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ICWAI |CMAs’ Role and Responsibilities in Tax Audit

ICWAI |CMAs’ Role and Responsibilities in Tax Audit

CMAs’ Role and Responsibilities in Tax Audit – Government of India has progressed one step forward to implement the much awaited reform in the Indirect tax regime i.e. Introduction of GST. It will undoubtedly biggest tax reform since independence.

Finance Act, 1984 introduced Section 44AB under Income-tax Act, 1961 w.e.f Assessment Year 1985-86. Under this section, if the total sales / turnover or gross receipts for previous year exceed the prescribed limits then assessee is required to get his accounts audited by an “Accountant”. This audit is popularly known as Tax Audit.

ICWAI |CMAs’ Role and Responsibilities in Tax Audit

ICWAI |CMAs’ Role and Responsibilities in Tax Audit in following sections

  1. Business Tax Accountants
  2. Tax Audit Representation
  3. State Tax Help
  4. Entry Level Jobs
  5. Bank Job Openings
  6. House Rent Allowance
  7. Local Job Opportunities
  8. Income Tax Refund

Applicability of Tax Audit: Section 44AB of Income-tax Act provides for compulsory audit of accounts of certain persons carrying on business or profession.

AssesseeApplicability
BusinessEvery assessee, whose total sales or gross receipts in any previous year exceed Rs. 1 Crore, has to get his accounts audited.
ProfessionalEvery assessee, whose gross receipts in any previous year exceed Rs.25 Lakhs has to get his accounts audited.
Special CasesAssessee covered u/s 44AD / 44AE / 44BB / 44BBB, if claim that profits from such activities are lower than presumptive income and his income exceed maximum exemption limit.

 Objective of Tax Audit:

Objective of Tax Audit is to ensure that assessee’s books of account and other records are maintained in accordance with provisions of Income Tax Act and reflect correct income. This audit is for curbing Tax Evasion and ensures Tax Compliance.

Are ICWAI | CMAs competent enough to handle Tax Audit?? ICWAI | CMAs’ Role and Responsibilities in Tax Audit

Syllabus, Exam procedure and Passing percentage of both ICAI are same. Perception is that because of their 3 years articleship training CAs has more practical experience to trickle Tax Audit cases.

Here I make it clear, CMA become eligible for practice only after 3 years of post-qualification experience and no one can disagree that having post qualification experience as a professional is far better than having articleship experience as trainee. Assessing officers of Income-Tax Department, who come from different streams conducting audit and scrutinizing assessment proceedings are not CA. They are able to do because of their experience they gain after joining these jobs.

CMAs are already conducting taxation audit of Excise Duty, Service Tax VAT etc, then why not Income Tax. I explained above why their name was not included earlier, now that limitation had been over and that why government authorised them in the field of Income tax too.

Along with Taxations, CMAs have wide knowledge in the field of valuation and costing, it will definitely help in curbing Tax Evasion in case of under/ over valuation of inventory. How CMAs can be useful in this, I explained in next part of this article.

Government has shown confidence on CMAs and they worth it. They have required knowledge, skill and efficiently doing taxation audit of Excise Duty, Service Tax VAT etc. Go to any MNC/PSU, one can easily find CMAs doing jobs as Manager – Taxation, Manager – Accounts, Manager – Credit etc. and some are holding top management positions. so doubting their professional efficiency is completely senseless. Give some time, India will see great impact of their service in Income Tax.

Role of CMA is prescribed in following section of Model GST Law in following sections :

  • CHAPTER-II DEFINITIONS

Section 2 (33) “Cost Accountant” means a Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959 (23 of 1959);

  •     CHAPTER-XI ACCOUNTS AND RECORDS
  1. Accounts and other records

(4) Every registered taxable person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a Cost Accountant and shall submit to the proper officer a copy of the audited statement of accounts, the reconciliation statement under sub-section (2) of section 30 and such other documents in the form and manner as may be prescribed in this behalf

  •     CHAPTER-XIII AUDIT
  1. Special audit

(1) If at any stage of scrutiny, enquiry, investigation or any other proceedings before him, any officer not below the rank of [Deputy/Assistant Commissioner] having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the [Commissioner], direct such taxable person by notice in writing to get his records including books of account examined and audited by a chartered accountant or a Cost Accountant as may be nominated by the [Commissioner] in this behalf.

CHAPTER- XV INSPECTION, SEARCH, SEIZURE AND ARREST

  1. Access to business premises

(2) Every person in charge of premises referred to in sub-section (1) shall, on demand, make available to the officer authorized under sub-section (1) or the audit party deputed by the Additional/Joint Commissioner of CGST or SGST or the Comptroller and Auditor General of India or a Cost Accountant or chartered accountant nominated under section 50, as the case may be,-

CHAPTER–XVIII  APPEALS AND REVISION

  1. Appearance by authorised representative

(2) (c) any chartered accountant, a Cost Accountant or a company secretary, who holds a valid certificate of practice and who has not been debarred from practice; or

  1. Disclosure of information by a public servant

(h) any such particulars, when such disclosure is occasioned by the lawful exercise by a public servant or any other statutory authority, of his or its powers under any law for the time being in force; or

(i) any such particulars relevant to any inquiry into a charge of misconduct in connection with any proceedings under the Act against a practising advocate, tax practitioner, a Practising Cost Accountanta practising chartered accountant, a practicing company secretary to the authority empowered to take disciplinary action against the members practising the profession of a legal practitioner, cost accountant, chartered accountant or company secretary, as the case may be.

In this draft law CA/CMAs are given very vital role to play. Wherever there is requirement of experts CA / CMA is included for which CAs / CMAs should be proud of.  But this pride comes with the responsibility to perform. The prosed legislature will bring sea changes in the existing Indirect tax structure for which we professionals are well verged with. This reform will provide huge opportunity to CAs / CMAs to perform role of facilitator between the Policy makers, Industry & Trade organization and consumers.

ICWAI | CMAs’ Role and Responsibilities in Tax Audit in the proposed GST regime can be highlighted as under :

CMAs’ Role and Responsibilities in Tax Audit | GST – Procedural Compliances:

Tax credits – Although the GST is meant for seamless flow of ITC, there are certain restriction on availing ITC. CA /CMAs can advise taxpayers about the eligibility of Input Tax Credit (ITC).

CMAs’ Role and Responsibilities in Tax Audit | Internal Audit

CA/CMAs can undertake internal audit of GST records. The internal audit can focus areas wherein there could be possibility of tax credit leakage.  It may be in the form of excess computation of liability or short availment of tax credit. With the expertise in prevalent indirect taxes and knowledge of business process, CA/ CMAs can be preferred source of this kind of services.

CMAs’ Role and Responsibilities in Tax Audit | Computation of accurate liability – The GST liability needs to be paid off on monthly basis. The liability will be outward tax payable less Input Tax Credit available. Short payment will attract the penal provision and excess payment will block funds. CA /CMAs can compute and intimate accurate tax liability to tax payers.

CMAs’ Role and Responsibilities in Tax Audit | Returns – Tax payers need to file following returns:

GSTR-1  Outward Supplies made by the Taxpayer (Monthly)

GSTR-2 Inward supplies/purchases received (Monthly)

GSTR-3 GST Return (Monthly)

GSTR-4 Quarterly Return for compounding dealer (Quarterly)

GSTR-5 Return for Non Resident Taxpayers  (Annual)

GSTR-6 Return for Input Service Distributor (Monthly)

Hence minimum returns to be filed for any assesse will be 36 in year as compared to 16 till now. It will bring the opportunity to CA/ CMAs to help taxpayers in compiling and filling the returns on time.

CMAs’ Role and Responsibilities in Tax Audit | GST Advisory Services :

In additional to the procedural and accounting related services, CA/CMAs can provide Value Added services in the domain of GST. There will be requirement of expert like CA/CMAs to provides distinctive services like :

Impact Study

Contract Review

Impact on Pricing Model

Business Structure revamping

Supply Chain Management

Logistics and Distribution Systems

Businees process mapping under new tax regime

Participation in development of Systems, process and controls

CMAs’ Role and Responsibilities in Tax Audit | Systems Audit and systems development to be GST compliant:

GST will be highly IT driven initiative and systems will have to play important role in the successful implementation of GST. A systems audit involves a detailed analysis and evaluation of a complete system.  There would be a changes required in the ERP or Accounting systems established. Those systems are to be made GST-compliant. CA/CMAs would be the facilitator to conduct the systems audit rigorously and do the transactions mapping in the systems.

CMAs’ Role and Responsibilities in Tax Audit | Partners in Transitional period

CA/CMAs are well recognized in the prevalent indirect tax laws. They will be the best resource during this phase of change over to GST regime. CA/CMAs should provide the necessary guidance and support to the taxpayer to make them compatible to the GST. There could be various issues in this transition like

Pending litigations

Treatment of Tax credits on appointed date

Contracts WIP

De Registration and pending tax compliance

CMAs’ Role and Responsibilities in Tax Audit | Statutory Audit

CA /CMAs are authorized to conduct audit of GST under section 42(4) of the Model act. Every tax payer exceeding the prescribed threshold limit will be subject to such audit. Already CA/CMAs are recognized to undertake VAT audit under various State VAT Act, however for service providers there is no such requirement. Hence the number of taxpayers under audit will get increased and CA/CMAs will get opportunity to conduct such audit. This audit will not only give the opportunity but also will get recognition in the Society.

CMAs’ Role and Responsibilities in Tax Audit | Matching of ITC -Tax Credit reconciliations

The ITC will be allowed only when the data in matched with the respective data filled up by suppliers or customers. Hence the reconciliation of Input tax credit as per our filling and as per other parties filling need to matched. Tax credit will not be allowed if the data is not matching. Such mismatched transaction will have to be rectified in the span of 2 months. CA/CMAs can help to identify such transactions and can inform the respective buyer /seller to amend their filling accordingly. This reconciliation will be big opportunity for professionals to undertake outsourcing assignments.

CMAs’ Role and Responsibilities in Tax Audit | GST – Audit & Assurance

Model GST laws include name of CA / CMAs to conduct audit of the accounts and records maintained under section 42(4). However apart from the statutory audit CA/CMAs can undertake assurance services to tax payers in the form of internal audit of GST records and tax health checkup. The assurance service can be in different forms depending on the requirements as under :

CMAs’ Role and Responsibilities in Tax Audit | Verification of Returns

CA/ CMAs can do the verification of records on monthly basis. Before the returns are filled tax payers in consultation with CA/CMAs can do the verification of the invoices and other records to get assured of the correctness of the information getting filled with Government authorities. This will preventive check to eliminate the possibility of getting mismatch of tax credit and will avoid duplication of work.

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