Income Tax Audit in India: Objectives & Procedure For Getting A Tax Audit Done
Self-employed Indian citizens must perform a tax audit of their financial accounts. However, one must meet specific conditions to become eligible for such audits. If you qualify for the same, hiring an experienced chartered accountant should simplify your income tax audit process. Read on to know the intricacies related to this procedure and the requirements for every taxpayer.
What Is Tax Audit in India?
A tax audit can be referred to as a mere official inspection that is conducted by certain categories of businesses or individuals. Businesses with a turnover of a specified amount need to get the books of accounts audited under Section 44AB of the Income Tax Act, 1961.
The main objective of this tax audit process is to ensure compliance with applicable income tax laws. The procedure also helps in validating the income tax computation that the assessee has mentioned in the ITR.
About Section 44AB of Income Tax Act
Section 44AB of the IT Act consists of all the relevant provisions related to tax audits. Here, there is a mention of rules and regulations that need to be fulfilled by the taxpayer while maintaining financial records and books of accounts. The key purpose of introducing this particular Section was to reduce fraudulent practices.
Before business owners or professionals conduct an income tax audit, they need to be aware of the aspects of Section 44AB Income Tax Act.
Objectives of a Tax Audit
The following are some of the key objectives for carrying out an income tax audit:
- In order to report any kind of discrepancy found after examining the books of accounts properly
- To expedite and simplify the process of evaluating tax and applicable deductions
- In order to make sure that the books of accounts are being maintained properly and there is no scope for fraud activities
- To verify that the details related to IT deductions, income, etc., provided in the income tax return are accurate
Also Read: Income Tax Audit in India: Objectives & Procedure For Getting A Tax Audit Done
Who Needs to Get a Tax Audit Done?
Tax audit is necessary for almost every profession or business except for those falling under presumptive taxation. This is applicable under Section 44ADA, 44AD, and 44AE of the Income Tax Act, 1961. Additionally, businesses having revenue below specific threshold limits are also not required to get such tax audits done.
Other than these categories, here are some individuals who need to maintain their books of accounts or conduct a tax audit under Section 44AB:
- Persons with a gross receipt that goes beyond Rs. 50 lakh in the preceding financial year
- If taxpayers are covered under Section 44AD and 44ADA of the IT Act, yet claim that the revenue they earn is lower than the evaluated profit under presumptive taxation. This will also be applicable in case that person’s total revenue crosses the taxable amount as per the Income Tax Act.
- Persons who are eligible for presumptive taxation under Section 44BB, 44AE and 44BBB, yet claim that their total earning is less than the calculated profit under the concerned sections in any past financial year.
- Business owners having a total annual turnover beyond Rs. 1 crore
- Business persons who opted for presumptive taxation, however, their total sales or business revenue exceeds Rs. 2 crores.
What Is the Procedure for Getting a Tax Audit Done?
Here is the complete process to file a tax audit report under Sec 44AB of the Income Tax Act:
Step 1: The procedure starts with the assigned chartered accountant presenting the tax audit report online. For this, the accountant has to make use of his/her login credentials. Note that on the login platform, the assessee must state all the details regarding his/her assigned chartered accountant.
Step 2: The auditor will be uploading the tax audit report on the portal. Upon receiving it, the taxpayer has to either accept or reject the audit report using the same website. Note that such a process will be repeated in case the assessee finds it necessary to get the tax audit done once more, and reject it.
Remember, the filing of income tax audit report should be done before the pre-decided due date of filing ITR. Generally, this date for assessees involved in international transactions is November 30 of the following AY, while for other taxpayers, it is September 30 of the following AY.
Also Read: Form 27EQ: Sections, Features, Eligibility, and Due Date
Which Kinds of Forms Are Necessary for Tax Audit?
For the tax audit process under Section 44AB, each taxpayer must submit certain forms, as per Rule 6G of ITA. Here is a list of the forms:
- Individuals and businesses for whom the tax audit is mandatory need to submit Form 3CA.
- Professionals or business persons who only need to carry out tax audits under IT Act need to submit Form 3CB.
- Form 3CD is another necessary form that business owners or professionals need to submit. It consists of several details related to the business, along with all the transaction details.
- NRIs and business owners running foreign companies need to submit Form 3CE in case they receive royalty or any fee from the government or any Indian concern.
Rules Governing Income Tax Audit
The following rules govern tax audit as per Section 44AB of the Income Tax Act:
- Individuals with multiple businesses can audit their accounts if the total income from all of those businesses exceeds Rs. 1 core.
- Individuals engaged with multiple professions can initiate an audit if the total income from all their professions is more than Rs. 50 lakh.
- Individuals who are involved with a business and a profession can also audit their accounts. However, keep in mind that the income from the business must be more than Rs. 1 crore and that from the profession must be more than Rs. 50 lakh.
- If total income from a profession or business is lower than the minimum amount necessary for an audit, individuals must also consider gains from the sale of fixed assets.
- Generally, taxpayers cannot revise a tax audit report after its online filing. However, in cases where accounts have been revised, individuals can also change the filed audit report.
What Are the Penalties for Not Getting Tax Audit Done?
There are certain penalties applicable under section 271B of the Income Tax Act to business persons or professionals who do not carry out tax audits. For instance:
- In case of non-compliance of regulations of a tax audit by assessees, the penalty can be any of the following (whichever is lower):
- Rs. 1.5 lakh
- 0.5% of the gross receipts or total sales or revenue
Final Word
An income tax audit indicates that a professional or a business owner is transparent with his/her tax payments, and there is no chance of tax evasion. The chartered accountant you hire to conduct this audit will create an accurate report and share it with the IT department.
FAQs on Income Tax Audit in India
Ans: You need to hire a chartered accountant to initiate an income tax audit. Businesses can also hire an entire firm of CAs, when necessary. However, you should remember that a CA can perform up to 60 such audits every year.
Ans: As per provisions of the Income Tax Act, tax audits can be conducted under 6 specific sections. These include:
Section 44AB
Section 44BB
Section 44BBB
Section 44AD
Section 44ADA
Section 44AE
Ans: Section 44AA outlines the circumstances where a business’s books of accounts need to be maintained by assessees. On the other hand, Section 44AB contains the specific situations in which a professional or a business owner needs to create an audit report.
Ans: According to Income Tax Act, one can classify tax audits under 7 distinct heads. These are:
Tax audit
Construction audit
Financial audit
Investigative audit
Compliance audit
Operational audit
Information systems audit
Ans: The only situation in which the business management can remove a tax auditor is when he/she delays the report submission. The delay must be to such an extent that the business can no longer submit its report within the specified time limit.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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