Audit Fee in Tally: What It Is and Why It Matters

Published on: 13-10-2025 Call CA Tally HelpDesk +91 9205471661, 8368262875

Audit fee is the professional fee you pay to statutory auditors, tax auditors, internal auditors, or any assurance/procedural audit service provider. In books, it’s an expense; in operations, it’s a compliance cost tied to legal and governance requirements. Recording it correctly in Tally Prime ensures clean financials, accurate tax credits/TDS, and clear vendor outstanding.

Why audit fee is important

1. Compliance & Governance: Statutory and tax audits are mandated for many entities. Cleanly tracking audit fees supports disclosures and audit trail.
2. True Cost of Compliance: Separating audit fee from generic “Professional Charges” shows the real cost of assurance and regulatory adherence.
3. Cash-Flow Planning: Most audit fees bunch around year-end. Aging and provisions help avoid last-minute cash surprises.
4. Tax Impact: In India, audit services are taxable as a service; vendors may charge GST and you may need to deduct TDS (subject to law and thresholds). Proper setup in Tally avoids misstatements in GST/TDS returns.
5. Management Analysis: Allocating audit fee to branches/projects via Cost Centres reveals which unit drives the spend.

How to set it up in Tally Prime

1) Create masters

• Ledger – “Audit Fees”
  • Group: Indirect Expenses (most common).
  • Inventory values: Not applicable.
  • GST details: Set Nature as Services and assign the correct SAC for audit/assurance services from your tax advisor. Keep ITC eligibility as applicable to your business policy.
• Vendor (Auditor) Ledger
  • Mark as Sundry Creditors with mailing address, GSTIN (if registered), and payment terms.
  • In Statutory/TDS: enable TDS if your organisation deducts TDS on professional fees; map the correct Nature of Payment (e.g., professional/technical services) and the current rate & threshold as per law (confirm latest with your tax advisor).
• GST Ledgers (if you maintain separate ledgers): Input CGST/SGST/IGST as per your chart of accounts, or use automatic tax ledgers configured in the expense line.

2) Typical voucher flows

A. Direct booking from vendor invoice (preferred)

• Purchase/Journal voucher
  • Dr Audit Fees (expense)
  • Dr Input GST (if eligible)
  • Cr Auditor (Vendor)
    Attach the engagement letter/invoice as a document.

B. Provision at year-end (when invoice not yet received)

• Journal voucher
  • Dr Audit Fees
  • Cr Audit Fees Payable (create a current liability ledger)
    Later, when the invoice arrives:
  • Reverse/adjust the provision and credit the Auditor ledger; capture GST as per actual invoice date/policy.

C. Payment with TDS

• If TDS applies:
  • Journal voucher (on booking or payment, per policy)
    • Dr Auditor (Vendor)
    • Cr Bank (net)
    • Cr TDS Payable (deducted amount)
  • Pay TDS and book the challan against TDS Payable in the statutory module.

Note: TDS sections, rates, and thresholds change. Always confirm the applicable section and current rate with your tax professional and configure Tally accordingly.

Reporting & controls

• Ledger Summary – Audit Fees: Period-wise spend, drill-down to vouchers and attachments.
• Outstanding – Creditors: Track dues to the auditor, apply bill-wise references, and monitor aging.
• Cost Centre/Branch view: If enabled, see unit-wise allocation for better budgeting next year.
• GST Reports: If vendor charged GST, the expense will reflect in GSTR-3B ITC and purchase registers; ensure invoice is accurate (supplier GSTIN, SAC, tax breakup).
• TDS Reports: Validate deductions, challans, and return-ready summaries from Tally’s statutory reports.
• Budget vs Actuals: Create a budget head for Audit Fees to avoid overruns.

Good practices

• Clear engagement scope & PO: Store the letter of engagement; attach scans to the voucher in Tally for audit trail.
• Use Narrations: Mention audit period (e.g., “Statutory audit FY 2025-26”) and invoice number/date.
• Provision timely: Pass a realistic provision before closing books; reverse once the actual bill arrives.
• Separate audit types: Maintain sub-ledgers or cost categories for Statutory, Tax, Internal, Special/Forensic to analyse spend.
• Approval workflow: Use maker–checker in Tally (user roles) and lock periods after finalisation.

Bottom line

“Audit Fee” in Tally isn’t just an expense head—it’s a compliance signal. With the right ledgers, voucher discipline, and statutory settings (GST/TDS), you’ll get accurate books, cleaner returns, and sharper insights into your governance costs.

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