What is Tax Audit

The government of India conducts various audits under different laws such as company audit/statutory audit carried out under company law provisions, cost audit, stock audit, etc. Likewise, Income Tax law has made ‘Tax Audit’ compulsory. In tax audit, business accounts, any profession reviewed which makes the process of income computation for filing of return of income easier.

Income Tax Act has made compulsory on the annual gross turnover/receipts if the amount exceeds a specified limit. Chartered Accountant conducts the audit as defined in Section 44AB of the Income T. Act, 1961.

In simple terms, audit of matters related to tax.

Tax Audit Applicability

Section 44AB has made tax audit a mandatory thing for the following persons:

• Business: Rs 1 Crore: It means an assessed requirement to audit as mentioned in Section 44AB if his annual gross turnover increases Rs 1 Crore in business.
• Profession: Rs 50 Lakh: It means an assessed has to go under Section 44AB if his annual gross income in profession increases Rs50 lakh.

Presumptive Taxation Scheme-Section 44AD

• Businesses whose annual turnover does not cross the limit of Rs 2 crore are suitable for this scheme.
• It is not necessary to maintain books of Accounts U/s 44AD
• Net income estimated to be @8% of your gross turnover
• Digital mode of payment used to receive gross receipts
• Net income calculated as @6% and @8% of gross receipts
• If assessed Presumptive taxation u/s 44AD, then required to follow the same section of the audit for the next five financial years.
• You need to file ITR 4 to avail of this scheme

Presumptive Taxation Scheme- Section 44ADA

• Professions whose annual gross income does not exceed Rs 50lakhs are suitable for this scheme.
• It is not necessary to maintain books of Accounts under Section 44ADA
• Net income evaluated to be at @50% of your gross receipt.
• If Assesse goes for Presumptive taxation under Section 44ADA then he needs to follow the same section of audit for next five financial years.

What should you do to be safe from a Tax Audit?

The motive of indulging in business, professional and crucial to remember that profit should be earned legally and appropriately. Perform the following activities that will result in a healthy Tax Audit:

• Income Tax Act has made it mandatory for maintaining books of accounts
• It is necessary to compute profit or gain under Chapter IV
• Income is taxable or loss allowable
• In tax return file mention show taxable income and allowable loss

Type of Accounts Come Under Tax Audit

• Individual/Proprietorship
• Hindu Undivided Family
• Company
• Partnership Firm
• Association of Person
• Local Authority

What includes Turnover for Tax Audit?

• Duty drawback receives after the export sales considered as a part of Turnover in a fiscal year.
• Income earns out of interests from a money lender or through foreign fluctuation by an exporter regarded as a part of turnover in a financial year or Advance received and forfeited from customers and if excise duty included in turnover it should be debited in the profit and loss account.

What exclude in Turnover for Tax Audit?

• Sale or Purchase of Fixed Assets
• Income raised from selling the assets held as investment
• Rental Income
• Residential or commercial Property
• Interest income and reimbursement of expenses as receipt.

Objectives of Tax Audit

• It makes sure that books of accounts are maintained properly and correctly and certified by the tax auditor.
• Once methodical verification of books of accounts is done it is necessary to report observation or discrepancies observed by the tax auditor.
• The main purpose of tax audit is to extract a report according to the requirements of form no. 3CA/3CB and 3CD. Apart from reporting needs of the above forms proper tax audit is also required that will make sure that book of accounts and records are properly maintained as they accurately show the income of the taxpayer and appropriate claim for deductions.
• Annual audit is both time and money consuming process. Tax audit is necessary for every eligible assesses. Income Tax Act has made it mandatory. In India, tax consultant (Chartered Accountant) conducts Tax Audit.
• Tax audit can prove financially beneficial for a business.
• An audit gives credibility to an information published for employees, customers, suppliers, investors, and tax authorities
• Audit gives assurance to shareholders that the figures in the accounts show a true and fair view.
• A tax audit helps in building a healthy reputation of the company.

What Constitutes Audit Report?

Tax auditor presents his report in the specified form which could be either Form 3CA or Form 3CB where:

• Form No. 3CA is presented when a person involved in business or profession is already mandated to get his accounts audited under any other law
• Form No. 3CB is presented when a person is involved in business or profession does not need to get his accounts audited under any other law

How & when Tax audit, the report furnished?

The tax auditor submits his report online using his login credentials. It is important for taxpayers to provide the details of CA in their login portal. When the auditor uploads the audit report, it then either accepted or rejected by taxpayers in the login portal. If rejected for any reason, then all steps follow again, till the report accepted by the taxpayer.

Due date, by which taxpayer accounts audited

It is required to cover under section 44AB, accounts audit, Obtains report before the 30th September of the current year, the due date of filing return of income.

Types of Tax Audit:

• The first type is correspondence audit. It is the simplest of all types of tax audits, in this audit, IRS sends a letter to you and will ask for information in relation to a certain area of your tax return.
• The second type of audit is office audit. In this kind of audit, the auditor will ask multiple detailed questions and will probably consume your whole day, if IRS requires, they will allow you more time to collect and send in required details.
• The third type of audit is a field audit which is slight a bit inclusive than an office audit. In this type of audit, IRS pays a visit at the house of the taxpayer or their business place of work. They may ask the taxpayer to scrutinize other things as well; their no limit to specific items.

The penalty of non-filing or delay in filing an audit report

If taxpayer fail to audit done punished by following:

• 0.5% of the total sales, turnover or gross receipts
• Rs 1,50,000

If you want to get start with Tax Audit, reach out to Chartered Accountants from CA in Delhi ‘s homepage