Income Tax Audit

Income Tax Audit

There are various kinds of audit being conducted under different laws such as company audit/statutory audit conducted under company law provisions, cost audit, stock audit etc. Similarly, Income tax law also mandates an audit called ‘Tax Audit’. As the name itself suggests, Tax audit is an examination/review of accounts of any business /profession carried out by the taxpayer from an income tax viewpoint. A Tax audit makes the process of income computation for filing of return of income, much easier.

Objectives

Tax audit is conducted to achieve the following objectives:

  • Ensure proper maintenance and correctness of books of accounts and certification of the same by tax auditor
  • Reporting of observations/discrepancies noted by tax auditor after a methodical examination of books of account
  • Reporting prescribed information such as tax depreciation, compliance of various provisions of income tax law etc. This in turn enables and also saves time of tax authorities in verifying the correctness of income tax return filed by the taxpayer such as total income, claim for deductions etc.

Who is Mandatorily Subject to Tax Audit

Tax audit is conducted to achieve the following objectives:

Category of person Threshold
Carrying on business (not opting for presumptive taxation scheme*) Total sales, turnover or gross receipts exceed Rs 1 crore
Carrying on business (opting presumptive taxation scheme under section 44AD) Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit
Carrying on profession Gross receipts exceed Rs 50 lakhs
Carrying on the profession eligible for presumptive taxation under Section 44ADA Claims profits or gains lower than the prescribed limit under presumptive taxation scheme and income exceeds maximum amount not chargeable to tax
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the subsequent 5 consecutive years If income exceeds maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the tax year where presumptive taxation is not opted for

Forms Required for Tax Audit

Tax audit report can be presented in two different ways by tax auditors, differing on the basis of the laws under which the accounts have been audited.

  • Form 3CB and Form 3CD:
    For tax audit reports presented under section 44AB of the Income Tax Act,1961, Form 3CB and the prescribed details have to be reported in the Form 3CD.
  • Form 3CA and Form 3CD:
    when a taxpayer prefers to get the accounts audited under any law other than Section 44AB, then the relevant form is Form 3CA, while the prescribed details have to be reported in the Form 3CD.

Appointment of Tax Auditor in Company

The responsibility of appointing tax auditors in a company is vested with the Board of Directors. The Board may also delegate this responsibility to any other officer like CEO or CFO. Auditors in a firm or proprietorship can be appointed by a partner, proprietor or a person authorized by the assesses.
Moreover, a taxpayer can also appoint two or more chartered accountants as joint auditors for performing the tax audit. In this case, the audit report must be signed by all the joint auditors, if all of them concur with the report. In case of any differences in opinion, the auditors must express their opinion separately through another report.

FAQ's

    It may be pointed out that report under section 44AB should not normally be revised. However, sometimes a member may be required to revise his tax audit report on grounds such as: revision of accounts of a company after its adoption in annual general meeting.

The due date for completing and filling tax audit report under section 44AB of income tax act is 30th September of the assessment year. Hence if taxpayer is required to obtain tax audit, then he or she would be required to file income tax return on or before 30th September along with tax audit report.

It is mandatory for an individual, firm, LLP (if their accounts are required to be audited under the provisions of section 44AB), political parties and companies to file the ITR using the DSC. Before verifying the ITR using the DSC, it is mandatory to register the DSC on the income-tax e-filling website.

The Act does not prohibit a relative or an employee of the assesses to being appointed as a tax auditor. A Chartered accountant who is responsible of writing or maintenance of books of accounts should not conduct tax audit for the same assesses. The same applies to a partner of such member as well as the firm.

Section 44AB does not specify that only the statutory auditor appointed under the Companies Act should perform the tax audit. Therefore, the tax audit can, be conducted either by the statutory auditor or by any other CA in practice.

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