If you run a business in India, chances are someone has mentioned "audit" to you — but not always been clear about which audit they mean. Statutory audit, tax audit, and internal audit are three distinct exercises with different legal foundations, different purposes, and different consequences if skipped. Here is a plain-English breakdown of each, so you know exactly where you stand.
1. Statutory Audit
What it is
A statutory audit is the independent examination of a company's financial statements — the balance sheet, profit and loss account, and cash-flow statement — to give shareholders and the public a true and fair view of the company's financial position.
Legal basis
It is mandated by the Companies Act, 2013 (and earlier by the Companies Act, 1956). Every company registered under the Companies Act must get its accounts audited every financial year, regardless of size or turnover. There is no turnover threshold — incorporation itself triggers the requirement.
LLPs (Limited Liability Partnerships) have their own audit requirement under the LLP Act, 2008, which kicks in once their turnover or contribution crosses the prescribed limit.
Who needs it
- Every company (private limited, public limited, one-person company, small company, section-8 company — with very limited exceptions)
- LLPs above the prescribed threshold
Who conducts it
Only a practising Chartered Accountant (individual or firm) appointed by the shareholders at the Annual General Meeting. The auditor must be independent — they cannot be a director, employee, or have certain financial relationships with the company.
What is reported
The auditor issues an Audit Report addressed to the shareholders, stating whether the financial statements give a true and fair view and whether they comply with the applicable accounting standards and the Companies Act. Under the current rules, auditors must also report on a prescribed set of additional matters (the CARO report for eligible companies) covering fixed assets, inventory, loans, fraud, and more.
2. Tax Audit
What it is
A tax audit is an examination of the books of accounts of a business or profession, carried out specifically to verify that income, deductions, and other particulars declared in the income-tax return are correctly computed and disclosed.
Legal basis
It is mandated by Section 44AB of the Income Tax Act, 1961. It has nothing to do with your corporate structure — even a sole proprietor, partnership firm, or Hindu Undivided Family (HUF) can be required to get one.
Who needs it
The requirement is triggered by crossing the prescribed turnover or gross receipts threshold in a financial year:
- Business: If total sales, turnover, or gross receipts exceed the prescribed limit (currently set at a higher threshold for those opting for the presumptive taxation scheme under Section 44AD and accepting digital receipts, but the standard limit applies otherwise)
- Profession: If gross receipts from the profession exceed the prescribed limit
- Presumptive taxation opt-out: If a taxpayer was eligible for presumptive taxation under Sections 44AD, 44ADA, or 44AE but declares income lower than the presumptive amount and has income above the basic exemption limit
Because the exact thresholds are updated by Finance Acts and notifications, always verify the current figures with your CA before assuming you are exempt.
Who conducts it
A practising Chartered Accountant — but here, there is no requirement that it be the same person as the statutory auditor (though in practice it often is). The CA certifies the prescribed tax audit report.
What is reported
The auditor submits Form 3CA/3CB (the cover report) and Form 3CD (a detailed statement of prescribed particulars — covering items like depreciation, deductions claimed, payments to related parties, TDS compliance, and much more). These forms are filed electronically on the income-tax portal.
Tip
3. Internal Audit
What it is
An internal audit is an independent, ongoing appraisal of an organisation's internal controls, risk management processes, and operational efficiency. Unlike the other two audits, its primary audience is management and the board — not regulators or tax authorities.
Legal basis
For certain companies, it is mandated by Section 138 of the Companies Act, 2013, read with the Companies (Accounts) Rules. For others, it is purely voluntary but strongly advisable.
Who needs it (mandatory)
The Companies Act Rules make internal audit mandatory for:
- Every listed company
- Every unlisted public company meeting any of the prescribed thresholds for paid-up share capital, turnover, outstanding loans/borrowings, or outstanding deposits
- Every private company meeting the prescribed turnover or outstanding loan/borrowing thresholds
Smaller private companies below these thresholds are not legally required to have an internal audit, but many adopt it voluntarily to strengthen controls.
Who conducts it
A Chartered Accountant, Cost Accountant, or any other professional as the board deems fit — including an in-house internal audit department. Crucially, the Companies Act explicitly bars the statutory auditor from also acting as the internal auditor of the same company, to preserve independence.
What is reported
There is no prescribed government form. The internal auditor reports to the Audit Committee (where constituted) or directly to the board, through periodic internal audit reports that flag control weaknesses, process gaps, and recommendations. The scope and frequency are determined by the company's audit charter.
Quick Comparison
| Statutory Audit | Tax Audit | Internal Audit | |
|---|---|---|---|
| Law | Companies Act / LLP Act | Income Tax Act (Sec 44AB) | Companies Act (Sec 138) |
| Trigger | Incorporation as a company | Turnover/receipts threshold | Company class / thresholds |
| Audience | Shareholders, public, regulators | Income-tax department | Board, management |
| Auditor | CA only (independent) | CA only | CA, CMA, or other professional |
| Output | Audit Report + CARO | Form 3CA/3CB + Form 3CD | Internal audit report to board |
| Frequency | Annually | Annually | Quarterly or as agreed |
Which Audits Apply to You?
- Incorporated as a company? You need a statutory audit — no exceptions.
- Turnover above the prescribed threshold (company, firm, or proprietorship)? You likely need a tax audit under Section 44AB.
- Listed company or unlisted company meeting the size thresholds? You also need a mandatory internal audit.
- Below all thresholds but growing fast? Consider voluntary internal audit now — it is far easier to build controls before problems arise than after.
Many businesses end up needing all three, but each serves a different master: the statutory audit reassures your shareholders and the Registrar of Companies; the tax audit gives the Income Tax Department confidence in your return; and the internal audit helps you run a tighter, lower-risk business.
How SSPR Can Help
At SSPR & Co., our audit and assurance team handles all three types of audits for clients across manufacturing, services, trading, and professional firms. We coordinate the statutory and tax audit calendars to minimise duplication, and we design internal audit programmes that give management actionable insights — not just a checklist.
Whether you are a newly incorporated private limited company figuring out your first statutory audit, a growing partnership that has crossed the tax-audit threshold, or a listed group looking to strengthen internal controls, we bring the same rigour and practical focus to every engagement.
To discuss which audits apply to your business and how we can support you, contact us or explore our audit and assurance services.
