The Tax Audit is a comprehensive examination of an individual’s or business’s financial and tax details, ensuring compliance with the Income Tax Act, 1961. Essentially, it seeks to confirm the accuracy and completeness of the taxpayer’s filings. Chartered Accountants perform this audit and present their insights and observations through audit reports using Form Nos. 3CA/3CB and 3CD.
Applicability of Tax Audit
1. BUSINESSES
If the total sales, turnover or gross receipts (as the case may be) in business, for the year 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 exceed Rs. 2 crores.
Note: The threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 10 crores in case when cash receipt and payment made during the year do not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of business transactions should be done through banking channels.
2. PROFESSION
If the gross receipts from profession for the year exceed Rs. 50 lakhs.
3. PRESUMPTIVE TAXATION SCHEME
1. A person who is eligible to opt for the presumptive taxation scheme of section 44ADA but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme
2. A person who is eligible to opt for the presumptive taxation scheme of sections 44AE but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.
3. A person who is eligible to opt for the taxation scheme prescribed under section 44BB or section 44BBB but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
4. An assessee who declare profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per section 44AD and his income exceeds the amount which is not chargeable to tax.
If an eligible assessee opts out of the presumptive taxation scheme, within the aforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.
Note:
- Section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE)
- Section 44ADA is designed to give relief to small taxpayers engaged in specified profession
- Section 44AE is designed to give relief to small taxpayers (i.e Individual, HUF, firm, company etc) engaged in the business of plying, hiring or leasing of goods carriages.
- Section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils.
- Section 44BBB is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.
Constituents of Tax Audit Report
The Tax Audit Report has to be furnished in the forms prescribed below:
| Category of Taxpayer | Form for Audit Report | Annexure to Audit Report |
| If the books of account of the assessee are required to be audited under any other law | Form 3CA | Form 3CD |
| In any other case | Form 3CB | Form 3CD |
Due Date of Filing Tax Audit Report
A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year.
The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department.
In case of taxpayers having transfer pricing and specified domestic transactions, the due date of filing audit report is 31st October of the relevant assessment year.
Penalty for Non-Compliance of Tax Audit
If any taxpayer is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:
- 5% of the total sales, turnover or gross receipts
- Rs 1,50,000
However, if there is a reasonable cause of such failure, no penalty shall be levied. So far, the reasonable causes that are accepted by Tribunals/Courts are:
- Natural Calamities
- Resignation of the Tax Auditor and Consequent Delay
- Labour problems such as strikes, lock-outs for an extended period
- Loss of Accounts because of situations beyond the control of the Assesses
- Physical inability or death of the partner in charge of the accounts
Conclusion
Tax Audits, as mandated by the Income Tax Act 1961, play a pivotal role in ensuring taxpayers remain transparent and compliant. It’s crucial to understand the rules, deadlines, and consequences to avoid legal complications.
******
For any further information or clarifications, feel free to reach out at cashubhikhandelwal@gmail.com.
Author Bio
