to manufactures and includes valuing finished inventory during an accounting period
• Matching- Matching the number of items and the cost of inventory shipped with financial records
• Overhead Analysis- Analysing the indirect costs of the business and overhead costs that may be included in the costs of the inventory
• Reconciliation- Solving discrepancies that are found in an inventory audit.

A warehouse audit is a broad term that can apply to auditing any part of a warehouse while inventory audit is just a part of warehouse audit.

Some common inventory audit procedures are as follows:

• ABC Analysis- Grouping different value and volume inventory
• Analytical Procedure- Analysing inventory based on financial metrics
• Cut-off Analysis- Pausing operations such as receiving and shipping off inventory while making a physical count to avoid mistakes.
• Finished Goods cost Analysis- Applies to manufactures and includes valuing finished inventory during an accounting period
• Matching- Matching the number of items and the cost of inventory shipped with financial records
• Overhead Analysis- Analysing the indirect costs of the business and overhead costs that may be included in the costs of the inventory
• Reconciliation- Solving discrepancies that are found in an inventory audit.

In compliance with GAAP (Generally Accepted Accounting Principle), inventory should be valued at lower of cost or net realisable value. Given this baseline, there are two main methods that auditors use to calculate the value of business inventories:

1. Item-by-Item Method- Based on the lower of cost price and market price
2. Major category Method- This method involves calculating the value of inventories using solely market price and cost price

A limited review is a type of assurance engagement conducted by an auditor to provide limited assurance on the financial statements of a company. A limited review is a less extensive and less detailed form of audit engagement than a full statutory audit. limited review is a type of financial review conducted by an auditor to obtain reasonable assurance that there are no material modifications that need to be made to a company’s financial statements.

1. All listed entities (whose equity shares and convertible securities are listed)
2. All entities whose accounts are to be consolidated with the listed entity

As per clause 41 of the listing agreement, every listed company is required to furnish the unaudited quarterly result in the prescribed format to the concerned stock exchange within 45 days of the end of respective quarter. Hence, it can be said that Limited review of financial statements should be done on quarterly basis within such period which enable company to comply with Clause 41 of the listing agreement and submit report within 45 days from the end of the respective quarter to stock exchange.

Clause 41 of the listing agreement requires companies listed on a stock exchange to undergo a limited review of their financial results and submit a report to the stock exchange within 45 days of the end of each quarter. If a company fails to comply with this requirement, there can be several consequences:

1. Regulatory penalties: The stock exchange can impose penalties on the company for non-compliance, which may include fines or even suspension of trading in its shares.
2. Investor confidence: Failure to comply with regulatory requirements can erode investor confidence and damage the company’s reputation. This can lead to a decline in the company’s share price and difficulty in raising capital.
3. Legal action: Non-compliance with regulatory requirements can result in legal action being taken against the company and its management, which may result in fines or imprisonment.
4. Difficulty in raising capital: Companies that do not comply with regulatory requirements may find it difficult to raise capital in the future, as investors may perceive them as risky or unreliable.
5. Loss of listing status: If a company continues to be non-compliant, the stock exchange may ultimately delist the company’s shares, resulting in a loss of liquidity and potentially significant losses for investors.

It is therefore important for companies to comply with regulatory requirements and ensure that they undergo the required limited review and submit the report to the stock exchange in a timely manner.

Limited review report is generally expressed as a conclusion on whether the financial statements appear to be in accordance with the applicable accounting standards, based on the limited review performed. The conclusion may state that nothing has come to the reviewer’s attention that would lead them to believe that the financial statements are not in accordance with the applicable accounting standards, or that the financial statements appear to be in accordance with the applicable accounting standards, subject to any qualifications or limitations expressed in the report. n Limited review, reviewer just states that he/she has noticed or not noticed anything that makes the financial statements misstated.

In India, a limited review of financial statements can only be conducted by a Chartered Accountant (CA) who is a member of the Institute of Chartered Accountants of India (ICAI). Additionally, the CA must hold a valid certificate of practice (COP) and must be independent of the entity being reviewed. In case of listed companies, the limited review is done by the statutory auditor of the Company by using Standards on Review Engagement (SRE) 2410 – ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’, as issued by the Institute of Chartered Accountants of India. Limited Review can also be done by other than the statutory auditor, in which case SRE 2400 (Revised), ‘Engagements to Review Historical Financial Statements’, needs to be followed.

Generally, it is preferred that the statutory auditor does the review considering they are aware of the client’s accounts, business, internal control systems, and SEBI expects the statutory auditors to carry out the limited review.

A limited review is less extensive than an audit and provides a lower level of assurance. The main difference between a limited review and a full statutory audit is the level of assurance provided. A full statutory audit provides a higher level of assurance than a limited review, as the auditor performs more extensive procedures to obtain reasonable assurance that the financial statements are free from material misstatement.

The scope of a limited review is narrower than that of a regular audit. In a limited review, the reviewer performs analytical procedures and make inquiries to assess whether the financial statements appear to be in line with the accounting policies and principles of the entity and are not materially misstated. They may also perform other procedures that they consider necessary, such as reviewing minutes of board meetings, related party transactions, and significant accounting estimates. During a limited review, the auditor performs certain procedures, such as analytical procedures, inquiries with management, and review of supporting documents, to obtain limited assurance that the financial statements are free from material misstatement. An auditor must comply with all the ethical requirements applicable to the audit of the entity’s annual financial statements.

The length of time it takes to complete a limited review can vary depending on the size and complexity of the company being reviewed. A limited review can typically be completed in a shorter period of time than an audit.

Based on the limited review procedures performed, the chartered accountant will issue a report on the financial statements, which will provide users of the financial statements with a limited level of assurance that the financial statements do not contain any material misstatements that would require correction. The report is expected to highlight any areas of concern that were identified during the review process.

The output of a limited review is typically used by stakeholders such as management, banks and other lenders, shareholders, investors, regulators, government agencies and other stakeholders such as suppliers, customers, and employees of the company’s financial statements to assess the to gain insight into the financial position and performance of the entity.

If a limited reviewer finds any material misstatements during the limited review, they are required to communicate these findings to the management of the entity as soon as possible. The reviewer should discuss the nature and extent of the material misstatements with the management and seek explanations and clarifications.

If the management agrees with the findings of the limited reviewer, they should make necessary adjustments to the financial statements to correct the misstatements. The reviewer should then review the adjustments made and perform additional procedures, if necessary, to ensure that the financial statements are free from material misstatements.

If the management does not agree with the findings of the limited reviewer, the reviewer should consider whether to modify their report or withdraw from the engagement, depending on the circumstances.

• Engagement Letter;
• Work papers relating to inquiries with the management including the minutes of the meeting;
• Extracts from the minutes of the meeting of the members, shareholders, audit committee etc.,
• Workings on the analytical procedures carried out
• Review of the internal control systems
• Review of the interim financial information.
• Management Representation letter.

As per the SRE 2410- “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”, as issued by the Institute of Chartered Accountants of India, the limited review report consists of:

• Introduction to the engagement and responsibility of the management and the reviewer;
• Scope of the review
• Conclusion (Unless the circumstances demand otherwise)
• Other Matter Paragraph- A paragraph which refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgement, is relevant to users’ understanding of the audit.
• Emphasis of Matter Paragraph- A paragraph which refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgement, is of such importance that it is fundamental to users’ understanding of the financial statements. (Standards on Auditing-706)
• Modified Conclusion- If Interim financial information is materially misstated (could be a qualification, adverse opinion or disclaimer of opinion)

• Engagement Letter;
• Work papers relating to inquiries with the management including the minutes of the meeting;
• Extracts from the minutes of the meeting of the members, shareholders, audit committee etc.,
• Workings on the analytical procedures carried out
• Review of the internal control systems
• Review of the interim financial information.
• Management Representation letter.

As the prepares of the interim financial information, one has to select only the recognition and measurement principles covered in AS 24 / Ind AS 34 “Interim Financial Reporting” and use them for the purpose of regulatory reporting, which is also mentioned in the limited review report.

Disclosures required are specified in Part A of Schedule IV of the Regulations of Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2019 [Last amended on July 25, 2022].

• Quarterly Financial Results – Audit Committee to review the results before the same is recommended for approval by the Board of Director (BOD) and then to be approved
• CEO and CFO certification: Financial Results do not contain any false or misleading statement or figures and do not omit any material fact which may make the statements or figures contained therein misleading;
• Financial Results (including Annual Audited Financial Results) to be signed by Chairperson/MD/WTD, or in absence of all of them any other director authorised by BOD;
• The Audit Committee shall consist of minimum three directors as members. At least two-third of the members shall be Independent Directors;
• Limited Review Report to be placed before BOD at its meeting which approves Financial Results, before submitting it to Stock Exchange(s).

A statutory audit is a legal requirement for companies to have their financial statements audited by a qualified and independent auditor. The purpose of the audit is to ensure that the financial statements are accurate and comply with the relevant accounting standards and regulations

The requirement for a statutory audit depends on the size and type of the company. In general, companies that meet two of the following three criteria are required to have a statutory audit: annual turnover exceeding a certain threshold, a certain level of assets, or a certain number of employees. The exact thresholds vary by country and jurisdiction.

A statutory audit must be performed by a qualified Chartered Accountants who are independent of the Business who is registered and regulated by the relevant professional body in the country or jurisdiction where the company is based.

A statutory audit provides assurance to the company’s stakeholders, including shareholders, lenders, and regulators, that the financial statements are reliable and accurate. It can also help to identify areas for improvement in the company’s financial management and internal controls.

The process of a statutory audit typically involves several stages, including planning, risk assessment, testing of internal controls, testing of transactions, and issuing an audit report. The auditor will also provide recommendations for improvements to the company’s financial management and internal controls.

The useful life of an asset is the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from the asset by the entity.

A statutory audit is not designed to uncover fraud specifically, but it can help to identify irregularities or weaknesses in the company’s internal controls that may indicate the possibility of fraud. If fraud is suspected, the auditor may recommend further investigation or reporting to the relevant authorities.

Management is responsible for providing the auditor with access to the company’s financial records and for providing explanations and supporting documentation as needed.

A statutory audit is required by law, while a non-statutory audit is not required but may be conducted voluntarily by a company for other purposes.

Some common issues that arise during a statutory audit include inaccurate financial statements, incomplete documentation, inadequate internal controls, and non-compliance with applicable laws and regulations.

Materiality is the concept that certain errors or omissions in a company’s financial statements may be considered significant enough to affect the decisions of users of those statements.

An audit report is a formal report that provides the auditor’s opinions on the accuracy and completeness of the financial statements, while a management letter is a less formal report that provides recommendations for improvement.

Audit procedures include obtaining an understanding of the company and its environment, testing of internal controls, substantive testing of transactions, and analytical procedures.

The responsibilities of a statutory auditor include planning and conducting the audit, identifying and evaluating the risks of material misstatement, obtaining sufficient audit evidence, reporting on the financial statements and communicating with management and those charged with governance.

Audit procedures include obtaining an understanding of the company and its environment, testing of internal controls, substantive testing of transactions, and analytical procedures.

The types of audit reports include unqualified, qualified, adverse, and disclaimer of opinion.

A risk assessment is important in an audit as it helps the auditor to identify and evaluate the risks of material misstatement in the financial statements, and to plan the audit procedures accordingly.

A review is a limited-scope engagement, where the auditor provides a lower level of assurance than in an audit. An audit is a more comprehensive engagement, where the auditor provides a high level of assurance on the financial statements.

The auditor has a responsibility to obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes identifying and evaluating the risks of fraud, and designing audit procedures to address those risks.

An unqualified audit opinion is issued when the auditor has no material reservations about the financial statements. A qualified audit opinion is issued when the auditor has identified a material misstatement or limitation of scope, but still believes the financial statements are fairly presented.

A disclaimer of opinion means that the auditor is unable to provide an opinion on the financial statements due to limitations in scope or lack of sufficient audit evidence.

The audit conducted by the Chartered Accountant (CA) of the accounts of the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law, in pursuance of the requirement of section 44AB is called tax audit.

Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, the other objectives of conducting tax audit are:

1. A proper audit would ensure that the books of account and other records are properly maintained
2. That they truly reflect the income of the taxpayer and claims for deduction are correctly made by him. For checking fraudulent activities
3. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities.

The CA conducting the tax audit is required to give his findings, observations, etc., in the form of audit report in the Form Nos. 3CA/3CB and 3CD.

Rule 6G prescribes the manner of reporting and furnishing of report of audit of accounts to be furnished u/s 44AB. The said Rule 6G provides as follows:

1. The report of audit of the accounts of a person required to be furnished under section 44AB shall-
   • In the case of a person who carries on business and profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA.
   • In the case of a person who carries on business or profession, but not being a person referred to in point (1), be in Form No. 3CB
   • In the case of a person who is a Non-Resident or Foreign Company receiving a royalty or fee for a technical services.
2. The particulars which are required to be furnished under section 44AB shall be in Form No. 3CD

Any individual or business that has filed a tax return can be audited by the tax authorities. Generally, taxpayers with higher incomes and more complex financial transactions are more likely to be audited.

Taxpayers can be selected for audit randomly, based on a computer algorithm that compares their tax returns to statistical norms, or because they are part of a group that has been identified as having a high risk of non-compliance.

During a tax audit, the tax authorities will review the taxpayer’s financial records, including bank statements, receipts, and invoices, to verify that the income and expenses reported on the tax return are accurate. The auditor may also ask the taxpayer to provide additional documentation or answer questions about their finances.

The possible outcomes of a tax audit include no change, a refund, or an additional tax bill. In some cases, the auditor may also assess penalties and interest if they find that the taxpayer has underreported their income or over claimed deductions.

Taxpayers can prepare for a tax audit by organizing their financial records, reviewing their tax returns for accuracy, and seeking the advice of a tax professional. It is also important to respond to any requests from the tax authorities promptly and truthfully.

Yes, a taxpayer can appeal the results of a tax audit if they disagree with the auditor’s findings. The appeals process varies depending on the jurisdiction and may involve a hearing before an administrative board or court.

The specified number of tax audit assignments that an auditor, as an individual or as a partner of a firm, can accept is 60 in number. ICAI has notified that a CA in practice shall be deemed to be guilty of professional misconduct, if he accepts in financial year, more than the specified number of tax audit assignments u/s 44AB of the Income Tax Act, 1961.

The due date of filing the tax audit report is 30^th September of the assessment year. The tax audit report must be filed electronically via Form 3CD. Due date for filing Income tax return, is tax audit is applicable, is 30^th September of the assessment year and 31^st July of assessment year, if tax audit is not applicable

Under normal circumstances, revision of a tax audit report is not possible. However, in cases where the accounts have been revised it is possible to revise the tax audit report.

The provision relating to tax audit under section 44AB applies to every person carrying on:-

1. 1. Business, if his total sales, turnover or gross receipts in business exceed the prescribed limit of Rs. 1 Crore or Rs. 10 Crore, where cash receipts/payments exceeds the five percent of all the amounts received/payment made, in previous year,
   2. Profession, if his gross receipts from profession exceed the prescribed limit of Rs. 50 lakhs in previous year.

Tax audit is a review of your financial records by a chartered accountant. Your books must be audited if:

1. You are a professional earning gross receipts exceeding Rs. 50 lakhs
2. A business owner with an annual revenue of over Rs. 1 crores (or 10 crores when 95 % of the receipts/payments are in online mode)
3. You have opted for presumptive taxation under section 44AD/44ADA, you declare your income below the prescribed percentage but your total income exceeds the basic exemption limit of Rs. 25,000.

In order to ensure proper compliance with section 44AB, section 271B (Failure to get accounts audited) has been enacted, according to which:

If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:

• 5% of the total sales, turnover or gross receipts
• 1,50,000

However, in view of the specific provisions contained in section 273B, no penalty is imposable under section 271B on the assessee for the above failure if he proves that there was reasonable cause for the said failure. The onus of proving reasonable cause is on the assessee.

Some of the instances of the where Tribunals/Courts have accepted as “reasonable cause” are as follows:

1. Resignation of tax auditor and consequent delay;
2. Bona fide interpretation of the term ‘turnover’ based on expert advice;
3. Death or physical inability of the partner in charge of the accounts;
4. Labour problems such as strike, lock out for a long period, etc.
5. Loss of accounts because of fire, theft, etc. beyond the control of the assessee;
6. Non-availability of accounts on account of seizure
7. Natural calamities, commotion, etc.
8. Resignation of the accountant and his consequent non-cooperation.
9. Official E filing portal ( of the Income Tax Department) failure

An agriculturist, who does not have any income under the head “Profits and Gains of business or profession” chargeable to tax under the Act, need not get his accounts audited for purpose of section 44AB even though his total sales of agricultural products may exceed the prescribed limit.

It will depend on the facts and circumstances of the case. Normally, it is the professional duty of the Chartered Accountant to ensure that the audit accepted by him is completed before the due date. If there is any unreasonable delay on the part, he is answerable to the Institute if a complaint is made by the client. However, if the delay in the completion of audit is attributable to his client, the tax auditor cannot be held responsible. It is, therefore, necessary that no chartered accountant should accept audit assignments which he cannot complete within the prescribed time frame. In this regard, reference may also be made to paragraph 12 of the Guidance Note.

Section 44AB stipulates that only Chartered Accountants (CA) should perform the tax audit. This section does not stipulate that only the statutory auditor appointed under the Companies Act or other similar Statute should perform the tax audit. As such the tax audit can be conducted either by the statutory auditor or by any other CA in full practice.

The professionals accepting the assignment should communicate with the member who had done tax audit in the earlier year as provided in the Chartered Accountant Act. When making the enquiry from the retiring auditor, the member accepting the assignment should find out whether there is any professional or other reasons why he should not accept the appointment. The professional reasons for not accepting the appointment include:

• Non-compliance of the provisions of sections 139 and 140 of the Companies Act, 2013 as mentioned in Code of Ethics issued by ICAI under Clause (9) of Part I of First Schedule to Chartered Accountants Act, 1949.
• Non-payment of undisputed audit fees by audited other than in case of stick units for carrying out the statutory audit under the Companies Act, 2013 or various other statutes.
• Issuance of qualified report.

Financial Reporting is the process of creating financial Statements which are prepared to present the statement to the management, employees, investors, supplier and other trade creditors, customers, lender, public and regulatory authority.

Financial statements are documents that describe a company’s operations and financial performance. Government organization, auditor, companies, etc. frequently audit financial statements to ensure accuracy and for law, financing, or investment purposes. Under financial statements following parts are to be considered:

1. Balance sheet
2. Profit and Loss statement (also known as “Income Statement”)
3. Cash Flow Statement
4. Notes to accounts
5. Change in equity statement (required for public company only).

Balance Sheet is the financial statement that shows your asset, liability, shareholder fund at specific point of time. It offers snapshot of the company’s financial statement as of the specified date. The following are typical line items on balance sheets:

• Cash, certificates of deposit, short-term securities, and treasury bills are examples of liquid assets.
• Accounts receivable, inventory, and prepaid expenses are examples of current assets.
• Current liabilities, such as short- and accounts payable, salaries and dividends that must be paid, taxes, and client prepayments
• Values of shareholder and owner equity, such as retained.

General Accepted Accounting Principles with provide the basic framework for the financial reporting. These provide the basic guideline for the preparation of financial statements.

GAAP provides rules and regulation over the method of valuation, revenue recognition, disclosure requirement, and other presentation in the financial statements.

There are 3 fundamental accounting assumption which are following:

1. Going concern: When a company’s financial statements are created, a basic accounting assumption known as “going concern” is made. It illustrates the business’ potential for future growth. The most typical going concern assumption is that the business will continue to produce adequate cash flow from current activities to pay its debts and satisfy its future demands.
2. Consistency: If reflect that the assumption and procedures which are used are consistence and no change is made in them. Changes can be made only when there is change is legal requirement for such thing.
3. Accrual Basis: According to the accrual accounting assumption, income or costs are recorded when a transaction occurs rather than when a payment is paid or received

Going concern basis of accounting is the one of the most important assumption it is also the fundamental basis of accounting. Under this assumption the accounts are prepare on the basis of taking the assumption that the company is going to be fit in the mere future will continue its operation. An entity shall continue to make accounts on the going concern basis unless it does not fall under any of the situation mentioned below:

• Management either intend to liquidate the entity or
• To cease trade or
• Has no realistic alternative but to do so

If the company does not prepare financial statements going concern basis

• It shall disclose the fact
• Together on the basis on which it prepare the financial statement
• Reason why the company has not regarded as going concern

Indian Accounting Standards are the sets of Accounting Standard mentioned by the Ministry of Corporate Affair. IND AS are made in reference with the International Financial Reporting Standard (IFRS).IND AS guides the company to make its financial statement in a most simplified and uniform manner.

Quarterly forecasting: Under quarterly forecasting the management analysis the likely revenue and expenditure for the period between 6 to 8 quarters ahead. The review of the revenue and expenses is done on quarterly basis and on the review the annual budgeted revenue and expenditure.

Expenses model: Expense model about the categories of expenses allow under a project.

Operating revenue is the revenue which is generate from primary activity of the company. Primary activity depend upon the nature of the work done by the companies.

For example the revenue generate from process the honey from bees hive is the operating revenue for honey industries.

It is crucial to distinguish operational revenue from total revenue because it offers key information on the efficiency and profitability of a company’s core business activities.

Despite the fact that operational revenue is shown separately on financial statements, some businesses merge their non-operating revenue with the operating to falsify their true position. In order to evaluate the health of a company and its operations, it is important to understand and recognize the sources of revenue.

Operating cycle is the time it takes for a business to purchase items, sell them, and get payment for those sales is referred to as an operational cycle. It is, in other words, the time it takes for a business to convert its inventories into cash.

Under the schedule III in Appendix I of the Companies Act, 2013 the schedule for the financial statement is given.

Cash Flow statement is a statements is a statement which provide the report for all the receipts and expenditure of business made in cash in single financial year. The CFS is broadly categories in 3 kind of activities:

1. Cash flow from operation activities: under operating activities cash from the principal revenue generating activities is reported and expenses incurred in relation to such revenue is considered.
2. Cash flow from investing activity: Under investing activity the acquisition and disposal of long term assets are considered.
3. Cash flow from financing activity: Financing activity are the activities that result in change if financial or borrowing of the enterprises.

Each company is required to prepare the cash flow statement except One Person Company (OPC), Small Company Falling under the definition of Section 2(85) of the Companies Act, 2013, and Dormant Company.

Non Cash expenses are those expenses which are which are part of the other expense but for which the actual cash is not paid. As these expenses are non-cash in nature these are not reported in Cash Flow Statement.

If a company has purchase any product or service in respect of which he has issued security of company then such transaction will not be reported in IND AS 7 because the transaction does not involve any cash transaction. As the interest and dividend paid will be reported in Cash Flow from financing activity.

In IND AS 7 Cash Flow Statement provides the details of all cash transactions performed by the company in a financial year. In these the dividend and interest are given specific transaction:

For company involve in Finance enterprises: Interest paid/received and dividend received by the company will be classified in Cash Flow from operating activities. On the other hand, dividend paid will be classified as Cash Flow from financing activity.

For company other than non-financing: Interest or dividend paid by the company will be classified in Cash Flow from financing activities. On the other hand, Interest or dividend received will be classified in Cash flow from investing activities.

Both the item should be separately disclosed in the statement.

Internal control refers to a company’s organizational framework and all of the coordinated methods employed to safeguard its assets, ensure the accuracy and reliability of its financial data, enhance operational efficiency, and encourage adherence to prescribed managerial standards.

Risk management is the process of assessing, analyzing, and controlling financial, legal, strategic, and security threats to an business environment, regulatory environment, system structure, organizational and business environment changes. These risks or threats might arise from a number of sources, such as financial unstability, legal liability, failures in strategy, or uncertain events.

Internal control system are the methods and techniques that are designed to prevent, detect and correct fraud and error that could lead the organization to the potential treat. A potential threat can leads to business loss, violation of laws that could result in penalty or even could result in suspension of license, could result in missing a big opportunity or exploitation to vulnerability that could result in greater loss to the business.

As internal control system help the organization to maintain their regular operation. Internal control system work during the whole process in each and every process of the business and these internal control system are applied due to the following purpose:

1. To maintain and improves the efficiency and effectiveness in business operation
2. To ensure the accuracy of data recorded
3. To make sure that reports generates are accurate, correct and up to date
4. To maintain the law rules and regulation
5. To safeguard the assets

On the basis of the internal control these can be classified on 3 basis:

1. Preventive control: These control prevent the errors, omission, and security malfunctioning before the event occurs. Examples segregation of duties, documentation, training and retraining of staff, authorization of transaction and validation and more others.
2. Detective control: Detection control mainly detect any kind of omission, error or malicious act which has breached by the preventive control. These control are investigative in nature.
3. Corrective control: Once the error has been detected the corrective control are then applied to minimize the impact of such error these may vary from correction of an error in journal entry, to remove the unauthorized access to the system, or to remove any bug, to correct the disruption in normal operation.

It is the primary responsibility of the management towards the implementing internal control system. Internal control are the technique and procedures implemented by the managements used to achieve organization goal. The management has great role involve in the planning, designing, and implementation of the internal control.

There are five component of the control environment which are following:

1. Control environment : Control environment is the process of setting the tone of the environment of the organization and influencing the control consciousness of the people toward the internal control
2. Risk assessment: It is identification and analyzation of the risk that relevant toward the achievement of the objective. These form the basis for how the risk would be managed
3. Information and communication: system or the process that help in communication of information from one person to another with in a stipulated time frame. That help the person to take necessary decision on timely manner.
4. Control activity: control activity refers to the policies and procedures that assist guarantee that management directions are followed. Under this the management implies the policy
5. Monitoring: The department’s internal control system must be monitored to see whether controls are effective and functioning properly. Continuous monitoring is accomplished by normal managerial tasks such as supervision, reconciliations, inspections, evaluations, performance assessments, and progress reports; monitoring may also be accomplished through distinct internal evaluations.

There are multiple limitation of the internal controls which are following:

1. Manual process/human error: – If you rely on manual intervention to collect and report on data, internal controls best practices may be affected. Human mistake might be purposeful or accidental. Spreadsheets and other antiquated data-capture methods are ineffective for documenting internal controls because they leave room for human mistake and don’t provide the requisite rigor or confidence.
2. Lack of accurate data: processing of inaccurate data may cause a great problem to the company. Wrong data processing results in wrong decision making which create hindrance to success of the company and resulting the failure for the management.
3. Too many controls: controls helps the company to regulates its objective and achieve its goals but controls also set the parameter for the work these parameters can lead to increase the complexity of work and results in time consuming activity.
4. Inconsistence control: Due to multiple situation some time the regular process cannot be followed by the company for which there are no controls being designed
5. Insufficient resources: Automated controls are always better than the manual controls because automated control are rigid in nature and cannot be interrupted through manual procedures but for implementing the automated controls high resources are consumed as it require the high cost to maintain and monitor those controls.

While doing the audit work auditor places a greater emphasis over the reliability of the internal control. They sets the procedures to check the evaluation of the efficiency and effectiveness of the controls. If the internal controls are efficient and reliable then less checking will be required and if then more checking will be required.

The auditor should carefully evaluate both the cost-effectiveness of testing controls as well as the inherent limits of internal controls while reviewing and testing controls. Only a reasonable degree of assurance that the control goals are met may be provided by internal controls. Additionally, internal controls cannot be used as the primary source of audit evidence due to the following intrinsic constraints that may reduce their efficacy:

1. Vulnerabilities in IT systems,
2. Documents without attestation
3. Control override via management
4. Alterations to critical personnel
5. Change in regular process
6. Collusion between the employees and management

General control activates that are implanted in a company are following

1. Segregation of duties among various persons to reduce the risk of misuse of authority by the person.
2. ensuring that transactions are approved when they are in line with policy by a person having approval authority
3. The work done must be check by the person another than the maker of such transaction as to evaluate the correctness of the accuracy and correctness of the work.
4. There should be double authorization processes of a single transaction involving high value. Example the purchase of laptop by the in a company for the employee must be authorized by a HR manager and the finance manager.
5. Employees must be regularly rotated to another designation and the work done by pervious employee must be audited to find the out the errors and omission done by the previous person.
6. Providing employees with appropriate training and guidance to improve their learning process and top increase their efficiency in the work.

Internal

Controls always help the organization to provide a safeguard shield to the various vulnerability from the outside world. A weak internal control system always open the path of problem to the company and it will lead to the various problem to the company

1. Loss of efficiency and effectiveness in the regular operation of the business
2. Unnecessary increase in cost of operation.
3. Unstructured work which can lead to chaos and disruption of the operation
4. Lack of accountability of the work done by the person assigned to them
5. Lack of accuracy of the data which can lead to incorrect processing of the data
6. Processing of the inaccurate data can lead to wrong decision making
7. May affect the integrity of data
8. Alternation of the entries by the unauthorized person
9. Loss of confidential data which can affect companies reputation
10. Loss of revenue of the company due to interruption in regular operation
11. Default in the proper internal control over the financial information of the company can lead to legal and regulatory non-compliance which can lead to penalty for the company

Fixed assets are dealt by the company for the production of the inventory or the rendering of the services. Fixed assets are retained by the company over the long period of year and are not for sales in ordinary course of business. These assets involve huge fund investment and are most crucial for the growth of the company. As if company want to expand its operation then it involve huge investment in the fixed assets which will increase the productivity or quality or improves the efficiency of the operation. These are important for the organization for the must be preserved by the proper internal controls. The following are the internal controls should be followed:

1. Review of the internal controls system: There should be proper capital budgeting regarding the expenditure of the capital asset and the expenditure should be effectively made regarding the assets.
2. Accountability and utilization: Accountability over each assets should be done properly which must include the maintenance, repair, depreciation and other various expenditure regarding the expense. Utilization control must be established by the organization for achievement of the purpose for which the assets is purchased
3. Information control: These controls ensure that the correct data is received for the assets which could provide the correct amount of depreciation calculated, amount of insurance to be booked, no of unit that is produced and other these kind of information that can help in the proper controls regarding the assets.

Examining standard process and physical verification are both steps in the process of verifying fixed assets. Normally, the auditor should examine the internal controls and compare them to the documentary evidence to confirm the records. The management is mostly in charge of physically inspecting fixed assets. Verification of physical records must include:

1. The opening balance of the fixed assets must be verified regarding the value, depreciation and registered for the fixed assets.
2. Acquisition for the new assets or the improvement of the existing one must be supported by the proper invoice, register and title deed.
3. Self-constructed assets must be verified by the proper records and the proper expenses records.
4. Depreciation should be properly calculated and should be recorded in the books
5. The auditor should properly scrutinized the records, title deeds, and accounts of the assets.

Indian Accounting Standards (Ind AS) are a set of accounting standards notified by the Ministry of Corporate Affairs (MCA) in India. Ind AS are converged with International Financial Reporting Standards (IFRS), which are a set of global accounting standards developed by the International Accounting Standards Board (IASB).

The objective of Ind AS is to provide a uniform and consistent framework for financial reporting in India that enhances transparency, comparability, and reliability of financial statements. Ind AS apply to all Indian companies and entities that are required to prepare and present their financial statements in accordance with Indian GAAP (Generally Accepted Accounting Principles).

The Indian Accounting Standards (Ind AS), as notified under section 133 of the Companies Act 2013, have been formulated keeping the Indian economic & legal environment in view and with a view to converge with IFRS Standards, as issued by and copyright of which is held by the IFRS Foundation..

Ind AS notified by Ministry of Corporate Affairs differ from accounting standards notified by the Institute of Chartered Accountants of India (ICAI) in several ways. The ICAI is a statutory body that sets accounting standards for companies in India, which are known as Indian Generally Accepted Accounting Principles (GAAP). While Ind AS are based on IFRS, Indian GAAP is primarily based on the Companies Act, 1956 and other laws and regulations in India.

Ind AS are principles-based, they provide broad principles and concepts that companies must apply to prepare their financial statements. Indian GAAP, on the other hand, is rules-based, they provide specific rules and guidelines that companies must follow.

Overall, Ind AS are more comprehensive, detailed and in line with global standards compared to Indian GAAP. The adoption of Ind AS is expected to improve the quality of financial reporting in India and enhance the comparability of financial statements across countries.

The adoption of Ind AS by Indian companies is being phased in over a period of time, based on their size and listing status. The implementation of Ind AS is expected to lead to better quality of financial reporting, improved investor confidence, and better access to global capital markets for Indian companies.

Beside the mentioned benefits, Ind AS shows the present value of all assets and liabilities whereas AS does not have any present value concept.

Ind AS are applicable on Companies registered under The Companies Act, 2013, as follows-

1. All the companies that are listed or in the process of listing in India or outside India,
2. All unlisted companies having net worth of Rs. 250 Crore or more or
3. Holding, Subsidiary, Associates, Joint ventures of above companies as specified in A & B.

No. Ind AS applies to companies only. Any person other than company like Individual, HUF, AOP, BOI, Firm, LLP, etc. are not required to comply with the Ind AS even if their net worth is greater than Rs. 250 lakhs.

As per Section 2(57) of The Companies Act, 2013, “Net Worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits [securities premium account and debit or credit balance of profit and loss account], after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;

The Company should be listed on National Stock exchange (NSE) or Bombay Stock Exchange (BSE). If any company listed under any of the exchange other than BSE and NSE should be considered as unlisted company and Applicability of Ind AS depends upon the net worth of the company.

Yes, a company that voluntarily complies with Indian Accounting Standards (Ind AS) can choose to waive the regulations in the future. The Ministry of Corporate Affairs (MCA) regulates accounting standards through the Companies Act, 2013. According to the Companies Act, companies that meet certain criteria are required to comply with Ind AS. However, other companies have the option to voluntarily comply with Ind AS.

If a company that voluntarily complies with Ind AS decides to waive the regulations in the future, it would need to follow the process prescribed by the MCA. The company would need to submit an application to the MCA explaining why it wants to waive the regulations, along with supporting documents. The MCA would then review the application and make a decision based on the merits of the case.

It’s worth noting that once a company has waived the regulations, it may be difficult to re-adopt Ind AS later. This is because there may be costs associated with re-implementing Ind AS, and the company may have to make significant changes to its accounting policies and systems.

Any company can voluntarily follow the Ind AS for true and fair presentation of actual position of the company.

Ind AS are applicable for following NBFCs-

1. All listed NBFCs
2. All unlisted NBFCs having net worth of Rs. 250 Lakhs or more.
3. Holding, Subsidiary, Associates and Joint ventures of aforesaid mentioned companies as defined in point A & B.

If a company fails to comply with Ind AS, it can lead to legal and regulatory consequences. The Ministry of Corporate Affairs (MCA) can take action against the company for non-compliance. The company may face penalties, fines, or even legal action.

Besides aforesaid, not following Ind AS may result in inaccurate financial reporting, which can mislead investors, creditors, and other stakeholders. Further, not following Ind AS can also affect a company’s ability to access capital markets and can also impact a company’s ability to compete with its peers.

Yes, a Non-Banking Financial Company (NBFC) can voluntarily adopt Indian Accounting Standards (Ind AS) for better presentation of their financial reporting. However, NBFCs are not required to follow Ind AS unless they meet certain criteria such as being a listed company, having a net worth of Rs. 500 crores or more, or being a subsidiary, joint venture or associate of a company that is required to follow Ind AS.  An NBFC may choose to voluntarily adopt the Ind AS for various reasons such as better presentation of financial statements, increased transparency and comparability, and better access to global capital markets.

It’s worth noting that once an NBFC has adopted Ind AS, it must continue to follow the standards in subsequent reporting periods, unless it meets the criteria for exemption from Ind AS in the future.

Goods and Service Tax is a destination based Indirect tax imposed on supply of goods and services. These tax are imposed by the central from manufacturing of good till the final consumption with the credit of the tax paid in the earlier stages. In GST the burden of the tax paid will be transfer to the final consumer of the commodity.

Under the New GST law rules and regulation are notified by the GST Council. The council was formed by the President on India within 60 days of the commencement of the Article 279A with effect from date 12th September, 2016 was issued on 10th September, 2016.

Rules and Regulation are being complied by the person who is registered under the GST law or the person who is liable to get register under the GST law.

There are Total 4 types of GST Central Goods and Service Tax (CSGT), State goods and Service Tax (SGST), Interstate Goods and Service Tax (IGST), Union Territory Goods and Service Tax (UTGST).

1. Central Goods and Service Tax (CGST):- Central Goods and services tax are the collected by the central government over the supply of goods and services within a state and within union territory.
2. State Goods and Service Tax (SGST):- SGST are levied by the central government over the supply of the goods and service by the taxable person within a single state. SGST are collected by the central government and then allocated to state government.
3. Union Territory Goods and Service Tax (UTGST):- UTGST is levy over the supply of goods and services by the taxable over the supply from one union territory to another union territory.
4. Inter State Goods and Service Tax (IGST):- IGST is levy by the central over the supply of goods and services by a taxable person for the movement of goods and services within different state and if the goods are being received from another country then also IGST applies. IGST is then divided into 2 parts CGST and SGST, SGST portion is then to the respective state.

CGST is levied with SGST or UTGST and IGST is levied in alone.

Under GST law for the benefit of the Small taxable person the GST council has notified the section 10 of the Goods and Service Tax Act, 2017 the Composition Scheme. Under the scheme the taxable person had to pay the tax on rate specified by the GST council and provides various reliefs from the regular compliances.

The following are the condition that the Person opting for composition levy should comply:

1. Is neither a Casual Taxable Person(CTP) nor a Non-Resident Taxable Person(NRTP)
2. Shall not pay tax under section 9(3)/9(4) on inward supply
3. Is not engaged in manufacturing of notified goods like ice-cream, pan masala, tobacco and aerated water
4. Shall maintained the word “composition taxable person, not eligible to collect tax on supplies, at the top of bill of supply issued
5. Shall mentioned the word “composition taxable person” at the prominent place of the business.

E way bill is documents mandatorily required by the transporter of the goods if the value of the consignment is more than Rs. 50,000/-. The consigner or consignee, as a registered person or a transporter can generates e-way bill and even the unregistered person to can login and generates e-way bill on behalf of the registered person.

Under the section 10 of the Goods and Service Tax Act, 2017 the threshold limit has been prescribed by the GST committee are following:

1. Threshold limit for normal state has been increased from 50 lakh to 1.5 crore.
2. Threshold limit for states Arunachal Pradesh, Manipur, Mizoram, Nagaland, Tripura, Meghalaya, Sikkim, Tripura and Uttarakhand.

At first the person is not liable to get registered under the GST if the turnover of the person of the person is below threshold limit except if he is not covered under the section 24(compulsory registration) of the Goods and Service Tax Act, 2017.

Every person who is liable to get registered under the GST law is require to apply for the registration within 30 days from the date he become liable to get registered.

After getting liable for registration the person requires the following documents for the registration under the GST: –

1. Pan of the GST registration applicant
2. Proof of business registration or incorporation certificate
3. Identity and address proof of the promoter with the photographs
4. Address proof for the place of business
5. Bank account statement showing Name, address and a few transactions
6. Class 2 digital signature for the authorized signatory.

HSN was developed by the world custom organization and used to classify Goods. Originally these were 6 digit codes and later on 8 digit codes are being used. In GST specific HSN code have been assigned to different goods and services. While filing the return HSN code are required to be filled. The number of digits of HSN codes are given on the basis of the turnover:

If the turnover is less than 5 Crore than 4 digit is required;

If the Turnover is more than 5 Crore upto 10 Crore than 6 digit is required;

If the Turnover is more than 10 Crore then 8 digit code is required;

If the Taxable person is engaged in export of goods than 8 digit code is mandatory.

Aggregate turnover does not include value of inward supplies on which tax is payable on reverse charge basis.

SEZs Under the same PAN in a state require to get only one registration.

Under the situation where the assessee has two different unit within the same state one is in SEZ zone and other is in Non SEZ zone then he is required to get registration for each unit.

If the taxable person is having multiple unit in the same state then if the aggregate turnover of businesses is more than threshold limit then the person is required to get registered under the GST Law.

It is at the option of the taxable person to take single registration for a one state and declaring one business unit as a principal place of business and other units as an additional place of business or can take separate registration for each unit.

If a person is exclusively dealing in 100% exempted supplies then he is not required to get registration irrespective of any turnover.

No, there will be one registration for all activity but they have the option registered as separate business verticals.

As per the section 24 of the Goods and Service Act, 2017 the following person are require to take registration under the law:

1. Person making inter-state taxable supply;
2. Casual taxable person making taxable supply;
3. Person who are required to pay tax under reverse charge mechanism;
4. Person who are required to pay tax under subsection 5 of the section 9 (E-commerce operator);
5. Person who are required to deduct tax under section 51(deduction of tax by the government authority);
6. Person who make taxable supply of goods or service or both on behalf of the other taxable person whether as an agent or otherwise;
7. Input service distributor;
8. Person who supply goods and services both on through e commerce operator who is required to collect tax at source under section 52(deducted by the e-commerce operator);
9. Every person supplying online information and data base access or retrieval services form a place outside India to a person in India, other than a registered person; and
10. Such other person or a class of a person notified by the central on the notification of the council.

under GST Law some of the commodities are specifically excluded outside the ambit of the GST which are following: –

1. Alcoholic liquor for human consumption;
2. High speed diesel;
3. Motor spirit;
4. Natural gas;
5. Aviation turbine fuel.

A GST return is statement that contain of your sales, purchases, tax collected on sales and Tax paid on purchase filed with the tax administrative authority. After filing of your return tax is calculated on the basis of your information and such tax is paid by the taxable person.

A normal type of tax payer is require to give various type of details:

1. Outward supply to registered persons;
2. Outward supply to unregistered person;
3. Details of DR note and CR notes;
4. Zero rated and exempt supply; and
5. Advance received in relation to future supply.

For the return details only certain details of invoice are require to be uploaded on the portal. All the invoice are not uploaded on the GST portal, details are provided on B2B, B2C, interstate or intra state supply

For B2B details of inter-state and intra state supply both are uploaded.

For B2C details in case if inter-state supply invoice of value more than Rs. 2.5 lakh must be uploaded. Where there are inter-state invoice below Rs. 2.5 lakh state wise summary statement will be provided.

GSTR 2 is return showing the purchase that the taxable person has made had. It is auto populated return the data filled in the GSTR 1 is Auto filled in the GSTR 2. Only certain details are to be provided by the taxpayer like details of import, purchase from unregistered person or composition suppliers and exempt/non GST/ nil rates supply.

In case the if invoice in GSTR 2 and GSTR 1 are not matching than if the supplier has forget to upload any of the invoice than ITC will be added to the tax liability of the person.

Income tax is a tax imposed by the government on the income earned by the Assessee during the previous year which is taxed in the relevant Assessment year.

Under the Income Tax Law Income are classified under heads of income based on their nature and source and there are total 5 heads of income. These heads are following:

1. Income under head Salary:- When the relation between the payer and the payee is employer and employee then the income is taxable under the head salary.
2. Income under head House Property:- When the income is received in respect of the property consist of any building and land appurtenant thereto. Such income received is taxable under the head house property.
3. Income under head Business and Profession:- When a assessee receive income in connection to his business or profession such income will be taxable in the head business and profession.
4. Income under head Capital Gain:- When a assessee “Transfer” an asset which fall under the definition of section 45 of the Income Tax Act, 1961 which define the term “Capital Asset” then the income from such source will be taxable under the head capital gain.
5. Income under head Other Sources:-Income from other sources is an Inclusive source of income. If the income earned is not taxable under any other head then it will be taxable under the head income from other sources.

Basic exemption limit is maximum limit upto which the income is not taxable for the assessee in the income tax. Basic exemption limits under old scheme as per the budget 2023 for the individual are following:

1. INR 2,50,000 for a person aged upto 60 years or below
2. INR 3,00,000 for a person aged from 60 to 80 years
3. INR 5,00,000 for a person age above 80 years

Income tax return is the systematic form under which the assessee furnished details of income from various sources, expenses, investment and other details that is required by Income Tax Department.

Different form has been prescribed under the law for different person are mentioned below:

1. ITR 1 (Sahaj): For individuals being a resident (other than not ordinarily resident) having total income up to Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest etc.), and agricultural income up to Rs.5 thousand
2. ITR 2: For Individuals and HUFs not having income from profits and gains of business or profession.
3. ITR 3: For individuals and HUFs having income from profits and gains of business or profession.
4. ITR 4: For Individuals, HUFs and Firms (other than LLP) being a resident having total income upto Rs.50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE.
5. ITR 5: For persons other than- individual, HUF, company,  person filing Form ITR-7.
6. ITR 6: For Companies other than companies claiming exemption under section 11
7. ITR 7: For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) only.

There are many situation under which the filing of the income tax return is mandatory. These situation are following.

1. As per the section 139(1) it is compulsory for the Firm and company to file the income tax return.
2. In case of an assessee other than the company and firm, if the total is more than basic exemption limit.
3. In case of an assessee which hold the beneficial interest or otherwise in an asset situated outside India or having any signing authority in any account outside India.
4. In case of a person who is beneficiary of an asset located outside India.
5. Any person other than a company or firm, who is not required to furnish return `u/s 139(1) is required to file the return mandatorily if any of the following condition are satisfied.

• • If the person has deposited an amount or aggregate of amount more than 1 crore in one or more current account maintained with the banking company;     or
  • Has incurred an expenditure of amount or aggregate of 2,00,000/- for himself or any other person travelling to foreign; or
  • Has incurred expenditure on electricity for more than 1,00,000/- in a year or
  • If the aggregate of TDS or TCS is more then Rs. 25,000/- in the previous year or
  • The deposit in one or more saving bank account of the person, in one or aggregate is 50 lakhs or more during the previous year.

In case if the TDS deducted is more than the tax liability or the assessee has deposit any excess of advance tax then the assessee it is mandatory to file the return for claiming refund.

Rebate u/s 87A of the Income Tax Act, 1961 is to provide only to resident individual. Under this if the income of the assessee is less than the limit specified then the assessee will be entitled to a deduction of amount of rebate specified or tax liability whichever is lower. The limit of income and amount of rebate for the assessee is as mentioned below:-

1. under old regime:- if the total income of the assessee is not more then 5,00,000/- then maximum amount of rebate allowed is INR 12,500/-
2. under new regime:- If the total income of the assessee is not more then 7,00,000/- then maximum amount of rebate allowed is INR 25,000/-

Section 80C provide the assessee with the numerous option to invest there fund in multiple scheme and avail the exemption from income. Under section 80C maximum amount of deduction allowed is Rs. 1,50,000. Which provide multiple investment option to the assessee which are mentioned:

1. Equity linked saving scheme
2. National pension scheme
3. Unit linked insurance plan
4. Public provident fund
5. Sukanya samridddi yojana
6. National saving certificate
7. Fixed deposit (eligible for deduction)
8. Employee provident fund
9. Principal repayment of housing loan
10. Infrastructure bonds
11. Payment of Tuition fees

Note: The amount of deduction is aggregate of all the scheme which cannot be more than 1,50,000.  

In the new scheme of income tax released under the Budget some specified deduction are allowed to the assessee which are mentioned below:

1. Standard deduction U/s 16(ia)
2. Family pension U/s 57(iia)
3. Deposited in the Agniveer Corpus Fund u/s 80CCH(2)

Government have 3 modes for tax collection

1. Optional Payment of tax by the assessee under various head of challan through various banking channels provided by the department
2. Taxes deducted at source [TDS]
3. Taxes collected at sources[TCS]

Normally the income earned in previous year is taxable in the relevant assessment year. The assessee have to file the return of income in the Assessment year pertaining to such previous year and have to pay tax before filling of the return. But if the estimated tax liability for the relevant assessment year is Rs. 10,000/- or more then assessee is in obligation to pay advance tax in the year in which income is earned.

Advance tax calculated on the basis of expected tax liability for the year. It is paid in installment.

1. At least 15% – on or before 15^th June
2. At least 45% – on or before 15^th September
3. At least 75% – on or before 15^th December
4. At least 100% – on or before 15^th march

In case of person paying tax under 44AD or 44ADA 100 percent of the tax has to be deposited on or before 15^th March

Under presumptive taxation scheme the government had provide certain relief to the small taxpayer form maintenance of books and accounts and from getting audited. As section 44AD is covered under the presumptive taxation scheme. The assessee who is a resident individual, HUF, Partnership firm (not being an LLP). Section provide the eligible assessee to declare income at the rate of 8% of the turnover and the substituted rate is 6% when the amount is received by the account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode prescribed in the law.

Eligibility: The maximum limit for the turnover of the assessee is 2 crore. But if the payment and receipts through digital channels are more than 95% of the total receipts and payments then the limit will be increased to 5 crores.

Senior citizen is not required to deposit advance tax only if he does not have any business income.

Business Losses can be carried forward for 8 years and for new Startup companies 10 years (As per the Latest amendment).

Under presumptive taxation scheme the government had provide certain relief to the small taxpayer form maintenance of books and accounts and from getting audited. As section 44AD is covered under the presumptive taxation scheme. The assessee who is a resident individual, HUF, Partnership firm (not being an LLP). Section provide the eligible assessee to declare income at the rate of 8% of the turnover and the substituted rate is 6% when the amount is received by the account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode prescribed in the law.

Eligibility: The maximum limit for the turnover of the assessee is 2 crore. But if the payment and receipts through digital channels are more than 95% of the total receipts and payments then the limit will be increased to 5 crores.

yes, if the assessee has suffered business loss then for carry forward of the business loss filing of the return is mandatory but unabsorbed depreciation can be carried forward without the filing of return.

When a resident individual has paid tax outside India and have to take credit for the tax paid, the assessee has to submit Form 67 with the department. This form shall be submitted on or before the due date of filing of return u/s 139(1). The form contains the details of the income and tax paid refereeing to the country in which income is earned.

Earlier section 54/54F has no limit but after the New Budget 2023 the limit for the deduction has been fixed for maximum 10 crores. If a new house property is been purchase having value more than 10 crores then the Cost of Acquisition will be considered at 10 crores only.

In case the assessee has received the notice for the defective return u/s 139(9) response must be filed within 15 days of the issue of the notice.In case the assessee has received the notice for the defective return u/s 139(9) response must be filed within 15 days of the issue of the notice.

Section 112A cover the capital gain on transfer of listed securities.

Income under this section is exempt upto Rs. 1,00,000/- will be taxed at 10% beyond Rs. 1,00,000.

Exempt Income are not taxable in the hand of the assessee and not included in income during computing the tax liability. While the taxable income are chargeable to tax and included in income during the calculation of Gross Total Income.

Form 26AS is a statement maintained by the Income tax department which contain the records of the following:

1. TDS deducted of the assessee
2. TCS
3. Advance tax or Self Assessed Tax paid by the assessee
4. 15 G/H details
5. Details of refund paid along with the interest and year for which the refund is issued

Form 16 is form given by the employer to employee in reference to the tax deducted by the employer of the assessee. The form contain details of the salary, allowances, perquisites, deductions which are mentioned in Form 16. The computation mentioned in the Form 16 contained deductions based on the information given by the employee which is subject to proof and the return filled may be differ from the computation mentioned in the Form 16.

Double taxation Avoidance Agreement(DTAA) is treaty signed between country to avoid the double taxation of international income and promotes trades and business between countries. Under such agreement the income earned by the assessee is added to the Gross total income and the tax paid by the assessee in another country is allowed as credit to him. For availing the benefit of such credit Form 67 is filled on or before the filling of return of income u/s 139(1).

In accordance with section 135 the Companies Act, 2013 CRS provision are mandatory for the companies whose Annual turnover is 1,000 crore or more, or net worth is 500 crore or more, or having net profit of 5 crore or more. The company qualifies the above limit shall make an expenditure of 2% of the average profit of the last 3 years.

As per the explanation given in subsection 2 of the section 37 of the Income Tax Act, 1961 the CSR expenditure is disallowed under the income tax law. If the assessee make the payment to any trust or association or organization will be qualified as CSR expenditure but will be disallowed under the while computing the income. If the assessee has made the expenditure by himself or through his own trust the expenditure will be disallowed.

But if the assessee had made donations to under the provision of the section 80G then such while computing the income first CRS expenditure will be disallowed and added to the income and then deduction for the exp. Will be allowed u/s 80G certain to a condition that the contribution is not provided to Swacha Bharat Kosh and Clean Ganga Fund.

Special Economic Zone policy was launched in April 2000. Special Economic zone is an area in a country which hold different Rules and regulation from rest of the country. The rules and regulation under SEZs are made for the purpose to attract Foreign Direct Investment (FDIs).

Domestic Tariff Area means whole of the India including territorial water and mountain shelf which are outside the Special economic zones and EOU/EHTP/STP/BTP.

Special Economic zones Policy was launched in 2000 and The Special Economic Zone Act, 2005 was passed in May, 2005 which received presidential assent on the 23^rd of June, 2005. The salient feature of the SEZs are following:

1. No license required for import;
2. Manufacturing or service activity allowed;
3. Domestic sales are subject to full customs authority of export/import cargo;
4. SEZs developers/Co developers and units enjoy the direct tax and indirect tax benefits;
5. No routine examination by the custom authorities;
6. SEZ unit will have freedom for subcontracting;

Different type of Special economic zones are following:

1. Free Trade Zone(FTP) :- A FTP is an area where goods can be shipped, handled, manufactured, reconfigured and reallocated without the participation of the custom authorities.
2. Export Processing Zone: – an Export Processing Zone is different type of FTP where the import and export are allowed without any kind of restriction. It is a surrounded of 10 to 300 hectare, that is specialized in manufacturing for export. It provide duty free import of the machinery, materials, equipment’s, raw material used in production. These benefits to reduce the cost of production, improves efficiency, and increase foreign investment.
3. Free Zone/Free economic zone: – Free zone are termed as Free Economic zone(FEZ), Free Economic Territory(FETs) and Free Zone are the specified area in which the company is are given maximum tax Reliefs and exemptions to encourage economic activity. Generally, these zone are established in the developing countries for the betterment of their industries and promotion of there economy.
4. Industrial park: – Industrial park provides the suitable condition for business by providing some shared facilities. These zone are set up to provide shared facilities like infrastructure like roads, water, electricity and other facility like waste management, security, transportation.
5. Urban Enterprise Zone: – Urban Enterprise zone is an area which offers tax concessions, infrastructure incentives, and reduce regulation which results in attraction of the investment by the private companies and other. These zone formed with the intension to encourage development in underprivileged area through tax reliefs to the companies and other enterprises set up there. The unit set up in these area are provided benefits over the certain local, state, federal taxes and regulation.

SEZ Unit: The unit which is set up by the business enterprise in an SEZ area form where type make supply. It include the unit of International Financial Service Center.

Developer: – Developer is the person who has file an application in Form A for the establishment of the SEZ unit. Developer can be any company, firm, person or State Government who is required to file all the documents mentioned in Form A.

Development Commissioner: – According to the SEZ Act, 2005 the Development commissioner is the person who is appointed by the Government of India and is in charge of the Special Economic Zone, Administrative control and supervisor control over the person appointed under subsection 2 of the section 11 to discharge any function under this Act. Development Commissioner may call for the any information from the developer on regular interval for the review of the performance of the developer of the unit. The development commissioner may delegate an extent of his authority to the person to the person or the officer employed under him.

Co-developer: –

when developer of the SEZ is not in possession of the minimum contiguous land to develop the SEZs then approval is considered as in-principal approval.

These documents required to be filled for the Formal Approval of setting up SEZ:

1. Form A which is regards to application for setting up a special economic zones.
2. Recommendation from state government.
3. Developer’s certificate in the format Form A₁.
4. Encumbrance certificates form Tahsildar.
5. Color Maps of the proposed SEZ unit certified by the Tahsildar on A4 size paper.
6. Copy of Registrar sales deed.
7. Statement of the land details i.e. proposed area of land, proposed buildup-unit,
8. Weather it is multiproduct SEZ
9. Weather it is sector specific SEZ
10. Projected investment in project.
11. Projected employment generation.
12. Source of fund of project
13. Net worth of the applicant and other documents mentioned in the Form A.

Special Economic Zone are the area which provide multiple benefits to the enterprise. These area provide exemption which are following:

1. Payment of custom duty for the supply into India and export of goods from SEZ to outside India;
2. Payment of central sales tax
3. Payment of service tax under chapter v of the finance on the taxable services consumed
4. Payment of GST
5. Payment of tax within the state of Tamil Nadu
6. Provide the tax benefits u/s 10AA of the Income Tax Act, 1961
   1. For first 5 years : Tax exemption over 100% of the export income
   2. For next 5 years thereafter : Tax exemption over 50% of the export income
   3. For next 5 year : Tax exemption not more than 50% of the profit eligible for tax deduction

For availing the above benefits all the supply must be conducted from its authorized operation

The following are the procedures for applying for a SEZ unit in India:

Step 1. The applicant has to file an application for setting up of the Special Economic Zone. The application will be made in Form A to the concern development commissioner (DC).

Step 2. DC will forward the application to the Board of Approval (BOA) of Department of Commerce with in 15 along with the inspection report, letter of recommendation from the State Government and other details as per be prescribed to issue a notification of declaring an area as an SEZ.

Step 3. The State government will forward the proposal along with recommendation to the Board of Approval of Department of Commerce within 45 days of receipts of such proposal.

Step 4. If BOA approved the proposal then the person shall generate the consent of the State Government within 6 month form the date of approval.

Step 5. Then Central Government within 30 days of receiving of communication will grant of a formal or in-formal approval.

The Unit Approval Committee has the power to grant approval for setting up a business unit in the SEZ which is headed by the Development Commissioner guided under the SEZ Act and the rules notified. The process of registration SEZ unit is broadly categories into the following steps:

1. Application in Form F will be made along with the details of reports and projected financial statements will be submit to the Development Commissioner (DC) of the zone
2. Presentation before the Approval Committee, if required
3. Obtaining the Letter of Approval (LOA) form the DC
4. Acceptance of terms and condition of the DC communicated in LOA
5. Forming of the Legal Undertaking with DC
6. SEZ developer will issue a consent letter for allotment of land
7. Application of services if services does not fall under the Standard approval list of service.
8. Online registration at NSDL
9. GST registration
10. Execution of Bond with specified officer

The following are the obligation of the SEZ unit:

1. The SEZ unit shall achieve positive Net Foreign Exchange Earning and for this legal undertaking is to be perform with the Development commissioner
2. Filing of quarterly statements containing details of value of import, export etc. to the Development commissioner and maintenance of books pf accounts
3. To provide the periodic reports to development commissioner, Zone custom, for its operation and submit information under required
4. The unit is also required to form a contract with Zone custom for its operation in the SEZ.

Yes, one of the main objective of the SEZ unit to is to invite FDIs in India, the government for the said purpose has allowed 100% of investment in the SEZ unit through the automatic routes. Under such the equity of promoter shall not fall below the 51% and if the equity decreases below the 51% then the prior approval of the Board of Approval is required.

If the person who has given the name as the developer provides the infrastructure facility with the along with the other person such person will be termed as co-developer. An application for the co-developer has to file with Development commissioner who will forward it to Board of Approval.

SEZ units are formed with the object to promote the business activates and following are permissible business activates allowed under the SEZ unit:

1. Manufacturing: To produce, assemble process or bringing into hand or machinery, a new product having distinct name, made and any more extra.
2. Services: Name of the services specified in the list issued by the SEZ are following :
   

   S.no	Particular
   1	Airport Authority Services
   2	Architect’s Services
   3	Asset Management Services
   4	Advertising Agency Services
   5	Airport Services
   6	Banking and Other Financial Services
   7	Business Exhibition Services
   8	Cargo Handling Services
   9	Chartered Accountant Services
   10	Cleaning Activity Services
   11	Clearing & Forwarding Agents Services
   12	Commercial or Industrial Construction Services
   13	Company Secretary Services
   14	Computer Network Services
   15	Consulting Engineer’s Services
   16	Cost Accountant Services
   17	Courier Services
   18	Credit Rating Agency Services
   19	Customs House Agent Services
   20	Commercial Training & Coaching Services
   21	Convention Services
   22	Copyright Services
   23	Design Services
   24	Development & Supply of Content Services
   25	Erection, Commission and Installation Services
   26	General Insurance Business Services
   27	Goods Transport Agency Services
   28	Information Technology Software Services
   29	Interior Decorator Services
   30	Internet Communication Services
   31	Intellectual Property Services
   32	Legal Consultancy Services
   33	Management, Maintenance or Repair Services
   34	Manpower Recruitment and Supply Agency Services
   35	Market Research Agency Services
   36	Other Port Services
   37	Outdoor Caterer Services
   38	Packaging Activity Services
   39	Port Services
   40	Processing & Clearing House Services
   41	Renting of Immovable Property Services
   42	Security Agency Services
   43	Site Formation & Clearance, Excavation, Earth Moving Services
   44	Storage & Warehousing Services
   45	Supply of Tangible Goods Services
   46	Survey & Map Making Services
   47	Scientific or Technical Consultancy Services
   48	Sound Recording Studio or Agency Services
   49	Technical Inspection and Certification Services
   50	Technical Testing and Analysis Services
   51	Telecommunication Services
   52	Transport of goods by Air Services
   53	Transport of goods by Rail Services
   54	Transport of goods by Road Services
   55	Works Contract Services
   56	Transport of goods Services
   57	Construction Services
   58	On-line Information and Database Access Services
   59	Rent-a-cab operator’s service
   60	SEZ online service
   61	Air Travel Agent Services
   62	Rail Travel Agent’s Services
   63	Travel Agent’s Services
   64	Business Support Services
   65	Transport Passengers by Air Services
   66	Accomodation Services

3. “Trading” is considered to be import for the purpose of re-export.

If the person who has given the name as the developer provides the infrastructure facility with the along with the other person such person will be termed as co-developer. An application for the co-developer has to file with Development commissioner who will forward it to Board of Approval.

No, land and build unit is not allowed to sale but they can be lease to the co-developer or unit holder having letter of approval.

Letter of approval is issued by the Development Commissioner (DC) to the applicant who has applied for setting up a business unit in SEZ in which he provides the confirmation for setting a unit is SEZ along with the condition prescribed. Letter of approval is issued in Form B containing details of annexure issued by the DC.

Multi Purpose SEZ: In a Multi-Purpose SEZ produces goods and Services of different sector are produced in single SEZ.

Sector specific SEZ: – Sector specific SEZ produces goods or service which are Connected to a single specific industries like Bengaluru IT Park.

According to the Integrated Goods and Service Tax Act, 2017. Supplies made to the SEZ covered under the section 2 of SEZ Act, 2005 will be considered as exports thus will be treated as ZERO rated supplies.

Transfer pricing refers to the pricing of goods, services, or intangible assets that are transferred within a multinational corporation (MNC) from one unit to another located in different tax jurisdictions. Transfer pricing is important because it affects the allocation of profits and taxes among countries where associated enterprises operates.

If transfer prices are set too high, profits may be shifted to lower-tax countries, reducing the amount of tax paid in higher-tax countries. Conversely, if transfer prices are set too low, profits may be shifted to higher-tax countries, resulting in a higher tax burden for the MNE.

To prevent tax avoidance and ensure that transfer prices are set at arm’s length (i.e., the same price that would be charged between unrelated parties), many countries have established transfer pricing rules and regulations. These rules typically require MNCs to maintain contemporaneous documentation, including a transfer pricing study, to support the transfer prices they use.

When two or more associated enterprises enter into any international transaction they have to follow the regulations of transfer pricing governed by Central Board of Direct Taxes, The cost of such transaction shall be calculated considering the arm’s length price of the particular benefit, service, or facility, as applicable.

According to chapter X comprising sections 92 to 94B of the Income Tax Act, 1961, “associated enterprise” in relation to another enterprise means an enterprise–

• Which participates directly or indirectly through one or more intermediaries in the management, control, or the capital of the other enterprise.
• In respect of which one or more persons who participate, directly or indirectly or through one or more intermediaries, in its management or control or the capital are the same person who participate, directly or indirectly, or through one or more intermediaries, in the management or control or the capital of the other enterprises.

An international Transaction means any transaction between two or more associated enterprises situated in different tax jurisdictions in terms of a property that is tangible or intangible, a service offered by the company, or any form of lending of money, etc. At least one of the participants involved in the transaction must be a non-resident of India. However, a transaction that has been carried out by two non-resident Indians, where one of them possesses a permanent setup in India and whose income is taxable from India, such a type of transaction is also considered as ‘International Transaction.’

An international Transaction means any transaction between two or more associated enterprises situated in different tax jurisdictions in terms of a property that is tangible or intangible, a service offered by the company, or any form of lending of money, etc. At least one of the participants involved in the transaction must be a non-resident of India. However, a transaction that has been carried out by two non-resident Indians, where one of them possesses a permanent setup in India and whose income is taxable from India, such a type of transaction is also considered as ‘International Transaction.’

The expression “intangible property” shall include—

(a) Marketing related intangible assets, such as, trademarks, trade names, brand names, logos;

(b) Technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how;

(c) Artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps, engravings;

(d) Data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters;

(e) engineering related intangible assets, such as, industrial design, product patents, trade secrets, engineering drawing and schema-tics, blueprints, proprietary documentation;

(f) Customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders;

(g) Contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non-compete agreements;

(h) Human capital related intangible assets, such as, trained and organised work force, employment agreements, and union contracts;

(i) Location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights;

(j) goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value;

(k) Methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data;

(l) Any other similar item that derives its value from its intellectual content rather than its physical attributes.

Following are the methods prescribed under chapter X to determine the arm’s length price with respect to an international transaction:

• Transactional net margin method (TNM)
• Resale price method (RPM)
• Comparable uncontrolled price method (CUP)
• Cost plus method
• Profit split method (PSM)
• Such other method that may be prescribed by the regulatory authority

Depending upon the circumstances and nature of transaction, the most appropriate method referred above should be applied for determination of arm’s length price in the prescribed manner.

The determination of arm’s length price under section 92C and 92Ca shall be subject to safe harbour rules.

Safe harbour means circumstances in which the income tax authority shall accept the transfer prices declared by the aseessee. Hence the assessee is exempt to follow the technics of determine the arm length price and the case of such assessee will not be transfer to the assessing officer as maintained in section 92CA.

There are several documents that are required to be maintained when an enterprise enters into an international transaction.

• Ownership of the person with respect to the enterprise. This includes the ownership structure, shares held, ownerships held by any other enterprises of such person, if any.
• A detailed profile of the foreign group to which the assessed enterprise is associated with for the international transactions. The details such as name, address, country where tax returns are filed, and the legal status, etc.
• A detailed description of the business activities of both the assessed person and the associated group of enterprises with whom the former has been involved in international transaction.
• The details of the international transaction, such as the nature of the transaction, details of the property or services transferred, the terms contained in the transaction, and the amount and value of each transaction.
• The details of the functions carried out by such a transaction, the details of the risks involved and the value of the assets used or to be used by the assessed or the associated enterprise that is involved in such a transaction.
• The details of the records collected for the entire business or a particular division of the business during the period of the enterprise’s business activity in which the foreign transaction has been involved. These include reports such as the estimates made on various market trends, forecasts about the market, budget analysis or any other such finance-related reports prepared by the enterprise.
• The details of the uncontrolled transactions, if any, that has taken place with a third party during the period of the international transaction. The nature and the terms and conditions of such transaction have to be mentioned as they play an important role in deciding the value of the international transaction.
• The details of the analysis conducted in order to assess the impact of the uncontrolled transaction on the international transaction concerned.
• The details of the various procedures considered and the one adopted in deciding the arm’s length price with respect to an international transaction. The details should also include the details on why the particular method was adopted and how it was implemented successfully in order to decide the arm’s length price.

Any person who has enter into an international transaction during the previous year shall obtain a report (Form 3CEB) from a Chartered Accountant, duly verified by him, on or before the date prescribed by the authority, furnishing all the required details.

Transfer pricing rules relate to transactions. It is therefore reasonable to presume that the transaction covered in the last quarter of the previous year alone could be covered. There is possible view, that since it is an associate concern at any time during the year, all the transactions for the year are covered. The definition of “associated enterprise” in section 92A(2) would indicate, that an enterprise becomes an associate enterprise , if it becomes so “at any time during the previous year”. It would, therefore, mean that the associate enterprise is an associate enterprise for the whole year, so that the transaction for the period for which it was not associate enterprise may also be covered. This would, however, be a less plausible interpretation.

Where there is a government approval, whether by way of specific approval or because of general guidelines dispensing with such approval but all the same effective, it can be taken as a condition which governs the transfer price. Since the guidelines often fix a ceiling or a cap on the amount that is payable, such price need not be taken as sacrosanct, if there are clear circumstances to warrant that the transfer price can be different from the approved price. But where, as a condition such ceiling will materially affect the transfer price, it cannot be ignored.

Answer to this query are same as the answer of preceding one. Such fixed price would be a condition, which May materially affect and control the market price, so that comparable uncontrolled price may not found. Administratively regulated, price would then be a material information for arriving at the transfer price different from such price is not ruled out.

Head office and branch are one and the same in law. They are not an associate enterprise within the meaning of transfer pricing rules. But a branch may constitute itself as a permanent establishment, where it is located, so that the authorities would require the income attributable to the operations of such permanent establishment in the host country to be calculated. The principles under the transfer pricing rules would have application in such a case in determination of the income. But the partners may well expect the taxpayer to explain the basis adopted for accounting purposes. To the extent, that the principles adopted will have relevance to the transfer pricing rules, they cannot be ignored.

• IFSC Stands for International Financial Services

An IFSC serves to the customers outside the jurisdiction of domestic economy. Such center deal with cross border flow of finance, financial products, and services across the borders.

IFSC as envisaged under the Indian context “is a jurisdiction that provides financial services to non-residents and residents (Institutions), in foreign currency other than Indian Rupee (INR)”.

IFSC is set-up to undertake financial services transactions that are currently carried on outside India by overseas financial institutions and overseas branches/ subsidiaries of Indian financial institutions.

• GIFT City IFSC (GIFT IFSC) aims to bring back to Indian shores those financial services transactions which are currently conducted outside India by foreign financial institutions and foreign affiliates/subsidiaries of Indian financial institutions. More specifically, it seeks to move them to a hub that is, for all practical purposes, a designated location that has the same ecosystem benefits as their current offshore location, which is physically located in India. The IFSC would also applaud and promote the development of Indian financial markets. The strategic objectives of the creation of the IFSC are as follows:
• To realize the vision of the Government of India to emerge as a major economic power by promoting the development of a strong foundation of international financial services in the country.
• Facilitate the implementation of the government’s strategy to develop a financial centre in the South Asian Peninsula.
• To position IFSC as a world-class zone in providing long-term office/service accommodation and high-tech, financial and business infrastructure.
• Bring back foreign financial services professionals to Indian shores and make India a talent hub.

GIFT City is India’s only approved IFSC located in the capital city of Gandhinagar, State of Gujarat.

• GIFT IFSC offers several benefits to start-ups. The main advantages are:
• State-of-the-art infrastructure at the level of other global financial centres
• Tax benefits in the form of tax exemptions and incentives — Liberal tax system for 10 years, state subsidies
• Lower operating costs
• International dispute resolution mechanism through the Singapore International Court of Arbitration
• Strong regulatory and legal environment
• An integrated ecosystem of banks, insurance, capital markets, law firms and consulting firms
• A fully transparent operating environment that follows global best practices and internationally recognized laws and regulatory processes
• Availability of qualified specialists
• Modern transport, communication and internet infrastructure
• The only place in India that allows foreign transactions.

The state of Gujarat has become the fastest growing region in the country with an annual GDP growth of more than 14 percent per year for the past 10 years. Apart from having one of the largest manufacturing facilities in India, Gujarat also has a disproportionate share of the country’s investors and entrepreneurs. A recent talent survey revealed that the labour stock available in Gujarat, including the non-resident Gujarati population, is one of the largest available talent pools in the country.

Recognizing the state’s potential as a hub for financial services, the GIFT project was designed as a mega project to realize the vision of establishing an IFSC in India.

IT companies do not need permission from any regulatory body, while banks, insurance companies and capital market entities need approval from their respective regulators, RBI, Insurance Regulatory and Development Authority (IRDAI) and Securities and Exchange Board of India (SEBI). Currently, units related to banking, insurance and capital markets are considered SEZ IFSC units.

IT companies and IFSC units can operate in the same zone, GIFT SEZ. IT companies only need the approval of the KASEZ Development Commissioner and can start operations after SEZ approval. Regulated financial services companies, ie banks, insurance companies and capital market intermediaries, must obtain approval from the respective regulatory authorities such as the Reserve Bank of India (RBI), IRDAI and SEBI, in addition to the approval of the SEZ Development Commissioner.

All the transactions undertaken by the units in IFSC should be in foreign currency [other than Indian Rupees (INR)]. However, IFSC units can carry out administrative and statutory expenses in INR.

In India, IFSC is subject to approval by the central government under the SEZ Act, 2005 and is also governed by various financial services regulators such as RBI, SEBI and IRDAI. On December 19, 2019, the IFSC Authority Act 2019 came into force, establishing the GIFT Financial Services Market Development and Regulation Authority in the IFSC. The IFSC authority was recently established by the central government on 27 April 2020. The headquarters of the IFSC authority is located in Gandhinagar, Gujarat.

The following entities can set up an IFSC unit:

The financial services entity defined by RBI, SEBI and IRDAI under the IFSC regulations can set up IFSC unit at GIFT IFSC. The following key institutions are permitted by the respective regulator to set up an IFSC unit:

• Banking Sector – Regulated by RBI
  • Indian banks (viz. banks in the public sector and the private sector authorised to deal in foreign exchange)
  • Foreign banks already having banking presence in India
• Insurance Sector – Regulated by IRDAI
  • Indian Insurer
  • Indian Reinsurer
  • Indian Broker
  • Foreign Insurer
  • Foreign Reinsurer
• Capital Market – Regulated by SEBI
  • Stock Exchanges/ Commodity Exchanges
  • Clearing Corporation
  • Depository
  • Stockbrokers, Trading members
  • Investment Adviser
  • Portfolio Manager
  • Alternate Investment Fund (AIF)
  • Mutual Fund
  • Any other intermediary permitted by SEBI