Explore the crucial points to verify during a tax audit in India, covering areas like books of accounts, TDS, compliance, transfer pricing, and more. Ensure comprehensive tax compliance.
A tax audit in India involves a comprehensive examination of an entity’s financial records and tax compliance. Key areas scrutinized during the audit include the maintenance of proper books of accounts, accuracy of financial statements, income and expenditure computations, tax deductions and collections, compliance with tax return filing requirements, transfer pricing, deductions and exemptions claimed, tax withholding obligations, GST compliance (if applicable), and documentation and audit trail. Adhering to these requirements ensures compliance with the applicable tax laws and regulations.
Points to be verified while doing Income tax audit in India
Books of Accounts and Financial Statements: Verify the maintenance of proper books of accounts, including cash books, ledgers, purchase and sales registers, etc. Check the accuracy and completeness of financial statements, such as the balance sheet, profit and loss account, and cash flow statement.
Income and Expenditure: Review the computation of taxable income and ensure adherence to the provisions of the Income Tax Act. Verify the inclusion of all sources of income and deductions claimed as per the applicable tax rules. Cross-check the accuracy of income declared in the financial statements with the corresponding returns filed with the tax authorities.
Tax Deducted at Source (TDS): Scrutinize TDS compliance by verifying the deductibility of TDS on various payments as per the provisions of the Income Tax Act. Check the timely deposit of TDS with the government and the issuance of TDS certificates to the deductees. Validate the correctness of TDS returns filed and reconcile them with the financial statements.
Tax Collected at Source (TCS): Verify the applicability and correct computation of TCS on specified transactions as per the provisions of the Income Tax Act. Ensure timely deposit of TCS with the government and the issuance of TCS certificates to the buyers. Reconcile TCS returns with the financial statements and validate the correctness of the TCS amounts collected.
Compliance with Tax Return Filing Requirements: Ensure the timely filing of tax returns, including income tax returns, TDS returns, and other applicable returns. Cross-v Compliance with Tax Return Filing Requirements erify the details provided in the tax returns with the financial statements and supporting documentation. Check the disclosure of all required information, such as foreign assets and liabilities, if applicable.
Transfer Pricing: Examine transactions with associated enterprises and verify compliance with transfer pricing regulations. Review transfer pricing documentation, including benchmarking analysis and contemporaneous documentation requirements.
Deductions, Exemptions, and Allowances: Scrutinize the eligibility and documentation for deductions, exemptions, and allowances claimed under the Income Tax Act. Verify compliance with specific conditions and limitations for deductions, such as those related to investments, donations, or specified business expenses.
Compliance with Tax Withholding Requirements: Ensure compliance with tax withholding obligations, such as withholding tax on payments to non-residents and on specified transactions. Verify the correctness of withholding tax certificates issued to payees.
Compliance with GST Provisions (if applicable): If the entity is registered under the Goods and Services Tax (GST), review compliance with GST provisions. Verify the accuracy of GST returns, reconciliation with financial statements, and compliance with GST payment requirements.
Documentation and Audit Trail: Ensure the availability of relevant supporting documentation for all transactions and claims made in the financial statements and tax returns. Evaluate the adequacy of the audit trail and the documentation maintained for the purpose of the tax audit.
Remember, these points provide a general overview of areas to verify during a tax audit in India. The specific requirements may vary based on the nature of the business, applicable tax laws, and any recent amendments or notifications. It’s always advisable to consult with a tax professional and refer to the relevant tax laws and guidelines during the tax audit process.
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Author is A Practicing Chartered Accountant with over 5 years of rich experience in Company Law, Audits, Accounts & taxation. She is keen in streamlining business accounts of the Company and provide Business advisory services She can be connected on [email protected] or on 9819244185.
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