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What Details Are Necessary for an Income Tax Audit?

If you have a job or business, then there can be a possibility that you have gone through any type of audit. An audit aims to ensure the accuracy of the account books of a company

Many rules and regulations exist in the country. Some of these administer various types of audits, counting cost audits, stock audit, company audit, tax audit, secretarial audit report, etc. An income tax audit, as the name suggests, intends to estimate if a person or enterprise has correctly filed the ITRs (Income Tax Returns) of a taxation year.

An agency from outside is authorized to evaluate ITRs filed, deductions and outlays and other guidelines as stated by the Income Tax Act. The procedure of Income Tax Audit makes the calculation of ITRs easier. The CA of the concerned organization carrying out the audit must provide Form 3CB or 3CA, and Form 3CD, as an audit report having the remarks.

What Are The Purposes Of Tax Audit?

An income tax audit is important due to a lot of reasons. Some of them are mentioned below:

It reports important information about compliance, tax depreciation, and so forth. This simplifies the procedures for the income tax establishments to estimate the accuracy of the ITR filed by the enterprise or person.

  1. It even helps in keeping an eye on the frauds and malpractices in filing Income Tax Returns.
  2. There is a reporting of findings by the auditor following a thorough examination of correctness or imprecisions in the ITRs filed.
  3. It is also important for analyzing the correctness of ITRs filed in a taxation year by enterprises or persons, plus the preservation of accounts by the CA.

What Is a Presumptive Taxation Scheme?

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.

Tax Audi Is Necessary For Whom?

These are the classes of taxpayers for whom an income tax audit is necessary:

  1. 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.
  2. A worker of a company whose gross income is over ₹50 lakh.
  3. A business holder who hasn’t elected a presumptive taxation scheme, and has a gross revenue/turnover of over ₹1 crores.
  4. 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.

About 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.

  • 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.

  • 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.

  • 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.

Other Types of Tax Audits for Companies

  • Construction audit

Construction audit 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 Audit

An investigative audit is an analysis of 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 Audit

A compliance audit 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 Audit

This is among the most common audit types. A financial audit generally assesses the legitimacy of the info mentioned within the fiscal reports of organizations. This audit is necessary to be carried out by a CPA agency that works self-sufficiently for the organization that is being inspected.

  • Information Systems Audit

An information systems 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.


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 percent), 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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