Tax Audit is the official examination of the books and other records maintained by the taxpayer, and that the income tax payer has truly reflected his income and claimed the deductions in accordance with the provisions of Income Tax Act. Section 44AB of Income Tax Act, 1961 lays out the provisions in relation to class of taxpayers who are required to get their accounts audited.
Tax audit is conducted by a Chartered Accountant who is required to ensure the correctness of books of accounts maintained and report any inconsistency/ non-compliance of the act, and verify that the person liable for tax audit has computed his taxable income as per the Income Tax Act provisions. The findings, observations are to be reported in prescribed forms- Form 3CA/3CB and 3CD.
Compulsory Tax Audit – Persons liable for tax audit and threshold limit
Following are the category of taxpayers who are required to get their accounts audited under Income Tax Act, 1961:
- Person carrying on Business
Every person carrying on business is required to get the accounts audited, if the sales turnover or gross receipts of the business exceed Rs.1 Crore during the previous year.
The limit of Rs.1 Crore shall be substituted by Rs.5 Crore when:
- Aggregate of all amounts received in cash including amount received for sales, turnover or gross receipts during the previous year does not exceed five percent of the said amount; and
- Aggregate of all payments made in cash including amount incurred for expenditure, during the previous year does not exceed five percent of the said payment.
- Person carrying on Profession
Every person carrying on profession is required to get the accounts audited, if the gross receipts in profession exceed Rs.50 Lakhs during the previous year.
- Person carrying on business eligible for presumptive taxation u/s 44AE, 44BB or 44BBB
The person covered under the above sections will be eligible for tax audit if he claims the income to be lower than the profit/gain deemed to be profit/gain under such sections in any previous year.
- Persons carrying on business eligible for presumptive taxation u/s 44AD
If the income claimed is lower than the profit/gain deemed to be profit/gain under section 44AD that is if the income of the taxpayer is less than 8% or 6% (in case 100% transactions are from bank) of the turnover and the total income of the assesse exceeds the maximum amount not chargeable to tax that is INR. 2,50,000/-, which is not chargeable to income tax during the previous year.
- Persons carrying on profession eligible for presumptive taxation u/s 44ADA
If the income claimed is lower than the profit/gain deemed to be profit/gain under section 44ADA that is income of the taxpayer is less than 50% of the gross receipts and the total income of the assesse exceeds the maximum amount not chargeable to tax that is INR. 2,50,000/-, which is not chargeable to income tax during the previous year.
Tax Audit Report
Tax Auditor shall furnish the report in the prescribed form, which could be either Form 3CA or Form 3CB along with Form 3CD:
- Form 3CD: It is a statement of particulars which contains the details related to various aspects of the business and transactions.
- Form 3CA: It is required to be furnished by the assesse who carries on business/profession and is required to get his accounts audited by or under any other law, i.e., other than Income Tax Act,1961
- Form 3CB: It is required to be furnished by the assesse who carries on business/profession and is not required to get his accounts audited by or under any other law, i.e., other than Income Tax Act,1961
Due date of filing Tax Audit Report
The due date to furnish Tax Audit Report shall be “the date one month prior to the due date of filing the income tax return specified u/s 139(1)” for the assesses to whom tax audit is applicable, i.e.
- Company;
- Person (other than company), who is required to get his accounts audited; and
- Partner of the firm, who is required to get his accounts audited.
*The due date for furnishing return of income u/s 139(1) is 31st October of the relevant assessment year. Hence, due date for furnishing tax audit report is 30th September of the relevant assessment year.
Penalty
The taxpayer who is required to get his accounts audited but fails to do so will be imposed with a penalty which shall be lower of the following:
- 5% of the total sales, turnover in case of business/ 0.5% of the gross receipts in case of profession;
- INR 1,50,000
No penalty shall be levied if reasonable cause for such failure is provided.
Here at AJSH, we provide professional services to our clients regarding accounting, bookkeeping, payroll, tax advisory, tax filings, tax audits, TDS returns, representation before tax authorities etc. If you have any queries or wish to know more in this regard, kindly contact us.
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