Tax Audit in India: Definition, Procedure and FAQ’s
A tax audit is a process of verifying the correctness and completeness of an assessee’s income tax return filed with the income tax department. It is a systematic examination of a taxpayer’s books of accounts and other relevant documents to ensure that the income declared by the taxpayer is accurate and complies with the provisions of the Income Tax Act, of 1961. In this article, we will discuss tax audits in India, their procedure, and frequently asked questions.
Definition of Tax Audit in India:
Under Section 44AB of the Income Tax Act, 1961, every person who is engaged in business or profession and whose turnover or gross receipts exceed a specified limit in a financial year, is required to get his accounts audited by a chartered accountant. The specified limit for getting accounts audited is as follows:
- For business: If the turnover exceeds Rs. 1 crore in a financial year.
- For profession: If the gross receipts exceed Rs. 50 lakhs in a financial year.
The objective of tax audit is to ensure that the taxpayer has maintained proper books of accounts and other relevant documents, and has correctly computed the income and tax liability as per the provisions of the Income Tax Act.
The procedure of Tax Audit in India:
The procedure for tax audit in India is as follows:
Step 1: Appointment of Chartered Accountant The taxpayer is required to appoint a chartered accountant who will conduct the tax audit. The chartered accountant must be a member of the Institute of Chartered Accountants of India (ICAI).
Step 2: Preparation of Audit Report The chartered accountant will examine the books of accounts and other relevant documents of the taxpayer to verify the correctness and completeness of the income and tax liability. Based on the examination, the chartered accountant will prepare an audit report in Form 3CA or Form 3CB and a statement of particulars in Form 3CD.
Form 3CA is applicable if the taxpayer is required to get his accounts audited under any other law, and Form 3CB is applicable if the taxpayer is not required to get his accounts audited under any other law. Form 3CD contains the particulars of the audit report.
Step 3: Filing of Audit Report The taxpayer is required to file the audit report and the statement of particulars along with the income tax return for the relevant assessment year. The due date for filing the income tax return for a taxpayer who is required to get his accounts audited is 30th September of the subsequent financial year.
Frequently Asked Questions (FAQs) on Tax Audit in India:
Q1. Who is required to get a tax audit done in India?
A1. Every person who is engaged in business or profession and whose turnover or gross receipts exceed a specified limit in a financial year is required to get his accounts audited by a chartered accountant.
Q2. What is the specified limit for getting accounts audited in India?
A2. The specified limit for getting accounts audited is as follows:
- For business: If the turnover exceeds Rs. 1 crore in a financial year.
- For profession: If the gross receipts exceed Rs. 50 lakhs in a financial year.
Q3. What is the objective of tax audits in India?
A3. The objective of tax audit is to ensure that the taxpayer has maintained proper books of accounts and other relevant documents, and has correctly computed the income and tax liability as per the provisions of the Income Tax Act.
Q4. What is the due date for filing the audit report in India?
A4. The due date for filing the audit report and the income tax return for a taxpayer who is required to get his accounts audited is 30th September
Q5. What are the consequences of not getting a tax audit done in India?
A5. If a taxpayer who is required to get his accounts audited fails to do so, he may be liable to pay a penalty of 0.5% of the total sales, turnover, or gross receipts, subject to a maximum penalty of Rs. 1,50,000. In addition to this, the income tax officer may also initiate penalty proceedings under Section 271B of the Income Tax Act, which may result in a penalty of Rs. 1,50,000 or 0.5% of the total turnover or gross receipts, whichever is lower.
Q6. Can a taxpayer revise the tax audit report once it is filed?
A6. Yes, a taxpayer can revise the tax audit report within the time limit specified under Section 139(5) of the Income Tax Act, which is before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
Q7. Is it mandatory to file the audit report electronically?
A7. Yes, it is mandatory to file the audit report electronically using the income tax department’s e-filing portal.
Q8. Can a taxpayer get an extension of time for filing the audit report?
A8. Yes, a taxpayer can get an extension of time for filing the audit report by making an application to the income tax officer before the due date of filing the return of income. However, the extension is granted only in genuine cases and is subject to payment of interest under Section 234A of the Income Tax Act.
Q9. Can a taxpayer opt for a voluntary tax audit in India?
A9. Yes, a taxpayer can opt for a voluntary tax audit even if his turnover or gross receipts do not exceed the specified limit. This is beneficial as it provides an assurance to the taxpayer that his books of accounts and tax returns are in order.
In conclusion
Tax audit is an important process in ensuring compliance with the provisions of the Income Tax Act. It is important for taxpayers to maintain proper books of accounts and other relevant documents to avoid any penalty or other consequences. The procedure of tax audit is fairly straightforward, and it is advisable for taxpayers to appoint a chartered accountant to conduct the audit.
