Tax Audit 

A tax audit is essential to ensure your financial records comply with income tax laws, providing transparency and accuracy in your tax filings. After completing your tax audit report, timely ITR filing becomes crucial to avoid penalties and ensure smooth tax compliance. IndiaFilings can help you through every step of the process, from conducting the tax audit to seamlessly filing your ITR. With expert guidance from certified Chartered Accountants, we make the process hassle-free and efficient, ensuring you meet all deadlines with ease.

Start your Income tax tax audit process effortlessly with IndiaFilings today and ensure timely, stress-free ITR filing!

What is a Tax Audit?

Audits are conducted under various legal frameworks, such as company or statutory audits under company law, cost audits, stock audits, etc. Similarly, the Income Tax Act requires a specific audit for certain taxpayers, known as a 'Tax Audit'.

A tax audit is a detailed examination of a business or professional's financial records to ensure compliance with income tax laws. It verifies the accuracy of the financial statements and helps ensure that the taxable income is properly calculated. Tax audits are required under Section 44AB of the Income Tax Act, 1961, for certain taxpayers who exceed specified turnover limits or receipt thresholds.

The primary objective of a tax audit is to maintain transparency and accuracy in financial reporting, preventing errors or fraudulent practices. It ensures that proper books of accounts are kept and all tax-related provisions are followed, simplifying the process of filing income tax returns.

Objectives of Tax Audit

A tax audit is conducted with the following key objectives:

• Ensuring accurate maintenance and validation of books of accounts, certified by a Chartered Accountant (tax auditor).

• Reporting any observations or discrepancies identified by the tax auditor after thoroughly examining the accounts.

• Providing prescribed details, such as tax depreciation and compliance with various provisions of the Income Tax Act.

These objectives help tax authorities verify the accuracy of the income tax returns filed by taxpayers, making the process of calculating and verifying total income, deductions, and other claims more efficient.

Different Types of Tax Audits:

There are three main types of tax audits:

• Field Audit: This audit is conducted at your business premises. You must provide all necessary documents, including financial statements, invoices, and other relevant materials, to ensure the successful completion of the audit.

• Office Audit: In this type of audit, the examination is conducted at the Income Tax Office (or IRS office in some jurisdictions). You must bring all the documents specified in the audit notice you will receive beforehand.

• Correspondence Audit: You will receive a letter outlining the required documents for this type of audit. You must mail all necessary documents to the address in the letter to complete the audit.

Tax Audit Applicability

The Income Tax Act, Section 44AB, mandates tax audits for two primary categories of taxpayers:

• Businesses

• Professionals

Below are the income tax audit limits for businesses and professionals:

Tax Audit Limit For Businesses

Business Not Opting for Presumptive Taxation Scheme:

A tax audit is mandatory if the total sales or turnover for the previous financial year exceeds Rs. 1 crore. However, if the following two conditions are met, the audit requirement is raised, and a tax audit is only necessary if total sales exceed Rs. 10 crores:

• Condition 1: The aggregate of all cash receipts during the previous year does not exceed 5% of the total receipts.

• Condition 2: The aggregate of all cash payments during the previous year does not exceed 5% of the total payments.

Business Eligible for Presumptive Taxation under Section 44AE, 44BB, or 44BBB

If the business has opted for presumptive taxation in the previous year, a tax audit is required if the business claims profits or gains lower than the prescribed limit under these sections.

Business Eligible for Presumptive Taxation under Section 44AD

For businesses that opted for presumptive taxation under Section 44AD in the previous year, a tax audit is needed if they declare taxable income below the prescribed limits and their income exceeds the basic exemption limit of Rs. 2.5 lakhs.

Business Opting Out of Presumptive Taxation (Section 44AD)

Suppose a business opts out of presumptive taxation under Section 44AD in any financial year of the five-year lock-in period. In that case, a tax audit is mandatory if the income exceeds the basic exemption limit in any of the subsequent five years.

Tax Audit Limit  For Professionals:

 A tax audit is mandatory for individuals carrying on a profession if the gross receipts for the previous financial year exceed Rs. 50 lakhs.

Tax Audit Limit In Case of Business Loss

Loss from Business (Not Opting for Presumptive Taxation): Suppose a taxpayer’s total income exceeds the basic exemption limit, but they have incurred a loss from business. In that case, a tax audit is required if the total sales, turnover, or gross receipts exceed Rs. 1 crore in the financial year.

Exceptions: Audit Under Other Laws

In certain situations, a taxpayer's accounts may be required to undergo an audit under other laws, such as the Companies Act or other statutory provisions. In these cases, there is no need for the taxpayer to have a separate tax audit conducted for income tax purposes. If the accounts are audited under these other laws before the due date for filing the income tax return, the same audit report can be submitted to comply with income tax regulations. The taxpayer can furnish this prescribed audit report as required under the Income Tax Act, ensuring they meet all legal obligations without redundancy.

Due Date for Tax Audit

The due date for getting the books of accounts audited and submitting the tax audit report is one month prior to the due date for filing the income tax return under Section 139(1). Since the due date for filing ITR for tax audit cases is 31st October, the last date of tax audit and the submission of the tax audit report must be completed by 30th September.

For the financial year 2023-24, the income tax audit's last date is 30th September 2024, with the due date to file the ITR by 31st October 2024. However, for assessees covered under the provisions of transfer pricing, the tax audit due date is extended to 31st October 2024, and the filing of both the tax audit report and income tax return must be completed by 30th November 2024.

Tax Audit Report

A tax audit report is a vital element of the auditing process, governed by Rule 6G of the Income Tax Rules. This report is prepared and electronically filed by a Chartered Accountant who conducts the audit, detailing the findings in Form 3CD. This sort of tax audit professional is important for detailed audits. The tax audit report ensures that the taxpayer’s financial statements are thoroughly reviewed and comply with income tax laws. Therefore, it is necessary to submit this report before the last date of tax audit.

Forms for Filing a Tax Audit Report

Depending on the circumstances, the tax auditor may need to submit the audit report in either Form 3CA or Form 3CB, after thorough work by tax audit professional:

Form 3CA:

This form is used when a taxpayer’s books of accounts are audited under another law, in addition to the requirements of Section 44AB of the Income Tax Act. This applies to businesses or professionals where a statutory audit is required under other legal provisions, such as company law. Form 3CA ensures alignment between the tax audit and other audit requirements, adding thoroughness and credibility to financial reporting.

Form 3CB:

Form 3CB is used when the audit of books under any other law is not mandatory for the taxpayer. In cases where the business or profession has no external audit obligations, this form is prepared by the tax auditor to confirm compliance with tax laws. Some taxpayers voluntarily opt for an audit to demonstrate financial transparency and accuracy, even if not legally required.

How to Conduct and File Your Tax Audit Report

Conducting and filing an income tax audit report involves a coordinated effort between the taxpayer and their Chartered Accountant (CA). Here's a step-by-step guide on how to conduct and file your tax audit report:

Preparation of Financial Records

The process starts with the taxpayer gathering all relevant financial records, including income statements, balance sheets, and other necessary documents. These records will form the basis for the income tax audit.

Appointing a Tax Auditor 

The board of directors is responsible for appointing a tax auditor in a company. The Board may delegate this duty to an officer such as the CEO or CFO. In the case of firms or proprietorships, the appointment can be made by a partner, proprietor, or an authorised person. Additionally, taxpayers can appoint two or more Chartered Accountants as joint auditors. When joint auditors are appointed, all must sign the tax audit report if they agree on its contents. If there are differences in opinion, the auditors must provide separate reports expressing their views individually.

Assign CA on the E-filing Portal

The taxpayer must log into the income tax e-filing portal and add their Chartered Accountant’s details under the "My Account" section. This authorises the CA to file the tax audit report on behalf of the taxpayer.

CA Reviews and Audits the Accounts

Once authorised, the CA will review the financial records and conduct the tax audit, verifying the accuracy and compliance of the taxpayer's financial statements in accordance with the Income Tax Act. The CA will ensure that the financials comply with relevant provisions such as proper depreciation, expense claims, and tax deductions.

Completion of Audit Forms (Form 3CA/3CB and 3CD)

Based on the taxpayer's profile, the CA will prepare the audit report in the appropriate format:

• Form 3CA: Used when the taxpayer’s accounts are audited under another law.

• Form 3CB: Used when no other audit is required.

• Form 3CD: A detailed statement of particulars to be completed with essential financial data like turnover, expenses, deductions, and income.

Upload of Tax Audit Report

After completing the audit, the CA will log into the e-filing portal and upload the income tax audit report and any required documents. The report is submitted electronically through the CA's login.

Taxpayer Reviews and Accepts the Report

Once the CA uploads the audit report, the taxpayer must log into their e-filing account to review and accept the report. This step ensures the taxpayer agrees with the audit findings.

Verification of the Report Using Digital Signature

The taxpayer then verifies the report using a Digital Signature Certificate (DSC), confirming their approval and completing the filing process.

Submission Confirmation

After verification, the CA and the taxpayer will receive confirmation that the tax audit report has been successfully filed.

Re-filing in Case of Rejection or Delay

If the taxpayer fails to accept the report within the prescribed time or rejects the report, the entire process must start again, and the CA will have to resubmit the tax audit report from the beginning.

Penalty for Non-Compliance with Tax Audit

If any person fails to get his accounts audited or to furnish a report of such audit, the Assessing Officer may impose penalty equal to one-half percent of the total sales or gross receipts, subject to a maximum of Rs 1.5 lakhs.

However, penalties may be waived in cases where there are reasonable causes for the failure to comply. Tribunals and courts have recognised the following as valid reasonable causes:

• Natural disasters or calamities

• Resignation of the tax auditor, resulting in a delay

• Prolonged labour issues such as strikes or lockouts

• Loss of accounting records due to uncontrollable circumstances

• Physical inability or death of the partner responsible for managing the accounts

Choose IndiaFilings for Tax Audit & Seamless ITR Filing!

With the due date for filing ITR for tax audit cases on 31st October, it is crucial to complete your tax audit and submit the tax audit report by 30th September (last date of tax audit) to ensure compliance and avoid penalties. At IndiaFilings, our certified Chartered Accountants (CAs) provide expert income tax audit services to help verify your financial records and streamline the process. From audit preparation by certified tax audit professionals to tax audit report submission and ITR filing, our team ensures everything is handled efficiently, giving you peace of mind. Let IndiaFilings simplify your tax audit and reporting process with ease.

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