Advanced Direct Tax Laws and Practice · Tax Audit

Appointment of Tax Auditor and Eligibility Under Income-tax Act, 2025

Updated 11 October 2026 · Fact-checked

A tax audit must be done by an "accountant" who signs and verifies the audit report in the prescribed form. You check who qualifies as an accountant, whether the auditor is eligible for the assessee, and the audit limits. Then you apply the rule to the facts and conclude.

Understand Appointment of Auditor and Eligibility

A tax audit is an audit of accounts by an independent professional. The Income-tax Act, 2025 requires it in specified cases. Section 348 shows the pattern. The accounts of a registered non-profit organisation must be audited by an accountant. The person in receipt of the income must furnish the audit report by the due date. The report must be in the prescribed form and be duly signed and verified by that accountant.

The same pattern appears in section 59. A non-resident (not being a company) or a foreign company is a "specified assessee". It must get its accounts audited by an accountant on or before the specified date in section 63. The report goes in the prescribed form and is signed and verified by the accountant.

So the Act uses the word accountant and says the report must be signed and verified by that accountant. The definition of "accountant" and the rules on disqualification and audit limits are not in the extracts supplied here. Do not quote a section number for them unless you are certain. State the rule in plain words.

In plain words, the accountant is a practising chartered accountant. Under the earlier law, a Company Secretary was not an accountant for tax audit. You should state this carefully. Check the definition in the Act you are given in the exam, because the answer to "can a company secretary do a tax audit?" depends on that definition.

The exam asks you to apply this. Identify the assessee. Find the trigger for audit. Check the person who signed. Then conclude on whether the audit is valid and what the assessee must do.

Key rules to remember

Section 348 audit trigger (registered non-profit organisation): Total income (before giving effect to the Part) > maximum amount not chargeable to tax in the tax year ⇒ audit by an accountant; The test is total income without giving effect to the provisions of the Part, against the basic exemption limit. Do not use taxable income after the exemptions.
Section 348 report requirement: Audit report by the prescribed date + prescribed form + signed and verified by the accountant; The person in receipt of the income furnishes the report. The auditor does not file it on the assessee's behalf as a legal duty.
Section 59(4) audit for specified assessee: Specified assessee = non-resident (not a company) or foreign company. Books per section 62, audit by an accountant by the date in section 63, report in prescribed form; Applies where royalty or fees for technical services are computed as business income under section 59(1).
Who signs: Report must be signed and verified by the accountant who audited; An unsigned report, or one signed by someone who is not an accountant, does not satisfy the section.

How to solve Appointment of Auditor and Eligibility questions

Use this order for any case question on who can conduct a tax audit and how the auditor is appointed.

1Identify the assessee and the provision that requires the audit, such as section 348 or section 59(4).
2Check the trigger for that provision. For section 348, compare total income before the Part's provisions with the maximum amount not chargeable to tax.
3State that the audit must be by an accountant, and that the report is in the prescribed form, signed and verified by the accountant.
4Test the person in the facts against the definition of accountant. If the definition is not given, state the rule in plain words and say so.
5Check disqualifications and the limit on audits per auditor, using the rule as you know it from your study material, without citing an uncertain section number.
6Check timing. The report goes in by the date prescribed or the date in section 63, as the provision says.
7Conclude: valid or invalid audit, and what the assessee should do, for example appoint an eligible accountant and file the report in time.

Quickest way: Four-point eligibility check

When to use it: Use when the question is short and asks whether an audit by a named person is valid.

Trigger: is an audit required under the facts?
Person: is the signer an accountant?
Form: is the report in the prescribed form, signed and verified?
Time: is it filed by the due date? Conclude on each point in one line.

Common mistakes in Appointment of Auditor and Eligibility

Saying any professional can sign a tax audit report.
Students mix tax audit with company audit or secretarial audit.
Fix: Remember that the Act requires an accountant. Test the person against that definition first.
Using taxable income to test the section 348 trigger.
Students apply the usual income computation habit.
Fix: The test is total income without giving effect to the Part's provisions, compared with the amount not chargeable to tax.
Forgetting that the person in receipt of income furnishes the report.
Students think the auditor files it.
Fix: Write that the assessee furnishes the report, signed and verified by the accountant.
Applying section 348 to non-residents under section 59.
Both sections mention audit by an accountant.
Fix: Section 348 is for registered non-profit organisations. Section 59(4) is for a specified assessee receiving royalty or fees for technical services taxed as business income.
Quoting section numbers for disqualification or audit limits from memory.
Students want to look precise.
Fix: Give the rule in plain words. Cite a section only when you are certain.

Worked examples

Example 1

Shanti Seva Trust, a registered non-profit organisation, has total income of ₹6,00,000 for the tax year before giving effect to the provisions of the Part. The maximum amount not chargeable to tax is ₹4,00,000. Is an audit required, and who must furnish the report?

Show the solution

Provision: section 348 applies to a registered non-profit organisation.
Trigger: total income without giving effect to the Part is ₹6,00,000. It exceeds ₹4,00,000.
So the accounts for that tax year must be audited by an accountant.
The person in receipt of the income must furnish the audit report by the prescribed date, in the prescribed form, signed and verified by the accountant.

Answer: Yes. Since ₹6,00,000 exceeds ₹4,00,000, the trust must get its accounts audited by an accountant and furnish the signed and verified report in the prescribed form by the due date.

Example 2

Zenith Software Inc., a foreign company, receives royalty from an Indian concern under an agreement. It has a permanent establishment in India with which the right is effectively connected. Must it get its accounts audited, and by whom?

Show the solution

Zenith is a foreign company, so it is a specified assessee under section 59(5).
Conditions of section 59(1) are met: income from an Indian concern, under an agreement, through a permanent establishment, and effectively connected.
So the royalty is computed as business income.
Section 59(4) requires books under section 62 and an audit by an accountant on or before the date in section 63.
The report is in the prescribed form, signed and verified by the accountant.

Answer: Yes. Zenith must maintain books and get its accounts audited by an accountant by the date in section 63, and furnish the report in the prescribed form, signed and verified by the accountant.

Exam tips

Begin every answer with the provision that requires the audit, then the trigger.
Use the word accountant as in the Act, and say the report is signed and verified.
Mention the prescribed form and the due date in your conclusion.
If a fact names a company secretary or another professional as auditor, test them against the definition of accountant before concluding.
Keep section numbers to those you are certain of.

Practice questions from Tax Audit

Appointment of Auditor and Eligibility in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Appointment of Auditor and Eligibility: frequently asked questions

Who can conduct a tax audit under the Income-tax Act, 2025?

The Act requires the audit to be done by an accountant, who signs and verifies the report in the prescribed form. In practice this means a practising chartered accountant. Check the definition in your study material for the exact wording.

Can a company secretary do a tax audit?

The Act requires an accountant, and a company secretary does not fall within the accountant definition as understood for tax audit. Verify this against the definition in the Act text you are given. For exam answers, test the person against the definition first.

Is there a maximum number of tax audits per CA in a year?

Yes, there is a ceiling on audits per auditor under the tax audit rules. This page does not give the figure because it is not in the supplied text. Take the exact number from your updated study material.

When does section 348 require an audit?

When total income of a registered non-profit organisation, without giving effect to the provisions of the Part, exceeds the maximum amount not chargeable to income-tax in the tax year. Then an accountant must audit the accounts.