Last Updated on September 3, 2024 by Kanakkupillai
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. 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 audits periodically is to ensure that the details and data related to income, expenditure and tax-deductible expenditure details are organized and filed properly by the business.
A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore and Profession exceeds Rs. 50 Lakhs in the financial year. 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 whose 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.
- Suppose an individual with 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 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 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 |
| The person carrying on Business | Annual Sales or Turnover or Gross Receipt Exceeds Rs.1 Crore |
| The person carrying on the 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 | An individual whose income is less than 50% of his 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 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 the auditing of their accounts. Individuals who are engaged in certain businesses, 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 of 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. The individuals who are not eligible to file the tax audit should file income tax return, and 31st July is the noted last date for that. If an individual is required to provide the report of a chartered accountant relating to specified domestic transactions 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, an accounts professional or a chartered accountant usually audits the account 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 his behalf or they can file their income tax return by himself. It is mandatory to file a tax audit report by CA, but filing an income tax return is not mandatory. Importantly, the tax audit report must be submitted before the notified last dates to avoid penalties.
Failure to Get an Audit Report
Getting an account audit is mandatory and compulsory for all specified assesses if they fail in the above conditions specified. 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.
