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Clause 3(vii) asks whether the company is regular in paying undisputed statutory dues and what is owed and disputed at year end. Clause 3(viii) asks whether income not previously recorded was surrendered or disclosed in tax assessments and whether it has now been booked. This article explains how the ICAI Guidance Note reads both.
It is explained from the ICAI Guidance Note on the Companies (Auditor's Report) Order, 2020 (Revised 2022 Edition, July 2022). CARO 2020 applies to audits of financial years commencing on or after 1 April 2021. Later amendments to the Order, Schedule III and the laws named should be checked.
Clause 3(vii)(a) is about regularity, so it covers dues paid on a regular cycle, and the auditor reports on regularity even if nothing is outstanding at year end. Arrears older than six months from the date payable are reported. Disputed dues go under 3(vii)(b) with amount and forum. Clause 3(viii) applies only when income was surrendered or disclosed by the company, not when it was added over its objection.
The Order's own wording is in the live clause vii to x explainer. For GST aspects at finalisation, see CARO 2020 and GST clauses. A dues calendar and dispute register belong in sound books of accounts compliance. The preceding clauses are in our deposits and cost records article.
What counts as a statutory due (paragraph 59)
"Any other statutory dues" means every statute that applies to the company's business. SA 250 helps identify them. Because the clause tests regularity, the GN limits it to sums the company must pay regularly to an authority under a statute: GST, provident fund, ESI, tax deducted at source, municipal taxes and licence fees, for example. The obligation must come from the statute, not from a contract. So the following are outside the clause:
| Item | GN reading |
|---|---|
| Electricity bill | Contract for supply, even if the supplier is statutory |
| Dues to public sector undertakings | Not a statutory due |
| Bonus to employees | Contractual relationship, so not a statutory due; unclaimed bonus due for transfer to a prescribed fund is different |
| Dividend to shareholders | Contractual; dividend not paid within the time and due for transfer to a fund is a statutory due |
| Sums recoverable as arrears of land revenue | Treated as statutory dues |
Event-based dues, such as customs duty on an import or a demand from an assessment, are regular if paid when they fall due; instalments granted by an authority are different and their regularity is reported.
When is a due "regular" (paragraph 59)
The GN gives these judgements:
- Advance tax. Non-payment is a default, but a company with no taxable income on the due dates that earns later is not irregular. Paying less because of a wrong reading of the law is a default.
- Tax deducted at source. Deducting only at year end, when the expense was accrued monthly, is a default. Non-deduction is also a default.
- GST credit. A claim supported by proper justification where the supplier's return does not show the tax is treated as paid in time. Erroneous adjustment of one credit category against another is a default.- Lump-sum deposits. A consistent practice of depositing estimated provident fund or ESI amounts and adjusting next month, with small differences, needs no unfavourable comment.
- Penalty and interest levied under the law count as amounts payable.
When dues become payable, the GN prefers the later view: the date the amount actually became payable, such as expiry of a stay or the date of default on an instalment, rather than the last date without penalty. Arrears are actual arrears, not amounts recognised but not yet due.
Audit steps for 3(vii)(a)
- Understand the statutes that apply, discuss identification and payment procedures with management, and prepare a calendar of due dates.
- Get a statement of statutes, kinds of payment, due dates, payment dates, arrears not yet due and arrears over six months. Verify it to records and consider whether a due may have escaped the accounting system.
- Get a written representation at the balance sheet date listing disputed cases and amounts, undisputed dues outstanding over six months, and confirming completeness.
- Review the history of statutory compliance and tailor procedures.
The auditor says whether deposits are regular generally (the GN suggests four levels, from regular in all cases to serious delays in many), without listing each delay. If arrears exist, state the extent outstanding at year end for more than six months, the period they relate to and, if possible, later payment. The GN's format lists statute, nature of due, amount, period, due date, payment date and remarks.
Clause 3(vii)(b): disputed dues (paragraph 60)
What is "disputed". There must be positive action or evidence that the company rejected the demand, such as an appeal, or an application to correct or revise an order. A mere representation to the department is not a dispute. If only part of a demand is disputed, only that part is disputed. The auditor does not judge whether the company will win.
Practical rules from the GN:
- A show-cause notice is usually not a demand. If notice and demand are combined, the demand arises when the notice requirements are disposed of.
- Demands set aside, or cancelled on referral for reassessment, are not dues. Stayed demands are disputed dues and the stay should be mentioned.
- If the company wins and the department has not yet appealed further, there is no dispute until it does. If the time for appeal has lapsed without an appeal, the amount becomes an undisputed due for clause 3(vii)(a).
- Amounts declared and approved under a statutory settlement scheme are undisputed once the conditions are met; the auditor verifies the conditions before dropping the item.
- Summarise stage-wise under each broad head in a large company.
- An amount is reported even if provided for in the accounts, as long as it has not been deposited. An amount deposited under protest is not reported but the deposit under protest should be mentioned.
The GN format has statute, nature of dues, amount, period, forum and remarks. Even small amounts are reportable. Use the established accounting standards on provisions and contingent liabilities to judge accounting treatment.
Clause 3(viii): income surrendered or disclosed (paragraph 61)
The clause bites only where transactions not recorded in the books were surrendered or disclosed as income in tax assessments during the year. The Order names the Income Tax Act, 1961; the Income-tax Act, 2025 applies from 1 April 2026, so check how the clause is read for the year in question and see our income-tax guides for the tax side. The GN also stresses the following:
- The company must have voluntarily admitted the income, which the returns and statements show. If a search statement was retracted, or the company disputes the addition, the clause does not apply. Not appealing does not by itself mean surrender.
- Review all assessments completed during the year and those completed after year end but before the report date if they relate to the year or earlier years, and obtain a representation that all assessments were reported to the auditor.
- Examine the company's submissions, identify the income, and check that it was properly booked, including adequate disclosure, whether as an extraordinary item or as prior period error correction under the applicable framework.
- Consider the effect on internal financial controls over revenue and on risk assessment under SA 315.
Schedule III has a parallel disclosure on undisclosed income, which the auditor reviews first.
A worked example
Tarang Exports Limited agreed in an assessment to treat Rs 25 lakh of cash sales, never entered in its books, as income, and the order says so. The auditor reads the submission, finds the sales are booked in the next year's profit and loss as an exceptional item with a note, and reports under 3(viii) that the unrecorded income was surrendered and properly recorded. A GST demand of Rs 6 lakh under appeal goes in the disputed dues table with the forum, while Rs 2 lakh of provident fund unpaid for eight months goes in the arrears statement.
Need help with statutory dues records?
A due-date calendar, a dues statement and a disputes register make this clause far easier. TaxClue's books of accounts compliance team can help you set them up and keep them current through the year.
Key takeaways
- Clause 3(vii)(a) tests regularity; it must be reported even when no arrears exist at year end.
- Only sums payable regularly to an authority under a statute are statutory dues; contractual sums are not.
- Arrears are reported when outstanding for more than six months from the date payable.
- Disputes need positive action such as an appeal; a representation is not enough. Disputed dues are shown by forum.
- Clause 3(viii) needs income surrendered or disclosed by the company, not an addition it contests.
Read next
- CARO 2020 clause 3(ix) in practice: loan defaults and wilful defaulters
- CARO 2020 clauses 3(v) and 3(vi) in practice
- CARO 2020 and GST clauses during finalisation
- SA 250: laws and regulations
Disclaimer: Based on the Companies (Auditor's Report) Order, 2020 as explained in the ICAI Guidance Note on CARO 2020 (Revised 2022 Edition), as consulted on 3 October 2026. CARO applies to financial years commencing on or after 1 April 2021; later amendments to the Order, Schedule III and the laws referred to should be checked. This article is general information, not legal advice; check the official text before acting.