Tax audit is an activity in which a tax agency or an auditor goes through or reviews the complete data of accounts of a business to see the tax compliance. It is mandatory for all companies to 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 audit periodically is to ensure that the details and data related to the income, expenditure and tax-deductible expenditure details are organized and filed properly by the business.
According to Section 44AB of the Income Tax Act, there are certain groups of income tax assesses to whom performing an income tax audit is mandatory. Below mentioned are the groups:
- A self-employed individual who is annual turnover is more than Rs. 1 crore
- A self-employed professional whose annual income exceeds more than Rs. 50 lakhs
- An individual who is eligible for the presumptive taxation scheme as per Section 44AD but claiming that their annual accounted 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.
- If an individual, with the eligibility for taxation under the presumptive taxation scheme opts out of it after a certain period of time. 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 meet the requirements for the presumptive taxation scheme under Section 44AE but claiming that the calculated profits are lower than those in the presumptive taxation scheme
- A person who meet the requirements for the presumptive taxation scheme under Section 44BBB but claiming that the calculated profits are less than those accounted with the presumptive taxation scheme
Tax Audit Limit for Business and Profession
There will be lots of questions arising in all taxpayer’s minds about the tax audit, like should I need to do 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 business and profession.
|Category||Threshold limit for Tax Audit|
|Person carrying on Business||Annual Sales or Turnover or Gross Receipt Exceeds Rs.1 Crore|
|Person carrying on Profession||Gross Receipts more than Rs. 50 Lakhs|
|Persons carrying on business covered under section 44AE or 44BB or 44BBB||Income from business is lower than the amount deemed under section 44AE or 44BB or 44BBB|
|Profession u/s 44ADA||Individual whose income is less than 50% of his gross receipts and whose income is more than the basic exemption limit for appropriate previous year.|
|Person who opted out of presumptive taxation scheme of section 44AD within 5 years||If income is more than the maximum amount not chargeable to tax in the next 5 consecutive tax years from the year in which the presumptive taxation is not opted for|
Individuals who are non-residents deriving income through shipping business or operation of aircraft covered u/s 44AB or 44BBA, are not needed to perform their accounts auditing. Individuals who are engaged in certain business such as Truck operators, declaring their income less than the amount calculated under section 44AE, 44BB or 44BBB, in case may be should get their accounts audited.
Due Dates of Filing the report of Tax Audit
Generally, 30th September is the notified last date to file a tax audit report under section 44AB for all the individuals. The individuals who are not eligible to file the tax audit, should file their income tax return and 31st July is the noted last date for that. If an individual who is required to provide the report of a chartered accountant relating to specified domestic transaction or any international transactions referred to in section 9E then the notified last date to submit the tax audit report is 30th November.
Who will Audit Your Account Books?
In our country, usually, an accounts professional or a Chartered Accountant will audit the account and examine and organize the complete account report as per the Income Tax Act. They are the qualified professionals for accounts and hold the degree of Chartered Accountancy (CA) 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 his behalf or they can file their income tax return by himself. It is mandatory to file a tax audit report by CA; but in the case of filing income tax return, it is not mandatory. Importantly, the tax audit report must be submitted before the notified last dates to avoid penalties.
Failure to Get Audit Report
Getting an account audit is mandatory and compulsory for all specified assesses if they fail in the above conditions specified. As per Income Tax act the assess will be eligible to levy penalty on failure to get account audit on or before the notified last date, that is Rs.1,50,000 or half percent of gross receipt or turnover, whichever is less.