“Tax Audit” can be by understood by two key words i.e. Tax and Audit. Tax is nothing but a share of your income or profit that you pay to the government. “Audit” can be understood as official verification and assessment of books of accounts of individual or organization by a separate or independent body which should be in compliance with the laws of the Income tax of the country. This independent body also known as “Tax Auditor” should be certified by the Government of India.
In this article, we will be discussing about the need to have tax audit, who needs to comply with it, tax audit due date, penalty for not complying, Tax auditor, relevant sections and forms of the Income tax act, 1961 etc.
WHY TAX AUDIT?
Auditing helps in achieving following purposes: –
- To check the authenticity and maintenance of books of accounts.
- Report any discrepancy found in the book to make any correction before filing income tax return.
- To check compliance with the concerned laws of the country such as Income tax laws etc.
- To report such other information as required such as tax depreciation etc.
- It helps in saving precious time of both the assessee and the tax authorities in verifying the information filed in income tax return.
- Auditing of books of accounts in a proper and correct manner will ensure adherence to the law and it will help in creating a positive business environment.
WHO NEEDS TO COMPLY?
According to section 44AB of Income tax act, 1964, the following categories of people are required to comply with it compulsorily. They are –
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Business–
It means if you are involved in any trade, commerce and manufacturing activity etc. So, if you are running a business and total sales turnover or gross receipts of your business exceeds Rs 1 crore in any previous year then you are required to comply with tax audit. This limit of Rs 1 crore was increased from the financial year of 2013-14. One more thing that you need to take note of is in which category your business falls under. Mainly, there are 4 categories. They are –
- Not opting for presumptive taxation scheme
- Opting for presumptive taxation scheme (U/S 44AD)
- Eligible for presumptive taxation (U/S 44AE, 44BB, 44BBB)
- Not eligible for presumptive taxation
Note: – Presumptive Taxation Scheme was introduced by Income Tax Act to bring some amount of relief to the small taxpayers who has to maintain account ledgers and to get them audited by the auditors. Under this scheme, the beneficiaries are allowed to declare his total taxable income at a predefined rate and in the process, they get relief in maintaining books of accounts which itself is a cumbersome practice.
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Profession –
It generally means a paid occupation and for tax purposes, this profession should fall under Rule6F of the Income Tax Rules, 1962. Examples are – Architect, legal professional, doctor, technical consultant, investment banker etc.
So, being in a profession, if your gross receipts exceed Rs 50 lakhs in any of the previous year’s then you would be liable for auditing. Here again, before the financial year of 2016-17, this limit of Rs 50 lakhs was less, it was revised after 2016. Here again, you must know whether you are eligible for presumptive taxation under section 44ADA. However, irrespective of your category, you will be liable for auditing.
It must be noted that if your business or profession, as the case may be, has already been well audited by an independent body in compliance with any other laws of the country other than Income Tax act, 1961, then you don’t have to get your business or yourself audited again for the purpose of income tax return.
WHEN IS THE TAX AUDIT DUE DATE?
In the course of your business or profession, if you have entered into any international transaction then you should file tax audit report before the due date of 30th November of the subsequent year or assessment year as per the section 44AB of Income Tax Act otherwise you must file your tax audit report before 30th September of subsequent year. Chartered accountants at Company Vakil can help you in timely submission of your tax auditing report.
One more thing you must take note of is when you will be filing income tax return, you will be required to fill following forms –
- Form 3CA – It’s an Audit Report Form.
- Form 3CD – It’s for statement showing relevant particulars.
PENALTY FOR NOT COMPLYING: –
According to section 271B of the Income Tax act, in case of failure to comply with the process of auditing of your books of accounts then a penalty of 0.5% of the total turnover or gross receipts, as the case maybe, could be levied, subject to a minimum of Rs 1, 50,000. In case, the assessee has a valid reason for delay in filing tax audit report or non-filing of report then as per section 273B of Income Tax Act, no penalty will be incurred.
TAX AUDITOR: –
Eligibility
Any person or group of persons who is well qualified and certified for the purpose of auditing and who is not barred by law under any circumstances can be appointed for the purpose of auditing of books of accounts. These auditors are mainly qualified chartered accountants.
Appointment
Appointment of auditors can be done by Board of Directors of the company or any other person authorized to take that decision on behalf of Board of Directors. In case of an individual involved in profession then he himself can appoint him. Furthermore, two or more chartered accountants as joint auditors can be appointed for the purpose of auditing and the audit report must be signed by all the joint auditors. In case they differ in opinion regarding the report, they must express so through different report.
Moreover, tax auditors and the taxpayer, both bear responsibility of reporting the audit report in respective forum. An assessee must accept or reject the audit report prepared and furnished by the auditors and in case the assessee or taxpayer rejects the audit report then the whole procedure should again be followed.
Removal
The tax auditors can also be removed by the taxpayer for following reasons: –
- If submission of audit report is delayed more than stipulated time by the auditors.
- If the taxpayer believes the audit report contains any false information or is adverse in nature.
However, being a responsible assessee you should not remove the auditor on any unfair or invalid grounds. Doing this may result against your favour if the case found to be as such by the Ethical Standards Board.
Become an honest and responsible taxpayer and get yourself audited on time. Not doing so will surely land you in troubles, which would not be good for either you or your business. Tax Audit Limit is very much necessary for the smooth functioning of your business or your profession and auditors at company vakil will be happy to help you in this endeavor.
