Persons and companies that manage more than a certain amount of business must undergo a tax audit. This article contains all the information you need about tax audits in India.
What is a Tax Audit?
A tax audit is the process of analyzing and verifying a company's or professional's financial and accounting documents, balance sheet.It gives the information about income, costs, taxes, and deductions. This is a legal inspection, which comes under section 44B. Businesses and people that manage more than a certain amount of business must go through a tax audit.
What Are the Tax Audit Purposes?
Tax audits are performed to achieve the following goals:
- Verifying the income, taxes, and deductions of taxpayers is the main role of tax audit.
- calculations are made simple With auditing, tax and deduction.
- Make sure the books of accounts are kept up to date, accurate, and certified by a chartered accountant (tax auditor).
- Reporting the tax auditor's findings and irregularities after analyzing the books of accounts.
- Report necessary data, including tax depreciation and obeying to different income tax law rules.
Types of audits in India
There are three types of audit in India:
- Field audit: A field audit is an in-person inspection that happens at your place of business, or at your tax professional's office. You will have to provide the necessary documents to them.
- Office audit: Verify compliance with tax regulations, the Internal Revenue Service (IRS) may held an office audit, which involves reviewing a taxpayer's data /documents from its offices rather than at the taxpayer's home or place of business.
- Correspondence audit: The IRS performs an easy review of tax returns known as a correspondence audit. Normally, charities and other nonprofit organizations are the main focus of this type of audit.
What is the Turnover Limit for Income Tax Audit?
If a taxpayer's business sales, turnover, or gross revenues reach ₹1 crore, or if their professional earnings exceed ₹50 lakh in a single financial year, A tax audit must be completed for them.
How to calculate taxable income for your business?
Taxable income is calculated by reducing the business expenses from the total revenue in a financial year. In India, business revenue is taxed according to the taxpayer type. Slab rates are used to charge business income to individuals and HUFs.
If your total revenue from every business exceeds Rs. 1 crore and from all professions exceeds Rs. 50 lakh, you must have a tax audit completed. However, your audit is not based on your total income if you are a professional and a business owner. If your business's total revenue is Rs. 95 lakh and your profession's total revenue is Rs. 48 lakh, that means you don't need a tax audit
Taxpayers who must get a tax audit?
The following taxpayer categories must have their records audited:
|
Category of Person |
Condition for Tax Audit |
|
Not subject to expected taxes |
Gross collections, sales, or turnover rise above ₹1 crore. The amount that must be met is ₹10 crores if cash transactions account for 5% of total payments and receipts. (starting FY 2020-21). |
|
Under Sections 44AE, 44BB, and 44BBB of the presumption of taxation |
Any gains or profits come under the presumption of taxation rules that are less than the defined limits. |
|
Under Section 44AD |
Declares revenue that is more than ₹2.5 lakhs and income below the certain limits. |
|
choose not to participate presumptive taxation (Section 44AD) |
earns more than ₹2.5 lakhs in the five years that follow choosing out within the five-year lock-in period. |
|
Maintaining a Career |
Annual gross receipts exceed ₹50 lakhs. |
|
Under Section 44ADA |
claims income over ₹2.5 lakhs and profits less than 50% of total revenues. |
|
Not under presumptive taxation |
During a business loss, sales, turnover, or gross receipts exceed ₹1 crore, or total income above ₹2.5 lakhs. |
Penalty of Non-filing or Delay in Filing Tax Audit Report?
Taxation Audits Quality Review Board (TAQRB) of the ICAI For AY 2023–2024, finds irregularities in tax audit reports. Important clauses in Section 44AB set mandatory audit limits based on professional and business revenue, with higher limitations of up to ₹10 crores governed by restrictions on cash transactions. Commonly Tax Auditors forget to maintain data under clauses (3) and (5) in order to match reporting in Forms 3CA/3CB with SA 700 standards.
A penalty of at least one of the following could be imposed on any taxpayer who neglects to complete the tax audit:
- 0.5% of the overall revenue, sales, or earnings
- Rs 1,50,000
However, no penalty under section 271B will be applied if there is an acceptable case for the failure. Panels and courts have recognized these factors as valid reasons for delaying the filing of tax audit reports:
- Disasters caused by nature
- The Tax Auditor's Resignation
- Accountant/Employee resignation.
- Issues with labor, like long-term strikes and protests
- loss of accounts due to circumstances lacking the auditors' control
- Death or physical incapacity of the partner responsible for the accounts
Conclusion
In conclusion, a tax audit in India is essential to making sure that professionals and companies properly maintain their revenue and follow tax regulations. According to the Income Tax Act of 1961,Tax audit is important for businesses/professions exceeding a certain limit of turnover. An understanding of the provisions can be helpful to avoid penalties, disallowances and legal action.
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