What is Tax audit
The term ‘audit’ refers to a check, review, verification or inspection of a record, transaction, account etc. A tax audit is the process of verification and inspection of the accounts of a taxpayer to confirm their adherence to the provisions of the Income Tax law
The class of taxpayers listed under this section 44AB of the Income tax Act, 1961 compulsorily have to get their accounts audited by a Chartered Accountant. The CA will check and verify that these accounts comply with the various provisions of the Income Tax law. Simply put, the audit that is required as per Section 44AB of the Income Tax Act, 1961 is called a tax audit.
Who is subject to Tax audit
Generally, tax audits are required if a taxpayer’s sales, turnover, or gross earnings are more than ₹ 1 Crore in a given financial year. A taxpayer may, however, be required to get their accounts audited in certain other circumstances. The following table enumerates categories of taxpayers that must subject their books to tax audit.
|Category of persons
|Threshold (sales, turnover or gross receipts)
|Not opting for presumptive taxation scheme
|>Rs. 1Crore Exception: Higher threshold of Rs. 10Crore. If, cash transactions are up to 5% of total gross receipts and payments
|Carrying on business eligible for presumptive taxation, but Claims profits or gains lower than the prescribed limit under presumptive taxation scheme and income is above Rs. 2,50,000/-
|Persons who have opted 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 and income is above Rs. 2,50,000/-
Tax audit report forms
The format is prescribed by the income tax department. The following are the types of tax audit report along with their applicability:
- Form No. 3CA – This form applies to a taxpayer carrying on business or profession and who needs to get his books of accounts audited under any other law.
- Form No. 3CB – This form applies to a taxpayer carrying on business or profession and who is NOT required to get his books of accounts audited under any other law.
- Form No. 3CD – This form is best viewed as a detailed statement of particulars. It comprises various details of the business and its transactions.
- Form No. 3CE – This form is for NRIs and foreign companies. They are required to get their accounts audited if they receive fees/royalty from any Indian concern or the government for the rendering of technical services.
However, in either of the cases, the taxpayer must furnish Form No. 3CD along with Form No. 3CA or Form No. 3CB as applicable
Tax audit report filing process
The following is the step-by-step procedure for filing the report:
- The chartered accountant will file the tax audit report online using his/ her own login credentials. The chartered accountant must be an individual assigned to conduct the audit of the individual or organization.
- The taxpayer must mention the details of the chartered accountant in their platform
- When the audit report gets uploaded by the chartered accountant. The taxpayer has the option to either accept or reject the report. In case the taxpayer rejects the report, the entire process will start over again.
- After accepting the audit report, the tax payer has to compute the tax liability and file the income tax returns
The due date of filing the report depends on the due date of filing the income tax return. The taxpayer must file the report on or before the due date of filing the income tax return.
- The due date of filing of audit report i.e. Form 3CA or Form 3CB along with Form 3CD for taxpayers liable for audit under the Income Tax Act is 30th September of the relevant assessment year
- The due date of Submission of audit report for AY 2022-23 for taxpayers having transfer pricing and specified domestic transactions i.e. Form 3CE is 31st October 2022.
A taxpayer who fails to comply with tax audit provisions will have to pay the applicable penalty. The penalty as per Section 271B of the Income Tax Act will be least of the following:
- Rs 1,50,000
- 5% of the total sales, turnover, or gross receipts