Tax Audit AI — User Guide

Quick start

1. Create the engagement. Open Tax Audit AI, fill in the assessee (name, PAN, status, AY, Form 3CA or 3CB) and press Save. One engagement per client per assessment year; everything is saved to it.
2. Bring the books in. Press Connect Tally, type the code into the TaxCorp Tally Bridge on the Tally machine, and send the year. The bridge pulls ledger masters (PAN, GSTIN, addresses), every voucher with its posting lines, bank instruments, bill references, cost centres and stock. No bridge? Upload Tally XML or the Excel exports instead.
3. Add the documents that the books cannot hold. Udyam list, prior-year 3CD, partnership deed, TDS returns, 26AS, GST returns, fixed asset register, PF/ESI challans, specified-persons list. Each is read by the AI auditor for the clauses it feeds.
4. Run all procedures on the Audit programme tab. Code computes every figure: loan tables, cash-payment aggregates, TDS reconciliation, MSME ageing, 43B movements, block depreciation, quantities, the clause 44 break-up.
5. AI audit all clauses (or one at a time). For each clause the AI reads the Guidance Note chapter, the computed data pack, your documents and your instruction, and returns findings, a suggested conclusion and draft clause text.
6. Decide. On each clause mark every item Report or Not reportable, set the conclusion (Report / Nil / N.A.), and settle the clause text. The Form 3CD is assembled from your conclusions.
7. Report tab: draft Form 3CA/3CB, generate the engagement letter and MRL, download Word/PDF, Excel workpapers and the JSON export.

Getting the books in

TaxCorp Tally Bridge (recommended)

A small Windows program that runs on the machine where TallyPrime is open. It asks Tally for the data over Tally's own XML gateway and pushes it to your engagement. It never asks for a Tally password and never changes anything in Tally. Pair it once per machine with the code from the Connect Tally button; TallyPrime must have F1 → Settings → Connectivity → TallyPrime acts as: Both.

What the bridge sends	Which clauses use it
Ledger masters with parent group, PAN, GSTIN, registration type, address, state, credit period	4, 21(b), 22, 23, 31, 34, 44 — party identity and registration status
Every voucher with all posting lines and narrations	everything — the cash book, the day book and every ledger statement are derived from these
Bank instrument detail (cheque / NEFT / UTR per payment)	21(d), 31 — mode of payment and account-payee tests
Bill references (New Ref / Agst Ref with dates) and outstanding bills	22 — MSME ageing bill by bill
Inventory lines and stock item masters	14, 35, 40 — valuation method, quantities, stock ratios
Cost centres, voucher types, groups	10, 11, 13 — nature of business, books maintained, classification

Full pull or refresh. The first push of a company is always a full pull: every ledger, every voucher in the period (a full-detail year is around 2 GB from Tally, sent in compressed batches — expect ten to fifteen minutes on a large company). After that, tick Send only changes since the last push in the bridge: it asks Tally only for vouchers created or altered since the last push (Tally's own change counter), removes any voucher that has since been deleted in Tally, and re-sends the small master files — minutes instead of a full pull. Edited vouchers replace their earlier copy; nothing is doubled. The engagement then shows "refreshed incrementally": run one full pull (Replace ticked) before signing the report, so the working papers cite a complete extract. If Tally's data has been rewritten or restored from a backup, the bridge notices and does a full pull on its own.

Uploads

• Tally XML (Alt+E → XML, or a saved gateway response) is parsed in full — ledger XML first, then vouchers.
• Excel exports shaped like Tally reports — Trial Balance, Day Book, Cash Book — are recognised automatically. Tick Prior-year trial balance before uploading last year's TB for clause 10(b) and clause 40.
• Registers on the downloadable templates: PF/ESI challans (clause 20(b)), creditor bills with MSME flag (22), fixed asset register with put-to-use dates (18 — overrides the ledger-derived block statement), turnover reconciliation (40).
• GST returns — download GSTR-1, GSTR-3B and GSTR-2B as JSON from the GST portal (or Tally's GSTR-1 JSON export) and upload them. They are parsed into period totals, not read as text: clause 44 gets the GSTR-1 view of the books (B2B / B2CL / B2CS / exports / nil, rate-wise, HSN, documents issued) and the B2B-by-GSTIN comparison, clause 40 the monthly turnover reconciliation books vs GSTR-1 vs 3B, clause 27(a) ITC books vs 3B 4(A) vs 2B. Differences above the larger of Rs.1,000 and 0.5% become procedure rows. In Ask the books, questions like "B2B supplies to Maharashtra in Q2 by rate" or "months where GSTR-1 differs from books" use the same tables.
• TDS/TCS statements — upload the e-TDS text file the filing software generated for each quarter (the caret-separated 24Q / 26Q / 27Q / 27EQ file that went to the FVU; the TRACES conso .tds file has the same shape) and the TRACES Justification Report workbook where there are defaults. Statements are parsed into section-wise totals, deductee rows, challans and defaults: clause 34(a) gets the filed section-wise table, the books-vs-statement comparison, deductions below the specified rate without a remark, and statement deductees the ledger masters do not know; clause 21(b) clears payees found in a statement by PAN or name; clause 34(b) shows quarter coverage against due dates; clause 34(c) computes late-deposit interest from challan dates and lists TRACES defaults. Form 16A / 27A PDFs are read as text only.
• Form 26AS — download from TRACES (through the e-filing portal) as HTML, Text or PDF and upload. It is parsed deductor-wise: clause 40 compares TDS suffered per deductor with the customer ledgers and the TDS-receivable ledger (a deductor with no matching customer is a revenue-completeness question), TCS collected from the assessee is listed, and the defaults part feeds clause 34(c). A password-protected PDF yields no text — unlock it first, or use the Text/HTML download.
• AIS (Annual Information Statement) — on the e-filing portal open AIS → the financial year → Download → JSON. The file is encrypted for the department's offline utility; type the AIS password (PAN followed by the date of birth / incorporation, e.g. AAACS0000A 06-05-1985) in the box beside the upload, then upload the JSON. It is parsed into: TDS/TCS suffered per deductor (clause 40 reconciles it deductor-wise with the customer ledgers when no 26AS is uploaded, and against the 26AS when both are), interest / dividend / rent / business receipts against the income ledgers, the monthly GST turnover GSTN reports from the assessee's GSTR-3B against the books (clause 40), purchases the suppliers reported in their GSTR-1 against inward B2B by supplier GSTIN (clause 44 — the registered-supplier universe), SFT items (deposits, remittances, securities) and the advance-tax / regular-assessment challans on the PAN. TIS is read as text.
• Documents — PDF, Word, text and other downloads are read as text. Pick the document kind (or let the file name decide) and the clauses it feeds are tagged automatically; edit the tags if needed. The AI auditor reads every document tagged to the clause it is auditing; the chatbot can read any of them.

The audit programme — one clause at a time

The Audit programme tab lists every clause of Form 3CD (as amended by Notification 23/2025; clauses 28 and 29 are omitted, 29A/29B/30A-C/36A/36B are present). Clauses that do not apply to the assessee's status (partners' remuneration for a company, s.79 for a firm) are greyed out. Each clause card has six parts, top to bottom:

1. What the form asks & what the Guidance Note prescribes — the notified particulars, the GN's audit procedures, evidence, thresholds and pitfalls for this clause.
2. Data we have · data we need — every input the clause needs, whether it is present, and the document list with Received / Not applicable status.
3. Machine procedure — the deterministic computation with its tables (loan table, TDS reconciliation, block statement …) and candidate rows. Every row gets your call: Report or Not reportable, with a remark. Rows carry a magnifier to open the voucher behind them.
4. AI audit — the instruction (default, or yours), the run button, and the result: suggested conclusion, summary, points for the auditor, documents the AI wants.
5. Findings & your decisions — every finding from the AI, the chatbot or you, with evidence, GN reference, the AI's recommendation, and your decision.
6. Clause text for Form 3CD — the particulars as they will appear in the report. Start from the AI draft, edit, preview.

The colour dot beside each clause shows where it stands: grey not started · blue procedure run · violet AI audited, awaiting your call · red concluded Report · green Nil · dark N.A. The filter above the list shows only what needs your attention.

What the machine computes

Clause	Computed from the books
8	Turnover from the Sales Accounts group; the 5% cash-receipt / cash-payment test; indicative s.44AB clause
9, 23	Capital-account holders, ledgers sharing their PAN / address / surname; transactions with listed specified persons by nature
13, 14, 15, 16, 17	ICDS-sensitive ledgers; stock valuation methods and the s.145A inclusive-method effect; capital-to-stock transfers; credits outside the P&L; land/building disposals
18	Block statement from Fixed Assets ledger movements: additions dated for the 180-day test, deletions, indicative rates, cash purchases above ₹10,000 (proviso to s.43(1)); the uploaded FAR overrides it
20(b)	Month-wise employee PF/ESI: accrual month from the salary journal, payment date from the next payment, due date 15th of the following month
21(a)	Every P&L expense ledger with the year's debits, plus heads and narrations that suggest capital, personal, club, penal, prohibited or settlement expenditure
21(b), 34(a)	Section-wise TDS reconciliation: expense heads mapped to 194C/J/I/H/A/Q/R/T/195, per-payee totals against thresholds, deductions traced through TDS ledgers, monthly deposit timing (interest u/s 201(1A))
21(c)	Partner-wise capital, interest at 12%, book profit and the s.40(b)(v) remuneration limit
21(d)	Cash payments aggregated per payee per day against ₹10,000 / ₹35,000; opening-liability settlements (40A(3A)); bearer-type bank instruments
21(e)-(i)	Gratuity provisions, unapproved-fund contributions, contingent provisions, exempt income with Rule 8D inputs, CWIP versus borrowings
22	Creditor-wise payment timing from bill allocations (bill date → payment date), outstanding bills aged at year-end, Udyam status from the uploaded list
25, 26, 27	Write-backs and dormant creditors; every statutory / provision ledger with opening, paid, incurred, closing (and post-year-end payments if imported); ITC availed / utilised; prior-period vouchers by reference date and narration
31	Lender-wise loans and deposits: opening, accepted, repaid, closing, maximum outstanding, mode of every acceptance and repayment, PAN and address; ₹2 lakh cash receipts and payments per person per day; cheque instruments needing account-payee confirmation
33, 35, 36A	Donations with cash-mode analysis; item-wise quantities (opening, purchased, manufactured, sold, consumed, derived closing) by stock group; loans from companies
40, 41, 42, 44	GP / NP / stock ratios for both years; demand and refund indicators; SFT-reportable cash receipts; the clause 44 break-up of expenditure by counterparty registration (registered / composition / exempt / unregistered / non-GST-supply / unknown)

The AI auditor and how to instruct it

For each clause the AI receives: the ICAI Guidance Note chapter for that clause (retrieved in full) plus a curated digest of its procedures, thresholds and pitfalls (Revised 2026 edition, including the Tax Audit Quality Review Board observations printed under each clause); the data pack the machine computed (every table and every numbered candidate row, with the decisions you have already taken); every document tagged to the clause; the assessee particulars; and the instruction. It returns a verdict on every candidate row, findings with amounts, evidence and GN references, documents still required, a suggested conclusion, draft clause text in the notified format, and points for the auditor. Nothing it says is final — every finding waits for your call.

Instruction to the AI auditor. Each clause carries a default instruction written from the Guidance Note. Open it and replace it with your own when you want the clause audited your way: which ledgers to ignore, which parties to treat as related, the firm's view on a grey area, a threshold you apply, a document you want it to weigh. Your instruction is saved with the engagement and used on every re-run.

Cost. The programme uses TaxCorp Advanced AI by default; a full run over all clauses is a serious piece of work and uses the client's token budget accordingly. Switch to Fast AI in the engagement bar for cheaper passes. Use AI audit all clauses not yet audited for the first pass, then re-run individual clauses after adding documents or instructions.

Ask the books

A conversation with the client's books. Ask in plain language — "list every cash payment above 10,000 to a transporter by day", "which creditors in the Udyam list were paid late", "audit clause 23 treating these two concerns as related", "what does the GN say about interest credited by journal under 269SS". The assistant queries ledgers, vouchers, parties, the cash book, stock and your uploaded documents through typed tools, aggregates in code rather than in its head, searches the Guidance Note, and can run any clause procedure. When you agree with something it found, ask it to record it — the finding appears on that clause for your decision. Conversations are saved with the engagement.

Report, letters and workpapers

• Form 3CD is assembled from the clause text you settled, in clause order, with unconcluded clauses marked. Form 3CA/3CB is drafted by the AI from the observations recorded across the clauses (documents not obtained, unverified items reported, auditor points).
• Engagement letter (SA 210) and management representation letter (SA 580) are generated without AI; the MRL carries specific representations for every clause you concluded as Report.
• Excel workpapers: an index of every clause with status and conclusion, every finding and procedure row with the AI view and your decision, the computed tables, documents and their status, uploaded files, specified persons.
• JSON export (taxcorp-3cd-engagement/v2) carries the whole engagement for your own tooling. It is an interchange format, not the e-filing schema.

Questions

The bridge finished but the page still shows the old books. Press Refresh from server on the Setup tab; the page also pulls the latest books before every save.

A clause says "needs data". Its data table says what and how to obtain it. Registers go in as uploads on the templates; masters (PAN, GSTIN, bill references) come only through the bridge or Tally XML.

Can I re-run a procedure after deciding rows? Yes — decisions and remarks carry forward to identical rows.

Where are AI runs recorded? Each run's token usage is billed like any other TaxCorp AI generation and listed on your usage dashboard; the prompt and reply are kept for the engagement so a reviewer can read what the AI saw.

Is the AI's draft the report? No. Form 3CD is assembled from the text you settle on each clause. The Guidance Note, the statute and your judgment govern; the AI is an assistant that reads faster than a person can.