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Debate Over ‘Accountant’ Definition in the Income Tax Bill 2025: Inclusion of CMAs and CSs vs. ICAI’s Opposition

Introduction

The introduction of the Income Tax Bill 2025 in the Lok Sabha has ignited a significant debate within India's financial and accounting sectors. Central to this discourse is the definition of the term 'accountant' as outlined in Section 515(3)(b) of the proposed bill. The current definition exclusively recognizes Chartered Accountants (CAs) as qualified professionals for conducting tax audits and related services. This exclusivity has prompted the Institute of Cost Accountants of India (ICMAI) and the Institute of Company Secretaries of India (ICSI) to advocate for the inclusion of Cost and Management Accountants (CMAs) and Company Secretaries (CSs) within this definition.

A. Historical Context and Legislative Developments

The debate over the definition of 'accountant' is not a recent development. Historically, the term has been synonymous with Chartered Accountants, especially concerning tax audits under the Income Tax Act of 1961. However, with the evolving complexity of financial transactions and the diversification of professional expertise, there have been periodic calls to revisit and possibly broaden this definition.

In previous legislative discussions, such as those surrounding the Direct Taxes Code Bill of 2010, there were recommendations to widen the scope of the term 'accountant' to include other professionals like CMAs and CSs. The Standing Committee on Finance explicitly observed that a broader definition could provide Small and Medium Enterprises (SMEs) with a wider and more cost-effective selection of professionals, thereby simplifying the tax compliance regime.This recommendation reinforced the idea that recognizing a wider pool of financial professionals could enhance accessibility and affordability in tax compliance for businesses, particularly SMEs.

The definition of 'accountant' as per Section 515(3)(b) of the Income Tax Bill 2025is as under:-

"accountant" means a chartered accountant as defined in section 2(1)(b) of the Chartered Accountants Act, 1949, who holds a valid certificate of practice under section 6(1) of that Act, but does not include [except for representing the assessee under sub-section (1)],—

(i) in case of an assessee, being a company, a person who is not eligible for appointment as an auditor of the said company under section 141(3) of the Companies Act, 2013; or

(ii) in any other case,—

(A) the assessee himself, or in the case of being a firm or association of persons or a Hindu undivided family, any partner of such firm or a member of such association or such Hindu undivided family;

(B) for an assessee, being a trust or institution, any person referred to in section 355(h)(i) or (ii) or (iii) or (iv);

(C) for any person other than the persons referred to in sub-clauses (A) and (B), the person who is competent to verify the return under section 263 as per section 265;

(D) any relative of any of the persons referred to in sub-clauses (A), (B) and (C);

(E) an officer or employee of the assessee;

(F) an individual, who, is a partner, or who is in the employment, of an officer or employee of the assessee;

(G) an individual, who or his relative or partner—

(I) is holding any security of, or interest in, the assessee and the face value of such security or interest held by his relative does not exceed one lakh rupees;

(II) is indebted to the assessee, and such debt in case of his relative does not exceed one lakh rupees;

(III) has given a guarantee or provided security in connection with the indebtedness of a third person to the assessee and such relative gives a guarantee or provides security for an amount not exceeding one lakh rupees;

(H) a person who, whether directly or indirectly, has business relationship with the assessee of such nature, as prescribed;

(I) a person convicted by a court of an offence involving fraud and ten years has not elapsed from the date of such conviction".

B. Implications of the Current Definition

The retention of a narrow definition in the Income Tax Bill 2025 has several implications:

• Professional dynamics: Excluding CMAs and CSs from the definition may limit the professional opportunities available to these qualified individuals, potentially leading to underutilization of their expertise in taxation and financial management.
• Market competition: A broader definition would encourage healthy competition among financial professionals, driving higher service quality, efficiency, and affordability for businesses seeking audit and compliance services. A narrow definition, however, may lead to a monopolized auditing framework.
• Tax compliance: Expanding the pool of recognized professionals could strengthen tax audits by integrating diverse skill sets from CMAs, CSs, and CAs. A multi-disciplinary approachwould improve compliance, accuracy, and risk assessment, ultimately benefiting both taxpayers and the government.

C. ICMAI's Advocacy for Inclusion

The ICMAI representing approximately 100,000 members, has been at the forefront of this advocacy. In a detailed memorandum submitted to the Lok Sabha's Select Committee, ICMAI President emphasized that CMAs possess specialized expertise in taxation, finance, and auditing. ICMAI President argued that recognizing CMAs as 'accountants' under the new bill would not only enhance tax compliance but also reduce potential revenue losses to the exchequer. He stated,

"The demand for inclusion in the definition of accountants is backed by our expert knowledge through CMA curriculum that extensively covers all areas of income tax, GST, accounts, banking, finance, cost and management accounting, auditing, IT, among others,"

The ICMAI's memorandum highlights that CMAs are already recognized as internal auditors under the Companies Act 2013 and are authorized to conduct statutory financial audits under various state legislations. This existing recognition underscores their capability and the logical extension of their roles to include tax audits under the Income Tax Bill 2025.

D. ICSI's Parallel Appeal

Similarly, the ICSI has advocated for the inclusion of Company Secretaries (CSs) in the definition of 'accountant.' In their representation to Ministry of Finance and Ministry of Corporate Affairs, the ICSI emphasized the comprehensive training that CSs undergo in areas such as taxation, corporate laws, and financial management. They argue that this training equips CSs to contribute effectively to tax audits and compliance processes. The ICSI's appeal is rooted in the belief that broadening the definition would lead to a more inclusive and representative financial auditing framework.

E. Opposition from ICAI

Contrastingly, the Institute of Chartered Accountants of India (ICAI) has expressed reservations regarding the proposed inclusions. ICAI President emphasized that tax audits are a core competency of Chartered Accountants (CAs), given their specialized training and expertise in this domain. He stated,

"Tax audit is fundamentally an audit function, and only chartered accountants in practice are qualified to perform audits. Audit is a serious responsibility that should be handled by professionals with the required expertise".

The ICAI's stance is that expanding the definition to include CMAs and CSs could dilute the quality and integrity of tax audits. They argue that the rigorous training and examination process that CAs undergo uniquely positions them to handle the complexities associated with tax audits.

F. Conclusion

The Lok Sabha's 31-member Select Committee is currently examining representations from key stakeholders, including ICMAI, ICSI, and ICAI, to decide whether CMAs and CSs should be recognized as 'accountants' under the Income Tax Bill 2025. This decision holds significant implications for the evolving landscape of financial and tax compliance in India. As discussions continue, balancing established practices with the expanding expertise of financial professionals will play a crucial role in shaping the country's regulatory framework.

Source: The Hindu Businessline, Memorandum submitted by ICMAI, Representation by ICSI to MOF and MCA.

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