Section 194N Exemption for Foreign Representations: Key Highlights of the New Income-Tax Notification

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  On 28th November 2024 , the Ministry of Finance issued Notification No. 123/2024 , bringing clarity to the applicability of Section 194N of the Income-tax Act, 1961. The notification exempts specified foreign representations from the provisions of this section, reinforcing India's commitment to international diplomatic norms and global cooperation. Effective from 1st December 2024 , this move comes after due consultation with the Reserve Bank of India (RBI) and aligns with international protocols such as the Vienna Convention and the United Nations Privileges and Immunities Act . Understanding Section 194N of the Income-tax Act Section 194N mandates tax deduction at source (TDS) on cash withdrawals exceeding ₹1 crore in a financial year . The provision applies to withdrawals from banks, co-operative banks, and post offices, aiming to curb cash usage and promote digital transactions. Fifth Proviso to Section 194N The fifth proviso grants the Central Government the authority ...
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NFRA’s Proposed Audit Revisions: Striking a Balance Between Global Standards and Inclusivity

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 The National Financial Reporting Authority (NFRA) has proposed significant revisions to 40 auditing standards, including SA600 (Using the Work of Another Auditor) and SA299 (Joint Audit of Financial Statements). Scheduled for implementation on April 1, 2026, pending approval from the Ministry of Corporate Affairs (MCA), these reforms aim to align India’s auditing framework with global standards. The goals are lofty: enhanced transparency, increased investor confidence, and fortified corporate governance.

However, the proposal has sparked an intense debate within the auditing profession. The divide centers on whether these changes will benefit the profession holistically or inadvertently favor larger firms, sidelining smaller practices. This blog explores the key aspects of the debate and the potential implications of NFRA’s proposed reforms.

The NFRA’s Vision: Enhancing Accountability and Corporate Governance

NFRA Chairperson has emphasized the urgent need for reform, citing gaps in existing practices that have allowed financial misconduct to persist. Key elements of the proposed revisions include:

  1. Stronger Oversight in Group Audits

    • Group auditors will assess the work of component auditors, ensuring that their work aligns with high standards without assuming their responsibilities.

  2. Closing Loopholes

    • The changes are designed to mitigate risks arising from gaps in current auditing practices, improving the reliability of financial statements.

  3. Global Alignment

    • The revisions aim to bring India in line with international standards, addressing investor concerns and fostering trust in corporate governance.

Concerns from ICAI: The Risk of Market Concentration

While the NFRA’s intentions are clear, the Institute of Chartered Accountants of India (ICAI) has expressed reservations about potential unintended consequences:

1. Concentration of Market Power

  • ICAI argues that the changes might disproportionately benefit large audit firms, as smaller firms may lack the resources to comply with the revised standards.
  • Such concentration has already been observed in economies like the US and the UK, where major players dominate the audit market.

2. Increased Costs for Joint Audits

  • The revised standards place complete responsibility on individual auditors for all work in joint audits, potentially duplicating efforts and increasing costs.

3. Redundancy of Reforms

  • ICAI contends that India’s current auditing framework has been largely effective in addressing corporate issues, suggesting that sweeping changes may not be necessary.

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