An Income Tax Audit is conducted under the provisions of the Income Tax Act to ensure that taxpayers comply with tax laws and maintain proper financial records. The primary objective is to verify whether the income, deductions, and tax calculations reported by a business or individual are accurate and comply with tax regulations.
1. Applicability of Tax Audit (Section 44AB of the Income Tax Act)
A tax audit is mandatory for certain taxpayers based on turnover, receipts, or profits. The applicability varies by category:
A. Businesses
⇒ If total sales, turnover, or gross receipts exceed a specified threshold (e.g., ₹1 crore in India, though this limit may vary based on transactions involving digital payments).
⇒ If the net profit declared is less than the prescribed percentage under the Presumptive Taxation Scheme (Section 44AD – limit is ₹3 Cr), and taxable income exceeds the basic exemption limit.
B. Professionals
⇒ If gross receipts exceed ₹75 lakh in a financial year.
⇒ If opting for the Presumptive Taxation Scheme (Section 44ADA) but reporting income lower than the prescribed percentage.
C. Other Cases
⇒ If gross receipts exceed ₹75 lakh in a financial year.
⇒ If the taxpayer is involved in international transactions (Transfer Pricing Audit under Section 92E).
2. Who Can Conduct the Audit?
⇒ A Chartered Accountant (CA) in practice is authorized to conduct a tax audit.
⇒ The audit report must be filed electronically with the tax department.
3. Tax Audit Report (Form 3CA/3CB & 3CD)
The audit findings are reported using:
⇒ Form 3CA: For businesses/professionals who require a statutory audit under any other law.
⇒ Form 3CB: For those not requiring a statutory audit.
⇒ Form 3CD: A detailed statement covering various financial aspects, including:
• Nature of business and books maintained.
• Details of deductions, depreciation, loans, and cash transactions.
• Compliance with TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions.
4. Due Date for Filing Tax Audit Report
⇒ Generally 30th September of the relevant assessment year.
⇒ May be extended based on government notifications.
5. Penalty for Non-Compliance (Section 271B)
⇒ If a taxpayer fails to comply with the audit requirement, they may face a penalty of 0.5% of turnover, subject to a maximum limit (e.g., ₹1.5 lakh in India).