A tax audit is an activity in which a tax agency or an auditor goes through or reviews the complete data of a business’s accounts to see tax compliance. All companies must ensure that they have conducted regular audits legally under Section 44AB of the Income Tax Act, 1961, and conducting periodic tax audits is also mandatory as per law. According to the IT Act, Section 44AB lists all relevant provisions and requirements to carry out an income tax audit legally. The main goal of performing tax audits periodically is to ensure that the details and data related to income, expenditure, and tax-deductible expenditure are organized and appropriately filed by the Business.
A tax audit is required if the sales, turnover, or gross receipts of the Business exceed Rs 50 Lakhs in the financial year. Section 44AB of the Income Tax Act states that there are certain groups of income tax assesses to whom performing an income tax audit is mandatory. Below are the groups:
A self-
- employed individual whose annual turnover is more than Rs. 1 crore.
- A self-employed professional whose yearly income exceeds Rs. 50 lakhs
- An individual who is eligible for the presumptive taxation scheme as per Section 44AD but claims that their annual accounting profits are lower than the total amount of tax paid.
- A self-employed person whose calculated income for the financial year is more than the amount that is not chargeable for taxation or tax-exempt.
- Suppose an individual with eligibility for taxation under the presumptive taxation scheme opts out of it after a specific period. Once getting out of the presumptive taxation scheme, the person is not allowed to get into the scheme (presumptive taxation scheme) for a continuous period of 5 assessment years.
- A person who meets the requirements for the presumptive taxation scheme under Section 44AE but claims that the calculated profits are lower than those in the presumptive taxation scheme.
- A person who meets the requirements for the presumptive taxation scheme under Section 44BBB but claims that the calculated profits are less than those accounted for with the presumptive taxation scheme.
Tax Audit Limit for Business and Profession
There will be lots of questions arising in all taxpayers’ minds about the tax audit, like whether I need to do a tax audit. What is the actual tax audit limit? Who is mandatorily subjected to a tax audit? Don’t worry. Here you can check the complete information on the tax audit limit for businesses and professionals.
| Category | Threshold limit for Tax Audit |
| The person carrying on Business | Annual Business Turnover or Gross Receipt Exceeds Rs 1 Crore |
| The person carrying on the profession | Receipts more than Rs. 50 Lakhs |
| Persons carrying on Business covered by section 44AE, 44BB, or 44BBB | Income from Business is lower. The amount deemed under Businesses AE, 44BB, or 44BBB |
| Profession u/s 44ADA | An individual business is less than 50% of its gross receipts and whose income is more than the basic exemption limit for the appropriate previous year. |
| A person who opted out of the presumptive taxation scheme of section 44AD within 5 years | If income is more than the maximum amount not chargeable to tax in the next five consecutive tax years from the year in which the presumptive taxation is not opted for |
Individuals who are non-residents deriving income through the shipping business or the operation of aircraft covered u/s 44AB or 44BBA do not need to perform the auditing of their accounts. Individuals who are engaged in specific companies, such as truck operators, declare their income as less than the amount calculated under sections 44AE, 44BB, or 44BBB in the case that they should get their accounts audited.
Due Dates for Filing the Report of Tax Audit
Generally, 30th September is the last date for all individuals to file a tax audit report under section 44AB. Individuals who are not eligible to file the tax audit should file an income tax return, and 31st July is the latest date for that. Supposeppose an individual is required to provide the report of a chartered accountant relating to specified domestic transactions or any international transactions referred to in secti. In that case, the last date to submit the tax audit report is 30th November.
Who will Audit Your Account Books?
In our country, an accounts professional or a chartered accountant usually audits the accounts and examines and organizes the complete account report as per the Income Tax Act. They are qualified professionals for accounts and hold a Chartered Accountancy (CA) degree from ICAI. They work for a fee as prescribed by ICAI. An individual can also get service from a qualified chartered accountant to file their income tax return on their behalf, or they can file their income tax return themselves. It is mandatory to file a tax audit report by a CA, but filing an income tax return is not compulsory. Importantly, the tax audit report must be submitted before the notified last dates to avoid penalties.
Failure to Get an Audit Report
If all specified assessments fail the above conditions, an account audit is mandatory. As per the Income Tax Act, the assessor will be eligible to levy a penalty on failure to get an account audit on or before the notified last date, that is, Rs . 1,50,000 or half per cent of gross receipt or turnover, whichever is less.
