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Before understanding what is tax audit, let us have a clarity on meaning of the term ‘audit’. Dictionary meaning of the term ‘Audit’ suggests that it is an official inspection of an organisation’s accounts and production of report, typically by an independent body/ a systematic review or assessment of something.

What is tax audit?

There are various kinds of audit being conducted under different laws such as company audit/statutory audit conducted under company law provisions, cost audit, stock audit etc.Similarly, Income tax law also mandates an audit called ‘Tax Audit’. As the name itself suggests, Tax audit is an examination/review of accounts of the business /profession from income tax viewpoint such as income, deductions, compliance with income tax law etc. Tax audit makes the income computation for filing the return easy.

Objectives of tax audit

Tax audit is being conducted to achieve the following:

  • Ensure proper maintenance and correctness of books of accounts and certification of the same by tax auditor
  • Reporting of observations/discrepancies noted by tax auditor after a methodical examination of books of account
  • Reporting prescribed information such as tax depreciation, compliance of various provisions of income tax law etc. This in turn enables and also saves time of tax authorities in verifying the correctness of income tax return filed by the taxpayer such as total income, claim for deductions etc.

Who is mandatorily subject to tax audit?

Following categories of taxpayers are required to get tax audit done:

Category of person Threshold
Carrying on business (not opting for presumptive taxation scheme*) Total sales, turnover or gross receipts exceeds Rs 1 crore
Carrying on business (opting presumptive taxation scheme under section 44AD*) Total sales, turnover or gross receipts exceeds Rs 2 crore
Carrying on profession Gross receipts exceeds Rs 50 lakhs
Carrying on the business eligible for presumptive taxation under Section 44AE*, 44BB* and 44BBB* Claims profits or gains lower than the prescribed limit under respective presumptive taxation scheme
Carrying on the profession eligible for presumptive taxation under Section 44ADA Claims profits or gains lower than the prescribed limit under presumptive taxation scheme and income exceeds maximum amount not chargeable to tax
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the the subsequent 5 consecutive years If income exceeds maximum amount not chargeable to tax in subsequent 5 consecutive tax years from the tax year where presumptive taxation is not opted for

(*Section 44BB (non resident engaged in business of exploration etc of mineral oils)

44BBB (foreign company engaged in the business of civil construction etc in certain turnkey power projects)

44AD (any business other than business referred to in 44AE)

44ADA (eligible professionals)

44AE (business of plying, hiring or leasing of goods carriages)

These are presumptive taxation schemes. In these cases, certain fixed percentage of income or amount is assumed to be the profit for the purpose of taxation)

What happens if a person is required to get his accounts audited under any other law for eg. statutory audit of companies under company law provisions ?

It may be noted that in such cases taxpayer need not get his accounts audited again for income tax law purpose. It is sufficient if accounts are audited under such other law before the due date of filing the return and prescribed audit report is furnished.

What constitutes Audit report?

Tax auditor shall furnish his report in a prescribed form which could be either Form 3CA or Form 3CB where:

  • Form No. 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law.
  • Form No. 3CB is furnished when a person carrying on business or profession is not required to get his accounts audited under any other law

In case of either of the audit report mentioned above, tax auditor is also required to furnish the prescribed particulars in Form No. 3CD which forms part of audit report.

How and when tax audit report shall be furnished?

Tax auditor shall furnish tax audit report online by using his login details in the capacity of ‘chartered accountant’. Taxpayer shall also add CA details in their login portal. Once audit report is uploaded by tax auditor, same should either be accepted/rejected by taxpayer in their login portal. If rejected for any reason, all the procedures need to be followed again till the audit report is accepted by the taxpayer.

Tax audit report shall be filed on or before the due date of filing the return of income i.e., 30 November of the subsequent year in case taxpayer has entered into an international transaction and 30 September of the subsequent year in case of other taxpayers.

Consequences of non compliance

If any taxpayer who is required to get tax audit done but fails to do so, lower of 0.5% of total sales,turnover or gross receipts or Rs 150,000 may be levied as penalty. However, if reasonable cause is established for non compliance, no penalty would be imposed.

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