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Tax Audit provisions after Finance Act

Tax audit is the official review of the taxpayer’s accounts and other documents and that the income taxpayer has accurately represented his income and reported deductions in compliance with the Income Tax Act. Section 44AB of the Income Tax Act , 1961 sets out rules concerning the class of taxpayers required to audit their accounts.

Tax audit is performed by a Chartered Accountant who is required to ensure the accuracy of maintained account books and to report any inconsistency / non-compliance of the act and to check that the individual liable for tax audit has estimated his taxable income in accordance with the Income Tax Act provisions. Reporting results, observations in prescribed ways- Form 3CA/3CB and 3CD.

Compulsory tax audit – Tax auditors and thresholds

The group of taxpayers needed to audit their accounts under the Income Tax Act, 1961 follows:

Individual doing business

Any business individual is required to audit the accounts if the business’ sales turnover or gross receipts surpass Rs.1 Crore in the previous year.

Rs.1 Crore’s cap is replaced by Rs.5 Crore when:

  • The sum of all sums earned in cash, including sales, turnover, or gross receipts obtained in the previous year, does not exceed 5% of that amount;
  • The percentage of all cash payments, including sums paid for spending, during the previous year does not exceed five percent of the sum.

A competent individual

Any professional individual is required to audit the accounts if gross professional receipts surpass Rs.50 Lakhs in the previous year.

Company persons liable for presumptive taxes 44AE, 44BB or 44BBB

The person covered by the above sections will be liable for tax audit if, in any previous year, he says the income is lower than the profit / gain considered to be profit / gain under such sections.

Persons in company liable for mandatory taxes 44AD

If the income reported is smaller than the profit / gain considered to be profit / gain under section 44AD, that is, if the taxpayer ‘s income is less than 8% or 6% (if 100% transactions are from the bank) of the turnover and the assesse ‘s overall income exceeds the tax-free limit of INR. 2,50,000/-, which is not taxable in the previous year.

Professionals liable for presumptive taxes 44ADA

If the benefit reported is smaller than the profit / gain declared to be profit / gain under section 44ADA, the taxpayer’s benefit is less than 50% of the gross receipts and the assesse’s overall income reaches the INR tax-free cap. 2,50,000/-, which is not taxable in the previous year.

Audit Tax Report

Tax Auditor shall send a report in the specified form, which may be either Form 3CA or Form 3CB along with Form 3CD:

Form  3CD: A description of information containing details relevant to different aspects of business and transactions.

Form 3CA: The assesse who carries on business / profession is required to audit his accounts under any other law , i.e., other than the Income Tax Act,1961.

Form  3CB: The assesse who carries on business / profession and is not allowed to audit his accounts under any other law , i.e. other than the Income Tax Act,1961

Tax audit report due date

The due date for filing the tax audit report shall be “the date one month before the due date for filing the tax return specified u / s 139(1)” for the assessments to which tax audit relates, i.e.

  • Individual (other than company) needed to audit his accounts;
  • The firm’s partner, needed to audit his accounts.

* The furnishing date of income u / s 139(1) is 31 October of the relevant assessment year. Thus, the filing date for the tax audit report is 30 September of the applicable assessment year.

Penalty:

A penalty would be levied on the taxpayer who is expected to have his accounts audited but fails to do so:

  • 5 percent of net revenue, company turnover/0.5 percent of gross skilled receipts;
  • 50,000 INR

No penalty shall be imposed if there is fair cause for such failure.

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