Income Tax Audit under Section 44AB: Criteria, Audit Report, Penalty
Introduction
Before delving into the specifics of tax audit, let’s understand the term “audit.” It refers to an official inspection of an organization’s accounts and the production of a report, typically by an independent body. In the context of taxation, this process is known as a tax audit.
What is a Tax Audit?
A tax audit is an examination or review of accounts of any business or profession carried out from an income tax viewpoint. It ensures proper maintenance and correctness of books of accounts, reporting observations, and compliance with income tax laws.
Objectives of Tax Audit
- Ensure Proper Maintenance of Books: Certified by a tax auditor to verify accuracy.
- Reporting Observations: Identifying discrepancies or irregularities in financial records.
- Compliance with Tax Laws: Ensuring adherence to various provisions of income tax law.
- Verification of Income Tax Returns: Verifying the correctness of income tax returns filed by the taxpayer.
Who is Mandatorily Subject to Tax Audit?
A taxpayer is required to undergo a tax audit if:
- Business turnover exceeds Rs 1 crore.
- Professional gross receipts exceed Rs 50 lakhs.
- Additional criteria, such as cash transactions, apply.
Amendments in Threshold Limits
- Finance Act 2020: Threshold raised to Rs 5 crore for certain conditions.
- Finance Act 2021: Raised to Rs 10 crore for transactions not exceeding 5%.
Criteria for Business and Profession
- Various thresholds apply based on business type and turnover.
- Presumptive taxation scheme under Section 44AD has specific criteria.
Other Circumstances Requiring Audit
- Loss from business exceeding Rs 1 crore turnover.
- Specific cases under presumptive taxation scheme.
- Various amendments and exceptions apply.
Audit Report
- Tax auditor submits Form 3CA or 3CB based on circumstances.
- Form 3CD includes prescribed particulars.
- Furnished online using CA’s login details.
Objectives of Income Tax Audit
- Proper Maintenance of Books: Ensuring no fraud and accurate records.
- Reporting Discrepancies: Identifying and reporting discrepancies.
- Compliance and Information Reporting: Ensuring compliance with tax laws and reporting various tax-related information.
- Verification of Tax Returns: Verifying income, tax, and deductions.
Penalty for Non-compliance
- Penalty of 0.5% of total sales or Rs 1,50,000, whichever is lower.
- No penalty if a reasonable cause exists.
- Accepted reasonable causes include natural calamities, labor problems, etc.
click here In summary, a tax audit ensures accurate financial reporting, compliance with tax laws, and proper verification of tax returns, ultimately contributing to a transparent tax system.
