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Tax Audit

Get a tax assessment.

Follow the legal mandate to avoid non-compliance.

Benefits

Everything available under law.

  • It will ensure that total income and the claims for deduction are correctly and accurately entered by the businessman
  • Tax Audit helps proper presentation of accounts before tax authorities.This identifies the weaknesses in the accounting system and enables to suggest the improvements.
  • It restricts the chance of fraudulent practices.
  • An Audit provides assurance to shareholders that figures in the accounts show a true and fair view
  • Government authorities accept audited statements as true and fair for the purpose of taxation.
  • An Audit builds up the reputation of the company

Procedure

Methodology, simplified.

  • The Chartered Accountant assigned for conducting tax audit of an individual or an organisation has to present the tax audit report online, using his/her official login credentials.
  • The taxpayer also has to mention the relevant information about their Chartered Accountant in their login platform.
  • Once the tax audit report is uploaded by the auditor, it has to be either accepted or rejected by the taxpayer on their login portal. If the taxpayer rejects the tax audit report, the entire process has to be repeated until the tax audit report is accepted by him/her.
  • Tax audit report has to be filed on or before the pre-determined due date of filing income return, i.e., 30th November of the subsequent assessment year for taxpayers who have engaged in an international transaction and 30th September of the subsequent assessment year for other taxpayers. Rules Governing Tax Audit

Documents required

Passbook, IT Returns etc.

  • Cash book.
  • Journal, if the accounts are maintained according to the mercantile system of accounting.
  • Ledger.
  • Other documents relating to the profession

Why LawDocs?

An accurate assistance.

  • Experts with vast experience
  • No laxity in tax audits
  • Well versed with the statutory procedure
  • Discussion and guidance on the relevant issues.

FAQs

There are a variety of audit being conducted under different laws like company audit/statutory audit conducted under company law provisions, stock audit , cost audit, etc.Similarly, income tax law also mandates an audit called ‘Tax Audit’.

  • Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor
  • To report prescribed information like tax depreciation, compliance of various provisions of income tax law etc.
  • Reporting observations/discrepancies noted by tax auditor after methodical examination of the books of account
  • All these enable tax authorities in verifying correctness of income tax returns filed by taxpayer. Calculation and verification of total income, claim for deductions etc. also becomes easier.

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

  • Form No. 3CA is furnished when the person carrying on business or profession is already mandated to get his accounts audited under any other law.

The Form No. 3CB is furnished when the  person carrying on business or profession is not

A taxpayer is required to have a tax audit carried out if sales, gross receipts of business exceed Rs 1 crore in the financial year. However,  taxpayer may be required to get their accounts audited in certain other circumstances.

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

You must file the tax audit report on or before due date of filing the return of income. This is 30 November of  subsequent year in case taxpayer has entered into an international transaction and 30 September of the subsequent year for other taxpayers.

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

Tax audit is compulsory for the following categories of taxpayers:

  • A business owner, who has not opted for presumptive taxation scheme, with gross receipts or turnover or total sales exceeding Rs. 1 crore.
  • A business owner, who has opted for presumptive taxation scheme under Section 44AD of the Income Tax Act, 1961, with gross receipts or turnover or total sales exceeding Rs. 2 crore.
  • A taxpayer whose business, which is eligible for presumptive taxation under Section 44AE, 44BB and 44BBB, claims profits that are lesser than the prescribed limit under respective presumptive taxation scheme.
  • A business owner who is not be eligible to claim presumptive taxation under Section 44AD because he or she has opted for it in a certain assessment year and not for any of the five consecutive years subsequently. This is applicable when his/her annual income is more than the maximum amount not chargeable to tax in the following 5 consecutive assessment years from the tax year.
  • An employee of an organisation whose gross receipts is more than Rs. 50 lakhs
  • An employee of an organisation that is eligible for presumptive taxation under Section 44ADA and claims profits that are lesser than the prescribed limit under presumptive taxation scheme and income is more than the maximum amount not chargeable to tax.
  • If you are involved in more than 1 business, you will be liable to audit your accounts if the total turnover of all your businesses is more than Rs. 1 crore.
  • If you operate more than 1 profession, you have to audit your account books in case the gross receipts of all the professions cumulatively cross Rs. 50 lakhs.
  • If you run a business as well as a profession, then tax audit is not based on total turnover from both. If your business turnover is more than Rs. 1 crore then an audit is required for the business accounts, and if the gross receipts from your profession is more than Rs. 50 lakhs then an audit of the profession accounts is needed. But if your business turnover is Rs. 90 lakhs and your profession receipts are Rs. 40 lakhs, then no audit is required for either accounts.
  • If the turnover of your business or profession is below Rs. 1 crore or Rs. 50 lakhs, but you have sold a fixed asset (such as vehicle or immovable property), the amount you gain from the sale will not be considered as part of your business or professional profits. Sale of the following items are excluded from calculation into total turnover/gross receipts of a businessperson or professional:
  • Assets held as investment (e.g. shares, stocks, securities)
  • Fixed assets
  • Rental income
  • Income from interest that is not part of the business income
  • Any expense reimbursed by the client
  • Once the tax audit report is filed online, it cannot be revised. But if the accounts have been revised – for example, a company account revision after acceptance at the Annual General Meeting, change in law or change in interpretation of law – then the audit report that has been filed can also be changed. The reasons for change in audit report have to be explicitly mentioned while filing the revised report.

There are different laws in India that focus on laying down the rules and regulations unique to various types of audits – cost audit, income tax audit, stock audit, company or statutory audit as per company law, etc. Section 44AB of the Income Tax Act, 1961, lays down the provisions for income tax audit in India.

Income tax audit, as evident from the name, is aimed at analysing the accuracy of income tax returns filed by individuals and businesses in an assessment year. A tax auditor from an external agency is mandated to assess returns filed from income, expenditures and deductions and other parameters, as per Section 44AB of the Income Tax Act, 1961. The tax audit procedure streamlines the computation of tax returns. The Chartered Accountant of the agency performing the tax audit has to present their observations and findings in Form 3CA or Form 3CB, and Form 3CD.

As per Section 44AB of the Income Tax Act, 1961, tax audit limit for professionals, businesses and presumptive taxation scheme are:

Business: Tax audit for businesses pertains to those whose gross receipts or total business sales turnover exceeds Rs. 1 crore in the previous assessment year. The term ‘business’, under the Income Tax Act, 1961, implies to any economic activity that earns profits and gains. To quote Section 2(3), a business can be “any trade, commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce and manufacture.”

Profession: For a profession or professional, tax audit is applicable if gross receipt in the concerned profession is more than Rs. 50 lakhs in any of the previous assessment year. As per Rule 6F of the Income Tax Rules, 1962, this profession can be any of the following:

  • Accountant
  • Engineer
  • Architect
  • Medical Professionals like Physiotherapist, Doctor, etc.
  • Legal Professionals
  • Authorised representative
  • Film Artist – Film Director, Music Director, Actor, Editor, etc.
  • Interior Decorator
  • Technical Consultant

Presumptive Taxation Scheme: When an individual is enlisted under the presumptive taxation scheme under Section 44AD and total sales or turnover exceeds Rs. 2 crores, tax audit is considered to be mandatory.

Also, any individual enlisted under the presumptive taxation scheme who claims that the gains of the business are lower than the gains calculated as per the presumptive taxation scheme, tax audit is considered to be mandatory.

  • Section 44AB: Most taxpayers, individuals and organisations, are government by the provisions concerning income tax audit, as laid down in this section
  • Section 44BB: This section focuses on Non-Resident Indians (NRIs) engaged in businesses involved in the mineral oils industry, like exploration
  • Section 44BBB: This is for international companies engaged in the business of civil construction, etc. in certain power projects
  • Section 44AD: Any business except those mentioned under Section 44AE, comes under the purview of this section
  • Section 44ADA: This section focuses on the regulations regarding income tax audits for eligible professionals
  • Section 44AE: Businesses engaged in leasing, hiring and plying of goods carriages
  • Tax audit – This tax audit is an analysis of the tax returns submitted by an individual or business to evaluate the accuracy of income tax payment. These tax audits are especially conducted when the tax payments of individuals and businesses are unusually low.
  • Financial audit – One of the most popular types of tax audit, it analyses the authenticity of the information mentioned in the financial statements of entities. It is mandatory that this tax audit is conducted by a CPA agency that functions independently of the entity being audited.
  • Construction audit – As the name suggests, this assesses the expenses for construction projects and other essential details – contractors hired, payments made, reimbursements, changes in orders, and the deadlines within which the projects were completed. The aim of this tax audit is to check whether the expenditures incurred for these construction projects were reasonable.
  • Compliance audit – This evaluates the policies and processes of a department or entity, usually educational institutions or industries and checks whether it is compliant with the regulatory standards.
  • Investigative audit – This tax audit is an investigation of a specific area or individual when there is a suspicion of inappropriate or fraudulent activity. The intention is to find out and remedy control breaches, and collect evidence should charges be filed against someone.
  • Information systems audit – This tax audit reviews the controls over technology like data processing, software development, etc. The aim is to regulate the functioning of the IT systems, access the accuracy of results being generated and ensure data protection.
  • Operational audit – This tax audit, which can be undertaken by an internal as well as an external CPA agency, is a thorough analysis of the planning processes and results of business operations. The final report by the agency comprises of recommendations for improving business processes.

To prepare report in Form 3CA/3CB including annexure in Form 3CD as per div 44AB of the Income-Tax Act. We’ll help with your IRS tax audit by:

  • Reviewing the tax authority notice or inquiry and explain what it means
  • Researching issues involved
  • Assisting you in assembling documents and records for the tax audit
  • Reviewing the tax audit findings and explaining them to you
  • Explaining the appeal process and other options available to you in the event you disagree with the tax authority’s findings
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