Last updated: February 5th, 2020 4:08 PM

Tax Audit - Meaning and Applicability

A tax audit is an audit of books of accounts conducted for ensuring compliance with the provisions of the Income Tax Act. In the case of corporates, the Companies Act already mandates that an audit should be performed. Hence, the requirement for a tax audit arises only for businesses which are not required to undergo an audit as per the statute governing the particular form of business organisation. For instance, partnerships are not required to audit the books of accounts under the Partnership Act. Generally, the calculation of the amount of income tax payable by an assessee is carried out on the basis of self-assessment by the assessee. However, in the specified circumstances, such as crossing the threshold limit for turnover, the Act requires that the computation of the assessee's income tax liability should be accompanied by proof. For the purpose of providing the proof to the Income Tax Department, assessees are required to submit the books of accounts for a tax audit. The scope of a tax audit encompasses an examination or review of the books of accounts of any business or profession maintained by taxpayers, conducted by a Chartered Accountant (CA). The tax audit is performed from an income tax viewpoint. The purpose of the tax audit is to check whether the calculation of income tax liability is correct and according to the provisions of the Income Tax Act. The tax audit certification from a CA allows the Income Tax Department to place confidence in the information submitted by the assessee in the return of income.

Objectives of Tax Audit

The objectives of a tax audit are the following:

• To ensure accurate maintenance and correctness of the books of accounts by means of certification of the accounts by a CA and to facilitate the Income Tax Department to verify the truth and correctness of the information constituting the income tax returns filed by the taxpayer
• To report observations