In the world of finance and taxes, following the rules and being clear about your finances is very important. In India, one way of doing this is through an income tax audit. An audit is nothing but an official inspection. A Tax Audit is, in simple words, a process of verifying accounts and financial records to see that businessmen and individuals follow the tax laws correctly. It also allows people to calculate their income correctly when they file their tax returns.
Here, we will understand everything about a Tax Audit. Keep reading!
Meaning of Tax Audit
A Tax Audit is a process in which the government audits your income tax return to make sure it’s correct. Audits can be from the IRS, but they can also be sources of state tax offices and others. Tax audits can range from a very simple request for the customer to turn in more information all the way up to an in-depth investigation. Just because one is audited does not mean that the IRS thinks one has done something wrong.
Unless one is a high-income earner or has unusual tax situations, a random audit will likely be limited to answering a few specific questions rather than being a complete overview of one’s finances.
Who Conducts a Tax Audit?
A tax audit is done by a chartered accountant (CA) or a CA firm. However, there’s a rule that each CA can only do up to 60 audits. For firms, each partner in the firm has their own limit for tax audits.
What is the Purpose of a Tax Audit?
The purpose of a tax audit is to make sure that:
-Your financial records are accurate and certified by a tax auditor.
-You comply with the rules of income tax laws by reporting the required information.
-Your records show your real income and that any deductions you claim are correct.
In short, a Tax Audit is about checking that everything in your tax reporting is true and correct according to the law.
Who Must Undergo a Tax Audit?
Some individuals and businesses must undergo an income tax audit based on specific criteria:
●Presumptive Taxation Scheme:
If you’ve chosen this scheme and your sales or turnover exceeds Rs. 2 crore, you must have a tax audit. You also need an audit if your actual profits are lower than what the presumptive scheme suggests.
●Businesses and Professionals:
If your annual sales, turnover, or receipts exceed Rs. 1 crore, you need a tax audit in India. Professionals like engineers, architects, lawyers, doctors, and others listed in Rule 6F of the Income Tax Rules, 1962, must also undergo an audit if their receipts exceed Rs. 50 lakh.
What Makes Up a Tax Audit Report?
An audit report in India includes:
●Form 3CA: In those cases where the business or profession is required to get their accounts audited under any other law.
●Form 3CB: In those cases where the business or profession is not required to get their accounts audited under any other law.
●Form 3CD: In this the detailed information is to be filled out by the tax auditor. This is a part of both Form 3CA and Form 3CB.
Benefits of Income Tax Audit
The different advantages that tax audit offers are:
●Legal Compliance and Peace of Mind
This audit ensures compliance with tax laws, avoiding penalties, and providing peace of mind.
●Increased Credibility
Audited financial statements boost credibility, making it easier to secure loans, attract investors, and form business partnerships.
●Error Detection and Correction
An audit identifies errors and irregularities in financial records, allowing timely corrections to prevent financial crises.
●Decreased Litigation Risks
Tax audits minimise the risk of disputes and litigation with tax authorities using accurate financial statements and audits.
What is the Deadline for Tax Audit Report Approval?
You should receive the tax audit report from the auditor electronically for your approval and filing. You can choose to reject the report, but this means the audit will need to be done again completely. The due date of the tax audit report is due on 30th September of the assessment year. In the case of Form 3CE, it is extended up to 30th November of the assessment year.
Steps for Filing a Tax Audit Report
Step 1: The CA assigned to audit your finances will use their own login details to file the tax audit report online.
Step 2: You, as the taxpayer, need to ensure that the details of the chartered accountant are correctly mentioned on your platform.
Step 3: If a chartered accountant uploads the audit report, you can, at your discretion, accept or reject it.
Step 4: If you reject the report, the entire audit and filing process must be restarted.
Conclusion
It is, therefore, quite crucial for professionals and businesses to know the rules of taxation audit in India. Under the Income Tax Act, Section 44AB, you cannot avoid an audit if your turnover or earnings exceed the given limits. This article talks about the whys and who’s of audits along with other relevant details about the procedure to file the audit report. On-time filing completes the job, but there are no penalties imposed if there are valid reasons for delays.
