Peer Review Applicability for CAs in 2025: Turnover, Foreign JV, Tax Audit & Audit Thresholds

 The Peer Review Mechanism of ICAI is no longer limited to audits of listed entities, banks, and insurance companies. With the launch of Audit Quality Maturity Model (AQMM v.2.0), ICAI has widened the mandatory scope in a phased manner starting April 1, 2026.

This has direct implications for signing of financial statements for FY 2024-25 (31.03.2025) and FY 2025-26 (31.03.2026). Firms must now carefully examine:

• Entity type (listed / unlisted / group entity / JV / foreign subsidiary)

• Thresholds of turnover, paid-up capital, and borrowings

• Date of signing (before or after April 1, 2026)

Applicability Framework

For signing 31.03.2025 financials (FY 2024-25):

Peer Review + AQMM mandatory only if firm audits:

1. Listed entity (equity/debt listed in India)

2. Banks (other than co-operative banks, except multi-state co-operative banks)

3. Insurance companies

 No threshold of turnover or capital applies yet.
 Group entities (subsidiaries/JVs) not covered yet.

For signing 31.03.2026 financials (FY 2025-26):

(A) If report signed before 01.04.2026 → Old rules apply

• Only listed entities / banks / insurance audits require Peer Review.

(B) If report signed on or after 01.04.2026 → Expanded scope applies

Category 1 – Group Entities (Holding / Subsidiary / Associate / JV)

• If firm audits Holding, Subsidiary, Associate, or JV of:

  • Listed entity (India listed)

  • Banks (other than co-operative banks, except multi-state co-op banks)

  • Insurance companies

• Branch audits are excluded.

• Foreign subsidiaries/JVs are covered only if parent is an Indian listed / Indian bank / Indian insurer.

Category 2 – Large Unlisted Public Companies
Peer Review mandatory if any one threshold is met as on 31st March of preceding year:

• Paid-up share capital ≥ ₹500 crores, OR

• Turnover ≥ ₹1,000 crores, OR

• Aggregate loans + debentures + deposits ≥ ₹500 crores

(Standalone financials, not consolidated, unless specified otherwise in law).

Category 3 – Effective from 01.04.2027 (future)

• Entities raising funds > ₹50 crores from public / banks / FIs during period under review, OR

• Any body corporate (including trusts) classified as a Public Interest Entity (PIE).

Year-wise Matrix

FS Year	Signing Date	Entity Type	Thresholds / Conditions	Peer Review Mandatory?
31.03.2025	Anytime (before 31.03.2026)	Listed entities	Listing in India	✅ Yes
		Banks	All banks except co-op (but incl. multi-state co-op)	✅ Yes
		Insurance Companies	N/A	✅ Yes
		Large unlisted public companies	Thresholds not yet in force	❌ No
		Holding/Subsidiary/Associate/JV of listed/bank/insurance	Not applicable yet	❌ No
31.03.2026	Before 01.04.2026	Same as above	Same	✅ Yes only for listed / banks / insurance
31.03.2026	On/After 01.04.2026	Listed entities / Banks / Insurance	N/A	✅ Yes
		Holding/Subsidiary/Associate/JV of listed/bank/insurance	Parent is Indian listed / bank / insurer	✅ Yes
		Unlisted public companies	Paid-up cap ≥ ₹500 Cr OR Turnover ≥ ₹1,000 Cr OR Borrowings (loans+debts+deposits) ≥ ₹500 Cr	✅ Yes
		Private companies / foreign companies without Indian listing	N/A	❌ No

Special Cases

1. JV of Indian Listed + Foreign Company → Covered (because of Indian listed linkage).

2. Indian subsidiary of a foreign listed company → Not covered (unless foreign parent also listed in India).

3. Indian audit of foreign subsidiary/JV of Indian listed company → Covered (group linkage test satisfied).

4. Private companies → Not covered (unless they themselves become listed or fall under PIE category from April 2027).

Disclosure Requirements

• ICAI will now publish AQMM Levels (v.2.0) on its website for all peer-reviewed firms.

• Peer Review Certificates will explicitly mention the AQMM Level alongside validity.

• Clients, regulators, and banks will increasingly rely on this publicly available benchmark for firm selection.

Practical Checklist for Firms

Before accepting / signing an audit engagement for FY 2024-25 or 2025-26, check:

Step 1 – Identify entity type

• Listed (equity/debt) in India?

• Bank / Insurance company?

• Unlisted public company?

• Holding/Subsidiary/JV of listed/bank/insurance?

Step 2 – Check thresholds (for unlisted public co.)

• Paid-up capital ≥ ₹500 Cr?

• Turnover ≥ ₹1,000 Cr?

• Borrowings (Loans + Debentures + Deposits) ≥ ₹500 Cr?

Step 3 – Signing date

• Before 01.04.2026 → Old rules apply

• On/after 01.04.2026 → Expanded rules apply

Step 4 – Cross-border check

• If foreign group entity → Ask: is the Indian parent listed / bank / insurer? If yes → Covered. If no → Not covered.

Step 5 – Documentation

• Ensure valid Peer Review Certificate (with AQMM level) is available and uploaded with NFRA / SEBI / RBI filings wherever applicable.

• Maintain internal checklist and minutes of peer review compliance before signing audit reports.

Conclusion

• For 31.03.2025 FS → Peer Review applies only to listed entities, banks, and insurance audits.

• For 31.03.2026 FS →

  • If signed before 01.04.2026 → old rule continues.

  • If signed on/after 01.04.2026 → expanded scope applies: group entities of listed/bank/insurance + large unlisted public companies (₹500 Cr/₹1,000 Cr thresholds).

• Foreign JVs/subsidiaries are covered only if tied to Indian listed/bank/insurance companies.

With ICAI publishing AQMM levels publicly, Peer Review will now act as a quality seal, and firms must prepare well in advance to ensure compliance.

GST ITC & Taxability Checklist for Hotels, Resorts, PGs & Hostels

Hotels, resorts, hostels, and recreational clubs operate in one of the most compliance-heavy sectors under GST. The line between eligible Input Tax Credit (ITC) and blocked ITC often gets blurred when it comes to building construction, architectural upgrades, furniture, or interior designing. This creates significant risks during audit and departmental scrutiny.

A structured checklist is therefore essential — both for audit readiness and for future tax planning. It helps taxpayers:

• Avoid wrongful ITC claims that may later be disallowed.

• Maximize credit by proper structuring of contracts and invoices.

• Segregate revenue vs. capital expenditure with clarity.

• Ensure consistency between GST returns, books of accounts, and Income-tax records.

The following Audit & Taxability Checklist has been curated with minute distinctions, judicial references, and practical insights to guide hotels, resorts, PGs, and hostels in safeguarding ITC claims while staying compliant.

1. Building Construction / Major Repairs

• Was the expense incurred on original construction / reconstruction / major civil work?
   → If Yes → ITC blocked u/s 17(5)(c) (unless plant & machinery).
   → If Repairs (revenue in nature) → ITC allowed (subject to capitalization test).

• If capitalized as building in books → ITC blocked.

• If capitalized as plant & machinery (lift, DG sets, AC systems, kitchen equipment, fire-fighting) → ITC allowed.

2. Architectural / Interior Designing / Upgradation Fees

• Architectural fees linked to construction of immovable property (building/rooms) → ITC blocked.

• Architectural fees for interior works, furniture design, brand revamp, ambiance improvement → ITC allowed (if not capitalized into immovable property).

• Tax planning: bifurcate contracts – separate invoices for building (blocked) vs. interiors (eligible).

3. Furniture, Fixtures & Furnishings

• Movable furniture (sofas, tables, beds, modular furniture) → ITC allowed.

• Built-in wardrobes, fixed partitions, false ceilings (immovable) → ITC blocked.

• Audit step: verify capitalization treatment in fixed asset register.

4. Repairs & Maintenance

• Routine repairs (painting, plumbing, electrical, tiling) → ITC allowed.

• Major renovation altering structure (treated as civil construction) → ITC blocked.

• Audit check: ensure repairs not wrongly clubbed under construction.

5. Hotel-Specific Areas

• Kitchen equipment, exhausts, refrigeration, cold storage → ITC allowed (plant & machinery).

• Gym, spa, swimming pool – if movable equipment → ITC allowed; if civil construction → ITC blocked.

• Banquet halls / conference rooms – ITC blocked if structural modification, allowed on movable equipment.

6. PGs / Hostels / Lodges

• If providing residential accommodation (long stay, monthly rent) → Exempt supply → No ITC.

• If providing short-term stay (<30 days) like hotel → Taxable → ITC available (same rules as hotels).

• Dual-use property → Segregation required (Rule 42 reversal).

7. ITC Reversal & Apportionment

• If partly exempt (PG/hostel + restaurant/catering) → Apply Rule 42 proportionate reversal.

• Verify reversal workings during audit.

8. Income Tax Perspective (for planning)

• Capitalized repairs → No GST ITC (blocked) but eligible for depreciation under IT Act.

• Revenue repairs → Allowed as expense under IT Act + ITC under GST.

• Architectural & design fees → If blocked in GST, claim as capital/revenue deduction under IT Act depending on treatment.

• Always align Books of Accounts, GST ITC register, and Income Tax depreciation schedules.

Tax Planning Strategies

✅ Keep separate contracts & invoices for movable vs. immovable items.
✅ Do not capitalize interiors/furniture as “building” – classify under furniture & fixtures/plant & machinery.
✅ For long-stay PGs/hostels, evaluate option to charge GST (if commercially viable) to unlock ITC.
✅ Use advance tax planning – claim blocked ITC via depreciation in Income Tax.
✅ Maintain a fixed asset ITC eligibility matrix reviewed annually.

Judicial Support:

• Safari Retreats Pvt Ltd v. Union of India (Orissa HC, 2019) – ITC on mall construction (used for letting) allowed, though stayed by SC → strong taxpayer-friendly precedent.

• Bangalore Turf Club Ltd. (Karnataka AAR) – Civil structure ITC blocked.

• Multiple AARs have clarified furniture & fixtures movable in nature → ITC allowed.

Comprehensive Employer Checklist for HRA Claim Verification and Cautionary Measures

Employers play a crucial role in validating House Rent Allowance (HRA) claims by their employees to ensure compliance with the Income Tax Department's regulations. A thorough verification process not only assists in accurate tax deduction at source but also minimizes the risk of penalties for both employers and employees. Below is an exhaustive guide that merges document verification with necessary cautionary measures.

Document Verification Checklist for Employers:

1. Rent Receipts Verification

   • Ensure receipt of rent receipts for each claimed month.
   • Check for completeness: date, rent amount, landlord and tenant names, and landlord’s signature or stamp.

2. Rental Agreement Assessment

   • Obtain and review the rental agreement for consistency with rent receipts.
   • Verify agreement details: rent amount, lease duration, property address, and involved parties.

3. Landlord’s PAN Card Verification

   • Collect the PAN details of landlords for rent payments exceeding the specified limit.
   • Cross-check the PAN against official records for authenticity.

4. Review of Bank Statements

   • Encourage rent payment via bank transfers and collect statements as proof.
   • Confirm consistent withdrawals corresponding to rent payments, particularly when paid to relatives.

5. Declaration for Rent Paid to Relatives

   • Obtain a declaration from employees renting from relatives, confirming the genuineness of the transaction.

6. Utility Bills for Additional Proof

   • Collect utility bills in the employee's name to further substantiate residence at the claimed rental property.

7. Compilation of Annual Rent Summary

   • Request a yearly rent payment summary from employees to cross-verify with monthly receipts and bank statements.

8. Form 12BB Submission

   • Ensure employees submit Form 12BB detailing HRA and other deductions.
   • Match HRA claims in Form 12BB against supporting documents.

9. Verification for Section 80GG Claims

   • For employees not receiving HRA but claiming deductions under Section 80GG, verify submission and accuracy of Form 10BA.

Cautionary Measures and Compliance:

1. Authenticity of Rent Receipts: Be vigilant of fabricated rent receipts. Regular random checks can deter submission of falsified documents.

2. Direct Family Transactions: Extra scrutiny should be applied when rent is paid to direct family members, ensuring transactions are legitimate and not merely tax evasion schemes.

3. Consistency in Payment Patterns: Monitor for consistent rent payment patterns through bank statements, especially in cases of cash payments.

4. Verification of Landlord’s PAN: Ensure the landlord’s PAN is genuine, particularly for high rent payments, to avoid complications during tax assessments.

5. Legal and Tax Implications: Educate employees on the legal and tax implications of submitting false information, including potential penalties and disallowances.

6. Record Keeping: Maintain detailed records of all HRA verification documents for a minimum period as prescribed by tax laws to facilitate any future inquiries from the Income Tax Department.

7. Quarterly TDS Return Filing: Employers must accurately report HRA exemptions claimed by employees in the quarterly TDS returns (Form 24Q), as discrepancies can lead to penalties.

At a Glance: Employer Verification and Caution Checklist

Verification Point	Cautionary Measure
Rent Receipts	Watch for fabricated receipts.
Rental Agreement	Ensure consistency with receipts and bank statements.
Landlord’s PAN Details	Cross-check PAN for authenticity.
Bank Statements	Look for consistent rent payment patterns.
Rent to Relatives Declaration	Scrutinize to prevent false tax evasion schemes.
Utility Bills	Use as additional proof of residence.
Annual Rent Summary	Cross-verify with other documents for consistency.
Form 12BB	Match details with supporting documents.
Section 80GG Claims	Verify eligibility and documentation for non-HRA receivers.

Conclusion

Adhering to this comprehensive checklist enables employers to effectively manage HRA claims verification while mitigating risks associated with tax non-compliance. By instituting rigorous document verification processes and being mindful of the cautionary measures, employers can safeguard against potential penalties from the Income Tax Department, thus ensuring a smooth and compliant tax filing process for both the organization and its employees.