Tax audit is the verification of the books of accounts of an assessee to validate the income tax computation and compliance with the laws of Income Tax. Auditing of books of accounts must be carried out by a certified Chartered Accountant. In this article, we look at tax audit limit, section 44AB of the Income Tax Act and appointment of tax auditor.
Tax Audit Limit
the provisions relating to tax audit are provided under Section 44AD of the Income Tax Act. According to Section 44AB, tax audit is required for the following persons:
Business
In case of a business, tax audit would be required if the total sales turnover or gross receipts in the business exceeds Rs.1 crore in any previous year. Under the Income Tax Act, “Business” simply means any economic activity carried on for earning profits. Section 2(3) has defined the business as “any trade, commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce and manufacture”.
Profession
In case of a profession or professional, tax audit would be required if gross receipts in the profession exceeds Rs.50 lakh in any of the previous year. A profession or professional could be any of the following as per Rule 6F of the Income Tax Rules, 1962:
Architect
Accountant
Authorized representative
Engineer
Film Artist – Actor, Cameraman, Director, Music Director, Editor, etc.
Interior Decorator
Legal Professional – Advocate or Lawyer
Medical Professional – Doctor, Physiotherapist, etc.,
Technical Consultant
Presumptive Taxation Scheme
If a person is enrolled under the presumptive taxation scheme under section 44AD and total sales or turnover is more than Rs. 2 crores, then tax audit would be required.
Also, any person enrolled under the presumptive taxation scheme who claims that the profits of the business are lower than the profits calculated in accordance with the presumptive taxation scheme would be required to obtain a tax audit report.
Due Date for Filing Tax Audit Report
The due date for completing and filing tax audit report under section 44AB of Income Tax Act is 30th September of the assessment year. Hence, if a 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 the tax audit report. In case the taxpayer is also liable for transfer pricing audit, then the due date for filing tax audit is 30th November of the assessment year.
Form 3CA & 3CD
any person who is required to get tax audit would be required to furnish the following for tax audit while filing income tax return:
Form 3CA – Audit Form
Form 3CD – Statement showing relevant particulars
Tax Audit Limit for Chartered Accountants
a tax audit can be conducted by a Chartered Accountant or a firm of Chartered Accountants. If it is performed by the latter, the name of the signatory who has signed the report on behalf of the firm must be stated in the audit report. The signatory must provide his/her membership number while registering in the e-filing portal. Tax audits can also be performed by the Statutory Auditor.
It is important to note that, Chartered Accountants have a limit on the number of tax audit reports that can be filed. The maximum number of tax audits that can be undertaken by a Chartered Accountant is limited to 60. In case of a firm the restriction on tax audit limit will be applicable for each of the partners.
Penalty for Completing Tax Audit
if a taxpayer who is required to obtain tax audit does not get the accounts audited, then penalty could be levied under Section 271B of the Income Tax Act. The penalty for not completing tax audit is 0.5% of the turnover or gross receipts, subject to a maximum of Rs.1, 50,000.
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/Evaluators in a firm or proprietorship can be named by an accomplice, proprietor or a man approved by the assessee.
Additionally, a citizen can likewise name at least two contracted bookkeepers as joint examiners for playing out the tax audit. For this situation, the review report must be marked by all the joint examiners, if every one of them agree with the report. If there should be an occurrence of any distinctions in supposition, the reviewers should express their feeling independently through another report.
Note: – Joint expense inspectors will convey indistinguishable obligations from that of different examiners.
Letter of Appointment for Tax Audit
The tax auditor must acquire a letter of arrangement from the concerned assessee before going ahead with the expense review. The arrangement letter must be properly marked by the individual skilled to sign the arrival of pay. The letter must make reference to the compensation offered to the reviewer.
In addition, the arrangement letter ought to indicate that no other reviewer is endowed with the errand for the specific monetary year, and could contain points of interest of the past inspector. The last is referenced to encourage the correspondence between the delegated examiner and his ancestor.
Who can’t be a tax auditor?
There are sure preclusions on the arrangement of assessment examiners, which are specified underneath:
• any member in part-time practice is not eligible to perform tax audit.
• A chartered account cannot audit the accounts of a person to whom he is indebted for more than Rs 10,000.
• A statutory auditor will be deemed to be guilty of professional misconduct if he/she accepts the appointment of Public Sector
• Undertaking/Government Company/Listed Company and other Public Company having turnover of Rs 50 crores or more in a year and accepts any other work, assignment or service in regard to the same undertaking/company on a remuneration which in total exceeds the fee payable for carrying out the statutory audit of the same undertaking/company.
• The Chartered Accountant who is assigned with the task of writing and maintaining the books of account of the assessee should not audit such accounts.
• The audit of accounts of a professional firm of Chartered Accountants cannot be performed by any partner or employee belonging to such firm.
• An internal auditor of the assessee cannot be appointed as tax auditor.
• An auditor cannot accept more than 45 tax audit assignments in a particular financial year.
Removal of Tax Auditor
The administration is qualified for evacuation of a Tax Auditor on the off chance that he/she has deferred the accommodation of answer to such a degree, to the point that it isn’t any longer conceivable to get the review report transferred before the predefined due date. An expense reviewer can’t be expelled in light of the fact that he has presented an unfavorable review report or on the assesee’s worry that the tax auditor is probably going to give an antagonistic review report.
On the off chance that a Chartered Accountant is expelled on uncalled for grounds, the Ethical Standards Board, which was built up by the Institute of Chartered Accountants of India (ICAI) is qualified for mediate. In addition, if a Chartered Accountant is expelled on invalid grounds, no other Chartered Accountant would be permitted to go about as a substitution to the forerunner.
