What is Income Tax Audit?
The objective of a tax audit is to authenticate the taxpayer’s income tax computation in the income tax return and to certify the compliance of all the provisions of the Income Tax Act. Tax Audit is furnished in Form 3CA-3CB-3CD by the Auditors.
Here, Form 3CA/CB: This is the Audit Report issued by CA based on the audit conducted by him.
Form 3CA is required to be furnished in the case where the taxpayer is already required to have his accounts audited under another law, for instance, Audit under the companies acts, 2013.
Form 3CB is required to be furnished in the case where the taxpayer is carrying on business or profession but is not required to have his accounts audited under any other law.
Form 3CD: This is the Statement of particulars required to be furnished by CA( i.e tax audit report) under section 44AB of the Income-tax Act, 1961
Who is Required To Get The Accounts Audited?
The requirement for getting the accounts audited will be determined based on Sales Turnover or Gross Receipt of the financial year of your Business or Profession. Therefore the Limit of Turnover or gross receipt in the financial year above which the assessee is required to get his accounts audited are as follows:
Let’s discuss these provisions in detail:
1. For Business:
> If the total Sales Turnover or Gross Receipt in Business exceeds Rs.1 crore (however if you are eligible for presumptive taxation then this limit is 2 Cr) in any financial year, then a tax audit is required for that year. However, to ease the tax audit compliance burden from taxpayers, the Finance Act 2021, has increased the threshold limit for mandatory tax audit for business from Rs. 1 Crore to Rs. 10 Crore provided that cash receipts and cash payments during the year does not exceed 5% of the total receipt or payment. However, this relief is applicable from FY2020-21 onwards only. This limit is applicable if the assessee is making a loss also.
> Eligible for Presumptive Taxation Scheme u/s 44AD/44AE:
- Sales Turnover exceeds Rs.2 crore: If the eligible assessee will have total Sales Turnover or Gross Receipt exceeds Rs.2 crore during the financial year, , then he is required to get his accounts audited ( i.e tax audit)
- Claiming Profit lower than the profit mentioned u/s 44AD/44AE/44BB/44BBB: If the eligible assessee will claim that the earned profit is less than the profit calculated as per the presumptive scheme and his income exceeds the basic exemption limit chargeable to tax, then he is required to get his accounts audited ( i.e tax audit)
- Declaring Business loss: If the eligible assessee claims to have a loss during the financial year, then he is required to get his accounts audited ( i.e tax audit)
- Opted out from presumptive taxation scheme u/s 44AD in any preceding financial year: If the eligible assessee carrying on business has opted out of presumptive taxation u/s 44AD in any year out of preceding 5 years, in which he was eligible for opting presumptive taxation scheme, then he is required to get his accounts audited if his income exceeds the basic exemption limit chargeable to tax.
2. For Profession:
> Not Eligible for Presumptive Taxation Scheme u/s 44ADA: If the Gross Receipts in Profession exceeds Rs.50 lakhs in any Financial Year, then a tax audit is required.
> Eligible for Presumptive Taxation Scheme u/s 44ADA:
- Gross Receipt exceeds Rs. 50 Lakhs: If the eligible assessee will have total Gross Receipt exceeds Rs. 50 Lakhs during the financial year, , then he is required to get his accounts audited ( i.e tax audit)
- Claiming Profit lower than the profit mentioned u/s 44ADA: If the eligible assessee will claim that the earned profit is less than the profit calculated as per the presumptive scheme and his income exceeds the basic exemption limit chargeable to tax, then he is required to get his accounts audited.
About Presumptive Taxation under Income Tax Act:
As per the Income-tax Act, 1961, All persons carrying on business and professionals must maintain regular books of accounts. Business persons are required to get their accounts audited if their business turnover exceeds Rs 1 Crore. However, in order to give relief to small taxpayers, the presumptive taxation scheme (PTS) was put together by the government.
The scheme is defined under different sections—44AD, 44ADA, 44AE, 44BB and 44BBB
Section 44AD: Under section 44AD, any business which has a turnover of less than Rs 2 crore can opt to be taxed presumptively. They must declare profits of 8% for non-digital transactions or 6% for digital transactions, as the case may be.
Section 44ADA: Under section 44ADA, a professional having a gross revenue up to Rs 50 lakhs can opt for the presumptive scheme of tax wherein he can straightaway offer 50% of the gross revenue as his taxable income.
Section 44AE: Under section 44AE, any person who is engaged in the business of plying, hiring, or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year. The income of such a person will be calculated on an estimation basis, as mentioned under section 44AE of the Income Tax Act.
Section 44BB: This is the special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.
Section 44BBB: This is the special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.
A person opting for a Presumptive taxation scheme is not allowed to claim any deduction of business expenses against the profit so computed. They are not required to maintain books of accounts also.
Further, the requirement to get accounts audited is mentioned under section 44AB of the Income Tax Act.
As per Section 44AB of the Income Tax Act, the following persons are required to get books of accounts audited by a certified Chartered Accountant:
Penalties of Non-Filing TAR(Tax Audit Report):
If a taxpayer fulfils the above-mentioned parameters outlined u/s 44AB of Income-tax act 1961 and is needed to urge his or her accounts audited, fails to do so, then, the taxpayer is liable to pay penalty as imposed under Section 271B of the Income Tax Act. The penalty for not complying with a provision of section 44AB is 0.5% of the turnover or gross revenues or Rs.1,50,000, whichever is lower.
Who will Audit the Accounts?
Certified Chartered Accountant or a firm of Chartered Accountants are only authorized for Tax Auditing.
Following persons and chartered accountants are not authorized for doing Tax Audit:
- Any member who works as an employee in any Firm or Company.
- Chartered Accountant indebted for more than Rs.10,000
- Chartered Accountant tasked with preparing and maintaining the assessee’s books of account
- An internal auditor of the assessee.
- An Auditor accepts 60 tax audit assignments in a particular financial year.
Due Date for Filing Tax Audit Report(TAR):
Tax audit report (TAR) for any financial year is required to be filed till 31st October of next year, until and unless extended by CBDT via notification.
As per the latest CBDT extension, Circular No.01/2022 dated 11th January 2022, the current due date for furnishing TAR for FY 2020-21 is 15th February 2022.
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