What is Tax Audit?
The
dictionary meaning of the term "audit"
is check, review, inspection, etc. There are various types of audits prescribed
under different laws like company law requires a company audit, cost accounting
law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get
the audit of the accounts of his
business/profession from the view point of Income-tax Law.
Section 44AB of
the Income-Tax Act, 1961, gives the provisions relating to the class of
taxpayers who are required to get their accounts audited from a chartered accountant. The audit
under section 44AB of the Income-Tax Act, 1961, aims to ascertain the
compliance of various provisions of
the Income-tax Law and the fulfilment of other requirements of the Income-tax
Law.
The
audit conducted by the chartered
accountant of the accounts of the taxpayer in pursuance of the requirement
of section 44AB of the
Income-Tax Act, 1961, is called tax
audit.
The
chartered accountant conducting the tax audit is required to give his findings,
observation, etc., in the form of audit report. The report of tax audit is to
be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.
What
is the objective of Tax Audit?
One
of the objectives of tax audit is to ascertain/derive/report
the requirements of Form Nos. 3CA/3CB and 3CD. Apart from
reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper
audit for tax purposes would ensure that the books of account and other records
are properly maintained, that they truly reflect the income of the taxpayer and
claims for deduction are correctly made by him.
Such
audit would also help in checking fraudulent
practices. It can also facilitate the administration of tax laws by a
proper presentation of accounts before the tax authorities and considerably
save the time of Assessing Officers in carrying out routine verifications, like
checking correctness of totals and verifying whether purchases and sales are
properly vouched for or not. The time of the Assessing Officers saved could be
utilised for attending to more important and investigational aspects of a
case.
Who
is compulsorily required to get his Accounts Audited, i.e., who is covered by
Tax Audit?
As per section 44AB of the
Income-Tax Act, 1961, following persons are compulsorily required to get their
accounts audited:
1. A
person carrying on business, if his total sales, turnover or gross receipts
(as the case may be) in business for the year exceed or 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 exceeds Rs. 2 crores.
[Note: The threshold limit, for a person carrying on business, is
increased from Rs. 1 Crore to Rs. 10 crore in case when cash receipt and
payment made during the year does not exceed 5% of total receipt or payment, as
the case may be. In other words, more than 95% of the business transactions
should be done through banking channels.]
2. A
person carrying on profession, if
his gross receipts in profession for
the year exceed
Rs. 50 lakhs.
3. An
assessee who declare profit for any
previous year in accordance with section
44AD of the Income-Tax Act, 1961, 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.
4. 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.
5. A
person who is eligible to opt for the
presumptive taxation scheme
of section 44ADA of the Income-Tax Act, 1961, 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
and his income exceeds the amount which is not chargeable to tax.
6. This
provision is not applicable to the
person, who opts for presumptive taxation scheme under section 44AD of the Income-Tax Act,
1961 and his total sales or turnover does not
excceeds Rs. 2 crores.
7. A
person who is eligible to opt for the
presumptive taxation scheme of sections
44AE of the Income-Tax Act, 1961but 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 of the Income-Tax Act, 1961.
8. A
person who is eligible to opt for the taxation scheme prescribed under section 44BB or section
44BBB (*)of the Income-Tax Act, 1961, 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.
(*) Section 44BB of the
Income-Tax Act, 1961 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 of the Income-Tax Act, 1961 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.
What
are Form Nos. 3CA/3CB and 3CD?
The report of the tax audit
conducted by the chartered accountant
is to be furnished in the prescribed form. The form prescribed for audit report
in respect of audit conducted
under section 44AB of the Income-Tax Act, 1961, is Form No. 3CB and
the prescribed particulars are to be reported
in Form
No. 3CD.
In case of persons, who are
required to get their accounts audited by or under any other law, the form prescribed for audit report is Form
No. 3CA and the prescribed particulars are to be reported in Form
No. 3CD.
What
is the due date by which a taxpayer should get his accounts audited?
A person covered by section
44AB of the Income-Tax Act, 1961, should get his accounts audited and
should obtain the audit report on or before 30th September of the relevant
assessment year, e.g., Tax audit report for the financial year 2021-22
corresponding to the assessment year 2022-23 should be obtained on or before
30th September, 2022.
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
(i.e., at https://www.incometax.gov.in).
What
is the penalty for not getting the accounts audited as required by section
44AB?
According to section 271B, if any person who is
required to comply with section 44AB fails to get his accounts
audited in respect of any year or years as required under section
44AB or furnish such report as required under section 44AB, the
Assessing Officer may impose a penalty. The penalty shall be lower of the
following amounts:
·
0.5% of the total sales, turnover or gross receipts,
as the case may be, in business, or
of the gross receipts in profession, in such year or years.
·
Rs. 1,50,000.
However, according to section
271B, no penalty shall be imposed if
reasonable cause for such failure is proved.
If
any other law to get required his accounts audited, then is it compulsory once
again get his accounts audited under section 44AB?
Any persons like company or co-operative society are required to get their accounts audited
under their respective law. Section 44AB of the Income-Tax Act, 1961 provides
that, if a person is required by or under any other law to get his accounts
audited, then he need not again get
his accounts audited to comply with the requirement of section 44AB of the
Income-Tax Act, 1961.
Is such a case, it shall be
sufficient if such person gets the accounts of such business or profession
audited under such law and obtains the report of the audit as required under
such other law and also a report by the chartered accountant in the form prescribed
under section 44AB, i.e., Form
No. 3CA and Form 3CD.
[As
amended upto Finance Act, 2021]
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