Arjuna (Fictional Character): Krishna, in some days celebration of festival of Lord of knowledge and Vignaharta Shri Ganesha will be started with full of joy. Everywhere the devotees are busy in preparation of the festival. Similarly, the taxpayers are busy in filing tax audit report as the last date to upload them is 30th October 2020.

Krishna (Fictional Character): Arjuna, every year we celebrate the festival of Lord Shri Ganesha for 11 days and similarly the festival of tax audit is till 30th September (For AY 2020-21 the due date will be 30th October, 2020 due to COVID-19 pandemic). If we joyfully illustrate then, For Income Tax Taxpayer i.e Devotees, Shri Ganesha is lord of Knowledge, means income tax laws, ‘veneration plate’ means ‘income tax return and audit report’, Shri Ganesha’s ‘modak’ means income tax, ‘devotees’ means taxpayers, ‘priest’ means Tax Experts. By worshiping Lord Ganesha and making proper utilization of knowledge, everyone’s work would be done without obstacles. This means that if the class of businessmen files tax audit report, income tax return and pays appropriate tax in this September month, then his work would get done without any obstacles. So on this eve of the beginning of the festival Lord Ashtavinayaka, let’s discuss about eight important aspects of Tax audit!

Tax Audit Ganpati

Arjuna: Krishna, what are the eight important aspects of Tax audit?

Krishna: Arjuna, the some eight important aspects of Tax audit are as follows:

1. According to income tax law, the applicability of tax audit is as under:

  • A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is​ not applicable to the person, who opts for presumptive taxation scheme under section 44AD​ and his total sales or turnover doesn’t exceeds Rs. 2 crores.

Note: w.e.f. Assessment Year 2020-21, the threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 5 crore in case when cash receipt and payment made during the year does not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of the business transactions should be done through banking channels.

  • A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.

2. The taxpayers whose annual turnover is less than Rs.2 Crore and claims its profit to be less than 8% or 6% by opting for presumptive taxation, they will have to get his books audited compulsorily u/s 44AD.

3. The due date for getting tax audit done is 30th October, 2020 for AY 2020-21.

4. While filling income tax return, true information has to be given and balance sheet, profit and loss account, taxable turnover, tax and TDS, etc. information has to be uploaded along with it and these details are verified in tax audit. This way, a taxpayer gets tax audit done and later files income tax return.

5. A CA has to give the tax audit details through form “3CA/CB and 3CD”. In this form, whether details of income and expense are as per income tax laws and whether they are correct or incorrect is to be given. For example: Whether the account books, balance sheet, profit and loss account, etc. made available by the businessmen are true and correct and similarly, the details of various rules relating to depreciation, PF, TDS, Loans and deposits, etc. has to be given. This tax audit report has to be e-filed by CA to income tax department. And also the taxpayer has to confirm it by logging in from his account.

6. Very detailed and critical information has to be taken from taxpayer and given in tax audit report as per the provisions mentioned in the law. Following is the information made compulsory by the government to be filled in tax audit report:

a) In case of taxpayers who have sold immovable property for a value less than government stamp duty value, details of such property sold along with actual consideration and stamp duty valuation are to be reported.

b) Where expenditure, loan repayments have been made in cash exceeding Rs.20000; the name, address, PAN of the payee along with the nature of payment is to be furnished.

c) Comparative details regarding Gross turnover, Gross profit, Net profit, Closing Stock are to be given.

d) Complete details of Tax deduction made by the taxpayer and paid to the Government. For example: nature of payment on which TDS deducted, whether TDS has been deducted on correct amount and at correct rate and whether the same has been paid on time or not. Further, if the TDS returns have been filed late, then whole details relating to it and if TDS payment is made late the interest payable on late payment of TDS.

e) The details of transactions effected with relatives has to be given.

7. Income Tax Department cannot verify every taxpayer’s books of accounts. Similarly, compliance of provisions of various Acts is difficult. Many a times it is difficult for the taxpayer to fit the complicated business transaction within the framework of law. So to make the taxpayer be able to easily follow the tax provisions this audit is required to be done. Though there are many difficulties faced due to it but its benefits are many. Because of this, Government can assess tax properly.

8. If the tax audit report is not uploaded on or before due date, then the taxpayer may have to pay penalty as follows:

a) 0.5% of the total sales, turnover or gross receipts

b) Rs 1,50,000

Arjuna: Krishna, what one should learn from this?

Krishna: Arjuna, as we start the preparation for the festival of Lord Ganesha before time, similarly the taxpayer should prepare for income tax return and audit. In this month of festivals, the taxpayer may have to face various obstacles while filing income tax audit. For this, the taxpayer will have to work a lot on it. Let’s pray that Lord Ganesha will remove these obstacles of taxpayers while doing all these tax work!

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Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

Author Bio

Qualification: CA in Practice
Company: R.B. Sharma and Co
Location: Aurangabad, Maharashtra, India
Member Since: 27 Jan 2018 | Total Posts: 343
1. Vice-Chairmen of WIRC of ICAI for the year 2015-2021. 2. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 3. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNITI” published in Lokmat on every Monday. Till date 335+ weekly articles ha View Full Profile

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One Comment

  1. subramanian says:

    A small correction. The loan repayment limit is Rs. 20000/- u/s 269 T of the IT Act.
    The expenditure limit is Rs. 10.000/- u/s 40 A (3) of the IT Act. ref. S.No. 6 (b) of this article.

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