Connect with us +91 966 777 9615
I’ve filed my ITR even before the deadline, so I’m now fully compliant. This is the most common belief among many people in business. But filing an ITR only means you have met all your tax obligations. However, filing an ITR doesn’t exempt your business from a tax audit if the business turnover exceeds the threshold limit. You need a detailed review of your accounts by a CA registered with ICAI in India, which is required by law under certain conditions, and to submit the audited report to the government.
Today, with the help of this blog, we’ll explore everything you need to know about tax audits. It will detail all the important aspects of tax audits and explain why you should conduct a tax audit.
Tax audit is a crucial aspect of the Indian income tax system, governed by Section 44AB of the Income Tax Act, 1961. It is a comprehensive examination of an individual’s or a business organization’s financial records, tax returns, and books of accounts to ensure compliance with the provisions of the Income Tax Act.
The primary purpose of a tax audit is to verify the accuracy of the information reported on tax returns and to identify any discrepancies, errors, or potential instances of tax evasion or fraud.
Tax audit is conducted to achieve the following objectives:
Tax audits are mandatory for specific individuals and entities under Section 44AB. Here are the key criteria:
| Businesses | A person carrying on a business must undergo a tax audit if their total sales, turnover, or gross receipts exceed or exceed Rs. 1 crore for the financial year.
Note: The threshold limit for businesses can increase from Rs. 1 crore to Rs. 10 crores if cash receipts and payments during the year do not exceed 5% of total receipts or payments. |
| For Professions | If your gross receipts from the profession exceed ₹50 lakh in a previous year. |
| Business under Section 44AE, 44BB, or 44BBB: | If you declare income less than the presumptive rate given under these sections, you must get audited. |
| Section 44ADA | If you declare income less than 50% of gross receipts and your income exceeds the basic exemption limit, you must get audited. |
Once the tax audit is conducted, you must inform the government by filing the mandatory audit report, usually in the form of Form 3CA or 3CB, along with Form 3CD, before the due date.
However, there’s no need to panic about filing this form; your CA will handle all related tax audit filings. That’s why it’s essential for the taxpayer to assign their tax audit to a professional CA who files all related tax audit filings before the deadline.
Here are the following forms along with the purpose of filing-
| Forms | Purpose |
| Form 3CA | This is used when the taxpayer must go through an already required audit under another law (companies, LLPs), such as the Companies Act 2013, Co-operative Societies Act, etc.
This form links the statutory audit with a tax audit. |
| Form 3CB | This is used when the taxpayer is not required to go for another mandatory audit under any other law (sole proprietorship, partnerships) but must go for a tax audit under the Income Tax Act, 1961.
This one is a standalone form for tax audits. |
| Form 3CD | This form needs to be filed along with 3CA or 3CB. It is the core of the tax audit report and contains the particulars of the tax audit and provides all the mandatory data on which the income tax department relies. |
These filings need to be submitted on the official online portal of the income tax department.
After CA has uploaded the forms, the taxpayer verifies and accepts them using a digital signature certificate in the taxpayer’s category.
Section 44AB due dates for filing the tax audit report are
It’s essential to monitor notices issued by the income tax authorities for any extension in due dates. And you need to keep track of the due dates to avoid any consequences.
Tax audits are a significant part of financial obligations, and many taxpayers face some common challenges while preparing for and undergoing tax audits. And if not handled properly, it can lead to non-compliance, delays, or penalties.
Let’s look at some common challenges to understand them in a better way:
Failure to comply with the tax audit requirements can result in penalties under Section 271B of the Income Tax Act, 1961. The penalty may be the least of the following:
However, if there is a reasonable cause for the failure to undergo a tax audit, no penalty shall be levied under Section 271B.
If you are looking to keep yourself updated about the recent updates or compliances about taxation, our team of experts can assist you.
Understanding tax audits under Section 44AB is essential for businesses and professionals to ensure compliance with the Income Tax Act. Failure to undergo a tax audit when required can result in penalties, so it’s crucial to stay informed about the applicable rules and deadlines to avoid any legal consequences.
Proper planning, maintaining accurate documentation, and consulting a tax audit expert can make the process hassle-free. Being proactive and informed helps taxpayers establish credibility and trust with the income tax department by ensuring compliance. Remember, thorough preparation and adherence to regulations can prevent significant issues down the line.
At Mercurius, we assist our clients with various income tax compliances, including income tax assessments, ITR filings, tax advisory, TDS matters other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Demystifying Tax Audits: Exploring Section 44AB of the Income Tax Act, kindly contact us.
