Income Tax audit, as evident from the name, is aimed at evaluating whether an individual or company has accurately filed the income tax returns of an assessment year. An external agency is mandated to assess returns filed from income, deductions and expenditures and other rules as mentioned by the Income Tax Act, 1961. The tax audit process simplifies the computation of tax returns. The Chartered Accountant of the concerned agency performing the tax audit has to submit Form 3CA or Form 3CB, and Form 3CD, as an audit report comprising of the observations.
Taxpayers who have to get their accounts audited under any law other than Section 44AB of the Income Tax Act, 1961, (for instance, stock audit or statutory audit) do not have to get their accounts audited again for the purpose of income tax audit. In such cases, accounts audited under other laws can be presented as a tax audit report for income tax filing, provided it is submitted before the stipulated due date.
The following are the other sections under Income Tax Act, 1961, which also lay down regulations related to income tax audit in India. These are presumptive taxation schemes, wherein a pre-determined percentage of income is assumed to be the gain or profit meant for taxation.
1. Section 44BB: For Non-Resident Indians (NRIs) involved in business specialising in the mineral oils industry, like exploration
2. Section 44BBB: International company involved in the business of civil construction etc. in certain power projects
3. Section 44AD: Any business except those businesses mentioned under Section 44AE
4. Section 44ADA: This section focuses on the regulations regarding income tax audits for eligible professionals
5. Section 44AE: Businesses specialising in leasing, hiring and plying of goods carriages
Limits for Tax Audits:
Tax audit is compulsory for the following categories of taxpayers:
1. A business owner, who has not opted for presumptive taxation scheme, with gross receipts or turnover or total sales exceeding Rs. 1 crore.
2. 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.
3. 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.
4. 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.
5. 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.
Tax Audit Report Filing Process
1. The following is the procedure for filing tax audit report:
2. 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.
3. The taxpayer also has to mention the relevant information about their Chartered Accountant in their login platform.
4. 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.
5. 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.
Penalty for Non-compliance of Tax Audit
Non-compliance of tax audit regulations by taxpayers attracts a penalty of whichever is lower from the following:
0.5% of total sales or Turnover or Gross receipts or Rs. 1,50,000
Forms Required for Tax Audit
Tax Audit reports 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.