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Management Advisory · India

Auditor Engagement for Tax Planning, GST/TDS Review and Companies Act Audit

Recommended professional structure, independence boundaries, work scope and appointment safeguards for a paint-manufacturing private limited company.

Published: 21 August 2026Prepared by SaitechLabs Corporate Solutions

Recommended structure for the client

Appoint an independent statutory auditor and a separate CA tax/GST/TDS consultant, while the company’s internal accounts team maintains the books and primary records. This provides stronger independence, clearer accountability and better management control.

Internal accounts teamDaily books, documents, billing, banking, stock entries and reconciliations.
CA tax consultantTax planning, GST/TDS review, compliance advice, MIS and cash-flow support.
Statutory auditorIndependent annual financial-statement audit and Companies Act reporting.

Separate the professional responsibilities

FunctionResponsible personPrimary responsibility
Daily accountingCompany accountant/accounts teamVouchers, invoices, receipts, payments, bank entries, stock records, payroll, ledgers and reconciliations.
Tax planningCA tax consultantLawful tax optimisation, advance tax, tax-regime evaluation, depreciation, capex and director-payment review.
GST/TDS reviewCA tax consultantMonthly review of returns, ITC, HSN, e-invoices, TDS deductions, payments and reconciliations.
Statutory auditIndependent statutory auditorIndependent examination of annual financial statements and reporting under the Companies Act.
Product costingInternal costing team/Cost AccountantBatch costing, process loss, overhead allocation, SKU profitability and cost records.
ROC complianceCompany Secretary/compliance professionalBoard processes, statutory registers, resolutions and applicable ROC filings.
Management responsibility continues: Directors remain responsible for proper books, financial statements, compliance, information supplied to professionals and the company’s final decisions. Appointment of a CA does not transfer these responsibilities to the auditor.

Can one CA firm perform all three assignments?

Recommended

Two separate CA firms

Firm 1: tax planning and GST/TDS review.
Firm 2: statutory audit under the Companies Act.

  • Stronger auditor independence
  • No auditing of the firm’s own advisory work
  • More objective reporting to directors
  • Clearer division of responsibility
  • Greater credibility with lenders and investors
Conditional

One CA firm with restricted dual engagements

May be considered only after legal and ethical independence evaluation.

  • Board approval for permissible non-audit services
  • Separate engagement letters and fees
  • Management prepares and approves accounts and returns
  • No bookkeeping, internal audit or outsourced finance
  • Annual written independence reassessment
Important distinction: Tax planning and GST/TDS review are not automatically prohibited merely by their names. The nature of the actual work matters. If the firm prepares accounting records, makes management decisions or later audits its own material work, an unacceptable self-review or management threat may arise.

Companies Act independence restrictions

Section 144 requires the Board of Directors or Audit Committee, where applicable, to approve permissible additional services provided by the statutory auditor. It prohibits specified services directly or indirectly, including:

  • Accounting and bookkeeping
  • Internal audit
  • Design or implementation of financial information systems
  • Actuarial services
  • Investment advisory services
  • Investment banking services
  • Outsourced financial services
  • Management services
  • Other prescribed services
Practical rule: The statutory auditor should not operate the accounts department, enter vouchers, control GST/TDS ledgers, design and run internal controls, or prepare the complete accounting records that the same firm will later audit.
Current professional standard: The ICAI Revised Code of Ethics, 13th edition, applies from 1 April 2026 and strengthens independence requirements relating to tax and other non-assurance services provided to audit clients.

Tax-planning engagement scope

Quarterly forecast

Estimated taxable income, advance tax, cash requirement and year-end projection.

Corporate tax regime

Comparison of available regimes, including eligibility and impact of Section 115BAA or other relevant provisions.

Capital expenditure

Depreciation, machinery acquisition, repairs, factory improvements and timing considerations.

Director and related-party payments

Salary, commission, rent, interest, reimbursements and documentation of related-party transactions.

Tax-sensitive expenses

TDS exposure, provisions, write-offs, doubtful debts, employee payments and consultant arrangements.

Written decision support

Legal alternatives, assumptions, risks and management approval for every material tax position.

Tax planning means lawful optimisation. It must never involve suppression of sales, false purchases, artificial expenses, manipulated stock, backdated documents or misleading financial statements.

Monthly GST review

  • Sales register versus GSTR-1
  • GSTR-1 versus GSTR-3B
  • E-invoice register versus sales ledger
  • GSTR-2B versus purchase ledger
  • ITC eligibility, reversals and vendor follow-up
  • HSN and GST-rate verification
  • Credit notes, debit notes and discounts
  • Sales and purchase returns
  • Franchisee incentives and schemes
  • Reverse-charge transactions
  • Job-work movements
  • Interstate/intrastate classification
  • E-way bill controls
  • Government and export documentation
  • Electronic ledger reconciliation
  • Notices, demands and pending replies
Control requirement: The consultant should issue a monthly exception report before return filing. Company management must approve corrections and the final return.

Monthly TDS review

  • Vendor and consultant classification
  • PAN and vendor-master verification
  • Applicable deduction sections and rates
  • Threshold monitoring
  • Director and professional payments
  • Contractor, transport, rent and commission
  • Interest and loan-related payments
  • Salary TDS
  • Timing of deduction and deposit
  • Challan and return reconciliation
  • Form 16 and Form 16A
  • Expense ledger versus TDS return
  • Outstanding demands and defaults
  • Lower or nil deduction certificates
  • Department-record reconciliation
  • Corrective-action tracking

Independent statutory-audit scope

Financial statements

Balance sheet, statement of profit and loss, cash-flow statement where applicable, notes and accounting policies.

Assets and liabilities

Inventory, fixed assets, receivables, payables, loans, bank balances, provisions and commitments.

Company-law reporting

Related parties, statutory dues, audit trail, applicable internal-control reporting and CARO requirements.

Audit evidence

Physical verification, confirmations, reconciliations, supporting documents, analytical procedures and management representations.

Risk and fraud indicators

Unusual journal entries, override of controls, related-party concerns, legal non-compliance and fraud-reporting duties.

Reporting output

Independent audit opinion, applicable CARO report, management letter, audit adjustments and uncorrected misstatements.

Nature of audit: A statutory audit provides reasonable assurance; it is not a guarantee that every fraud, error or non-compliance will be detected.

Paint-manufacturing audit focus

  • Raw-material receipt and QC acceptance
  • Batch-ticket reconciliation
  • Formula quantity versus actual consumption
  • Normal and abnormal process loss
  • Rework and rejected batches
  • Work-in-progress valuation
  • Pack-size and filled-volume reconciliation
  • Tinting colourant consumption
  • Containers, labels and packing materials
  • Damaged, returned and expired stock
  • Slow-moving pigments, resins and additives
  • Year-end physical-stock verification
  • Product-wise gross margin
  • Factory overhead allocation
  • Freight, discounts and credit notes
  • Franchisee receivables and credit limits
  • Product claims and warranties
  • Machinery capex versus repairs
  • Pollution-control and waste expenses
  • Insurance coverage and claims
Inventory observation: Where inventory is material, the auditor should plan independent observation of year-end physical stock and test the company’s quantity and valuation controls.

Minimum deliverables

EngagementRequired deliverables
Tax/GST/TDS consultantInitial diagnostic report; compliance calendar; monthly GST/TDS exception report; quarterly tax-planning report; reconciliation checklist; notice register; written material advice; quarterly director review; annual tax-closing memorandum.
Statutory auditorAudit-planning communication; information list; inventory-observation plan; audit report; applicable CARO report; internal-control observations; management letter; audit adjustments; uncorrected-misstatement statement; audit-completion discussion.
ManagementComplete books; schedules; supporting documents; reconciliations; stock statements; approvals; explanations; signed representations; timely corrective action.

Appointment safeguards

Professional verification

  • ICAI membership number
  • Certificate of Practice
  • Firm Registration Number
  • Identity of engagement partner

Independence

  • Written eligibility certificate
  • Conflict-of-interest declaration
  • Section 141/144 review
  • Annual independence confirmation

Capability

  • Paint/chemical manufacturing experience
  • Comparable client references
  • Proposed team and visits
  • Inventory and systems expertise

Commercial and data protection

  • Separate scope and fees
  • Confidentiality undertaking
  • Portal/DSC access controls
  • Handover and termination terms
Do not use a single vague engagement letter. The statutory audit and every permitted advisory assignment should have separate objectives, responsibilities, deliverables, fees, exclusions and independence safeguards.

Recommended finance-support workflow

1

Internal accountant

Maintains daily books, primary records, returns data and reconciliations.

2

CA tax consultant

Reviews tax, GST, TDS, MIS, cash flow and compliance exceptions.

3

Statutory auditor

Independently audits financial statements and Companies Act reporting.

4

Specialists

Cost Accountant and Company Secretary support costing and secretarial obligations.

Final recommendation

The client’s requirement is valid, but it should not be described as appointing one auditor to “take care of everything.” The preferred arrangement is an internal accounts team, a CA tax/GST/TDS consultant and a separate statutory auditor. If the client insists on one CA firm, obtain a written independence assessment, Board approval and separate engagement letters before appointment, and restrict non-audit work to services that are legally and ethically permissible.

Official references

  1. India Code — Companies Act, Section 144: prohibited services
  2. India Code — Companies Act, 2013
  3. ICAI — Revised Code of Ethics, 13th edition
  4. ICAI — Standards on Auditing, including SA 210
  5. ICAI — auditor independence and bookkeeping restriction

This document provides general management guidance. The company should obtain specific professional advice based on its facts, scale, public-interest-entity status and applicable law before appointment.