Understanding Tax Audit

Income Tax law has made ‘Tax Audit’ compulsory. In tax audit,

Accounts of business or any profession is reviewed which makes the process of income calculation for filing of return of Income Tax simpler.

Government of India conducts various audits under different laws such as company audit/statutory audit carried out under company law provisions, cost audit, stock audit etc. Similarly, Income Tax Law has made ‘Tax Audit’ unavoidable.

Income Tax Act has made tax audit compulsory on the annual gross turnover/receipts if the amount exceeds a specified limit. If the limit oversteps a specified limit then, Chartered Accountant conducts the tax audit as defined in Section 44AB of the Income Tax Act, 1961.

Tax Audit Relevancy

Section 44AB has made tax audit a mandatory thing for the following persons:

Business : Rs 1crore It means an assesse requires to be audited as mentioned in Section 44AB if his annual gross turnover increases Rs 1crore in business.

Profession: Rs 50lakh It means an assesse has to go through tax audit under Section 44AB if his annual gross income in profession increases Rs 50lakh.

Types Of Accounts Under Tax Audit

  • Individual/Proprietorship
  • Hindu Undivided Family
  • Company
  • Partnership Firm
  • Association of Person
  • Local Authority

Intents Of Tax Audit

  • It makes sure that books of accounts are retained properly and correctly and certified by tax auditor.
  • Once systematic verification of books of accounts is done it is necessary to report observation or discrepancies observed by the tax auditor.
  • To document stipulated information such as tax depreciation, submission of various provisions of income tax law etc.
  • All these enable tax establishments in verifying the correctness of ITR by the taxpayer. Calculation and authentication of total earned income, claim for deductions etc.. also becomes liable.
  • Tax audit can prove financially profitable for a business.
  • An audit gives credibility of information published for employees, customers, suppliers, investors and tax authorities.
  • Audit gives confirmation to shareholders that the figures in the accounts show a true and fair view.
  • A tax audit helps in building a prestige of the company.

It is necessary for any person who is covered under section 44AB to get their accounts audited and also obtain the audit reports on or before 30th September of that particular year, that is, the due date of filing the return of the income.

If any taxpayer fails to get the tax audit done is punished with the following penalty:

  • 0.5% of the total sales, turnover or gross receipts
  • Rs 1,50,000

What Makes Up A Audit Report

Tax auditor of company shall furnish his report in a suggested form which could be either Form No. 3CB or Form 3CA where:

  • Form No. 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law.
  • Form No. 3CB is furnished when a person carrying on business or profession is not required to get his accounts audited under any other law.

Documents Required At The Time Of Audit

  • Audit plan
  • Audit programme
  • Nature, timing and extent of audit procedures
  • Data sampling
  • Verification details
  • Books of accounts
  • Related party details.
  • Observation, explanation and conclusion drawn there from.

How Asa Helps You In Tax Audit

Auditing of tax annually is both time and money consuming process. Auditing of tax for every eligible assesses, is made mandatory by the Income Tax Act. But there is nothing to worry about.

We at ASA, make sure all your reporting requirements are met as best as possible. We aim to offer you the kind of service that could help you to run your company efficiently.

In terms of audit, we will review your accounts department and recommend way to enhance.

We have the team of best and experienced people who are here to help you. Our representatives are well aware of the rules and regulations, documents required, and who will foresee client needs, communicate clearly and take right of the work.

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