As per the rules and regulations it is mandatory to conduct tax Audits. Now get to know all the requirements for a tax audit.
There are numerous rules and regulations in the country regarding Income Tax Audit. Some of these audits include counting cost audits, stock audits, company audits, tax audits, secretarial audit reports, and so on. An income tax audit, as the name implies, seeks to determine whether a person or business correctly filed the ITRs (Income Tax Returns) for a taxation year.
An outside agency is authorised to evaluate ITRs filed, deductions and outlays, and other guidelines outlined in the Income Tax Act. The IT Audit procedure simplifies the calculation of ITRs. The CA of the auditing organisation must provide Form 3CB or 3CA, as well as Form 3CD, as an audit report containing the remarks.
Purposes of a Tax Audit
An income tax audit is important due to a lot of reasons. Some of them are mentioned below:
- It even helps in keeping an eye on the frauds and malpractices in filing Income Tax Returns
- There is a reporting of findings by the auditor following a thorough examination of correctness or imprecisions in the ITRs filed
- It is also important for analysing the correctness of ITRs filed in a taxation year by enterprises or persons, plus the preservation of accounts by the CA.
Types of Tax Audits for Companies
- Construction Tax Audit
It evaluates the outlays for construction ventures and other important specifics like payments done, changes in orders, contractors allotted, etc. The key objective of the construction audit is to keep a track of whether the expenses acquired for the ventures were realistic.
- Investigative Tax Audit
It analysis a particular person or region while there is a doubt of wrong or deceitful activity. The objective of this audit is to discover and cure control infringements and gather pieces of evidence.
- Compliance Tax Audit
It assesses the policies and procedures of a department or body. These are generally educational institutes or diligence and see if it is accommodating with the regulatory principles or not.
- Financial Tax Audit
This is among the most common audit types. A financial tax audit generally assesses the legitimacy of the info mentioned within the fiscal reports of organisations. This audit is necessary to be carried out by a CPA agency that works self-sufficiently for the organisation that is being inspected.
- Information Systems Tax Audit
An information systems tax audit analyses the controls of various technologies. These include software development, data processing, and much more. The key purpose of this audit is to guarantee data preservation, control the working of the IT systems, and get access to the accuracy of outcomes being generated.
Presumptive Taxation Scheme: Everything You Need to Know
When anybody is registered under the presumptive Income Tax Filing scheme and has an overall revenue or income of more than ₹2 crores, it is necessary to go through a tax audit. Moreover, for anyone registered under this scheme, claiming that the profits of the business are below the profits estimated according to the presumptive taxation scheme, a tax audit, in this case, is also necessary.
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Guide on the Process of Income Tax Audit Report Filing
Here is everything about the Income tax audit report filing process:
- The CA who is allotted for carrying out an income tax audit of a company or a person must show the audit report online with his valid login details
- The taxpayer too needs to mention the applicable details related to their CA within their login platform
- As soon as the report is uploaded through the tax auditor, it must be either approved or declined by the taxpayer on their login platform. In case of a denial of the report, the whole procedure should be performed again until the report is approved by the taxpayer
- The report must be filed on or prior to the predetermined due date of filing ITR (one should know about ITR 3 filing process before proceeding with the filings)which is November 30 of the following taxation year for taxpayers involved in an overseas transaction and September 30 of the following taxation year for other taxpayers.
Income Tax Audit Limitation
According to Income Tax Act, Section 44AB, the audit limitation for businesses, professionals, and presumptive taxation schemes are as follows.
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Professionals
Income Tax audit for professionals applies when the gross income in the dedicated occupation is over ₹50 lakhs in any prior taxation year. According to Rule 6F PF of the Income Tax Rules, this occupation can be engineer, legal professional, accountant, technical consultant, interior designer, architect, doctor, etc.
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Business
For businesses tax audit applies to people with a gross revenue or overall turnover of more than ₹1Cr. within the preceding taxation year. As per the Income Tax Act, the word business means any financial act that gains revenues and profits. In Section 2(3), business is said to be anything that is associated with trade and manufacturing.
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Presumptive Taxation Scheme
While a person is registered under this scheme, under Section 44AD, and has a turnover of over ₹2 Cr., then he must undergo an audit.
When Is a Tax Audit Mandatory ?
These are the classes of taxpayers for whom an income tax audit is required by law:
- A business holder cannot claim presumptive taxation under Section 44 AD as he has pursued it in a specific taxation year and not for any of the 5 succeeding years later. This applies while his yearly revenue is over the maximum sum not chargeable to tax in the next 5 succeeding taxation years from the tax year
- A worker of a company whose gross income is over ₹50 lakh
- A business holder who hasn’t elected a presumptive taxation scheme, and has a gross revenue/turnover of over ₹1 crores
- A worker in a company can opt for presumptive taxation and claim revenues lower than the set limit under presumptive taxation. Also, the annual salary of this worker is over the maximum sum that isn’t tax chargeable.
The Takeaway
Penalties are put aside only when a taxpayer presents a sensible reason for non-compliance. In case the account records of a company or occupation are not reviewed according to Section 44 AB, the deemed assessee will be charged a penalty according to Section 271B. If there is a postponement in the timely completion and submission of the report, a portion of the overall turnover (0.5 per cent), about ₹1.5 lakh, must be paid in the form of a penalty. For more information related to this, get expert help from Vakilsearch.
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