Introduction
Tax Audit u/s. 44AB of Income Tax Act: An ‘audit’ is essentially a thorough examination, review, or inspection of various records, transactions, or accounts to ensure accuracy, compliance, and reliability. In the realm of taxation, a ‘tax audit’ holds particular significance. It involves a meticulous verification and inspection of a taxpayer’s accounts to validate their compliance with the stipulations laid out in the Income Tax law. In accordance with the Income-tax Law, taxpayers are mandated to conduct audits of their business or profession to ensure compliance with tax regulations.
Tax audit is specified under Section 44AB, which outlines the categories of taxpayers obliged to have their accounts audited by a chartered accountant. The examination of a taxpayer’s accounts carried out by a chartered accountant as per the stipulations of Section 44AB is termed a tax audit. The chartered accountant overseeing the tax audit is required to provide comprehensive findings and observations in the designated Form Nos. 3CA/3CB and 3CD report.
A tax audit serves as a critical process to ensure accurate reporting of financial information and adherence to tax laws. It involves a thorough examination of a taxpayer’s accounts, transactions, and financial statements to validate their compliance with the provisions of the Income-tax Law. This process helps in promoting transparency, reducing tax evasion, and maintaining the integrity of the taxation system.
Objective of Tax Audit
Following are the objectives of tax audit.
(i) To ascertain and report the requirements of Form Nos. 3CA/3CB and 3CD.
(ii) To ensure that the books of account and other records are properly maintained and they truly reflect the income of the taxpayer and claims for deduction are correctly made by him.
(iii) To help in checking fraudulent practices.
(iv) To facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications.
Applicability of Tax Audit
In accordance with Section 44AB of the Income-tax Law, certain persons are obligated to conduct a tax audit. Here’s a breakdown of the criteria for compulsory tax audit:
1. Businesses:
Those with total sales, turnover, or gross receipts exceeding Rs.1 crore in a financial year, unless they opt for the presumptive taxation scheme under section 44AD and their total sales or turnover remains below Rs.2 crores.
The threshold limit is raised to Rs.10 crores if cash transactions constitute less than 5% of the total receipts or payments during the year.
2. Professionals:
Persons engaged in a profession with gross receipts exceeding Rs.50 lakhs in a financial year.
3. Taxpayers under Presumptive Taxation Scheme:
If eligible for presumptive taxation schemes like 44AD, 44ADA, 44AE, 44BB, or 44BBB, but claim lower profits than the scheme’s computation and their income exceed the non-taxable amount.
Furthermore, if a person is mandated by another law to conduct an audit, they need not perform a separate tax audit. They can fulfil the tax audit requirement by obtaining an audit report as per the other law and a report by a chartered accountant in the prescribed Form Nos. 3CA and 3CD.
Forms of Audit Report used for Tax Audit
The report of the tax audit conducted by the chartered accountant is to be furnished in a prescribed form.
The form prescribed for audit report in respect of audit conducted under section 44AB is Form No. 3CB and the prescribed particulars are to be reported in Form No. 3CD.
In case of persons required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA and the prescribed particulars are to be reported in Form No. 3CD.
Due Date of Tax Audit
According to Section 44AB of the Income-tax Law, individuals falling under its purview must ensure their accounts undergo an audit, and they should obtain the corresponding audit report by September 30th of the relevant assessment year. For instance, for the financial year 2022-23, aligning with the assessment year 2023-24, the tax audit report needs to be acquired on or before September 30, 2023.
To streamline this process, the tax audit report is electronically submitted to the Income-tax Department by the appointed chartered accountant. Subsequently, the taxpayer is required to review and approve the report through their e-filing account.
Penalty for Non-Compliance
In line with tax regulations outlined in Section 271B, it is essential for individuals subject to Section 44AB to ensure compliance with the stipulated audit requirements. If a person fails to have their accounts audited as mandated by Section 44AB or neglects to provide the necessary report, the Assessing Officer holds the authority to levy a penalty.
The penalty amount is determined based on the lower value between two options:
(a) 0.5% of the gross turnover or gross receipts in the business or profession for the respective year or years of non-compliance.
(b) Rs.1,50,000.
However, Section 271B also acknowledges the presence of reasonable causes for such failures. If the taxpayer can substantiate a reasonable cause for the non-compliance, demonstrating that the failure was beyond their control or due to valid and justifiable circumstances, no penalty shall be imposed.
This provision emphasizes the significance of adhering to audit requirements, promoting financial discipline, and discouraging non-compliance. It also allows for fair judgment, considering legitimate reasons that might have contributed to the failure to meet the audit obligations. Ensuring compliance with these regulations is fundamental in maintaining a transparent and accountable tax environment.
Conclusion
This tax audit process ensures compliance with tax regulations and helps maintain transparency and accuracy in financial reporting. It’s an essential practice in the taxation framework that ensures adherence to tax laws and promotes fair taxation practices. Furthermore, the timely compliance with tax audit requirements is crucial to ensure accurate financial reporting. By utilizing digital platforms for submission and approval, the taxation process becomes more efficient and convenient, aligning with modern technological advancements. Meeting these deadlines and utilizing electronic filing systems not only simplifies the auditing process but also aids in contributing to a well-regulated and transparent tax environment.
You may follow the link of ITD to access the FAQs on Tax Audit-https://incometaxindia.gov.in/Pages/faqs.aspx?k=FAQs+on+Tax+Audit
To access the Form 3CA-3CD User Manual of Income Tax Department, you may follow the Link-https://www.incometax.gov.in/iec/foportal/help/statutory-forms/popular-form/form3ca-3cd-um
Watch the video “Live Webcast on Tax Audit Program” of ICAI-https://www.youtube.com/watch?v=riMff5yHkDw
You may also Follow–https://anptaxcorp.com/capital-gain-tax-on-sale-of-securities/
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