Tax audit is a cross-examination of the books of accounts of the taxpayer by a Chartered Accountant under the Income Tax Act 1961.

Section 44AB deals with the conditions under which Tax audit becomes mandatory for some taxpayers.

The main purpose of a tax audit is to verify the accuracy of the financial records and avoid any fraud or tax evasion.

The threshold limit of Rs 1 crore for a tax audit is increased to Rs 5 crores from AY 2021-22 and further to Rs.10 crore with effect from AY 2022-23 (FY 2021-22) if the taxpayer’s cash receipts are limited to 5% of the gross receipts or turnover, and if the taxpayer’s cash payments are limited to 5% of the aggregate payments.

The auditor has to furnish the audit report in the specified audit form along with the detailed particulars.

Objectives of tax audit:

► Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor

► Reporting observations/discrepancies noted by tax auditor after a methodical examination of the books of account

► To report prescribed information such as depreciation, compliance of various provisions of income tax law etc.

Types of Audit Forms:

The audit report has to be furnished in either of the following forms:
(i) Form 3CA and (ii) Form 3CB

Form3CA

In respect of a taxpayer carrying on a business or profession and who is already mandated to get his accounts audited under any other law.

For instance, A company is required to get its accounts audited compulsorily under the Companies Act 2013. So, it will furnish Form 3CA.

Form 3CB

In respect of a taxpayer carrying on a business or profession but who is not required to get his accounts audited under any other law.
A proprietorship entity or partnership firm, having a turnover of more than 1 crore and not opting for presumptive income scheme, is not required to get its accounts audited under any other law except income tax. So, it will furnish Form 3CB.  

Along with either of the forms mentioned above, the tax auditor shall also furnish Form 3CD which forms part of the audit report and contains the prescribed particulars.

Applicability of Tax Audit:

Following categories of taxpayers are required to get tax audit done:

Category of person	Threshold
Business
Carrying on business (not opting for presumptive taxation scheme)	Total sales, turnover or gross receipts exceed Rs 1 crore in the FY
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB	Claims profits or gains lower than the prescribed limit under presumptive taxation scheme
Carrying on business eligible for presumptive taxation under Section 44AD	Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted	If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD	If the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses.
Profession
Carrying on profession	Total gross receipts exceed Rs 50 lakh in the FY
Carrying on the profession eligible for presumptive taxation under Section 44ADA	1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme  2. Income exceeds the maximum amount not chargeable to income tax
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation scheme	Total sales, turnover or gross receipts exceed Rs 1 crore
If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme)	In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB
Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limit	Tax audit not applicable
Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limit	Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit

How and when tax audit report shall be furnished?

The tax auditor shall furnish tax audit report online by using his login details in the capacity of ‘Chartered Accountant’. Taxpayer shall also add CA details in their login portal. Once the tax auditor uploads the audit report, same should either be accepted/rejected by taxpayer in their login portal. If rejected for any reason, all the procedures need to be followed again till the audit report is accepted by the taxpayer.

You must file the tax audit report on or before the due date of filing the return of income. It is 30 November of the subsequent year in case the taxpayer has entered into an international transaction and 30 September of the subsequent year for other taxpayers.

Penalty of non-filing or delay in filing tax audit report:

If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty u/s 271B:

♦ 0.5% of the total sales, turnover or gross receipts

♦ Rs 1,50,000

 

WE AT Onlinefiling ASSIST YOU WITH THROUGH OUR PROFESSIONALS FOR GETTING YOU EASE.