What is Tax Audit & when it is required

Before understanding Tax audit, we should first understand the term “Audit” Audit Means official inspections of books of accounts of any organisation and production of report by an independent body. We also understand as it systematic review of something or we can call it as assessment of something.

There are various types of Audits under different law such as:-

Company Audit/Statutory Audit

Cost audit

Stock Audit

Internal audit

GST Audit etc.

Similarly income tax laws mandate the tax audit, as the name suggest itself tax audit is an examination or review of books of accounts of any business or profession carried out by the taxpayers from income tax point of view.

Purpose of Tax Audit:-

Tax audit conducted to achieve following objectives:-

1. To ensure the correctness of books of accounts and certification by the tax auditor.

2. If there is any error found during the auditing then reporting for the same should be done in audit report.

3. To ensure proper reporting of tax, depreciation and compliance of the other laws of income tax etc.

All the above things are done by tax auditors so it enable the income tax authority in verification of income tax returns and correctness of the calculation and verification of total income.

Applicability of Tax Audit:-

1. A person required to have a tax audit carried out if the sales, turnover or Gross receipt of business exceed Rs 1 Crore in Financial year, there are also certain condition when person require to conduct tax audit of his books of accounts as mentioned below are the examples :-

Note:-Threshold limit for the tax audit from AY 21-22 (i.e. FY 20-21) is proposed to increase to Rs. 5 crore. Condition is that above limit is applicable only if there are cash transaction are limited to 5% of the aggregate cash transactions (i.e. 5% for the cash receipts of gross receipts or turnover and 5% for the cash payment of the total payment).

2. Any Person carrying business (Not opting Presumptive taxation) and turnover crosses the threshold limit that is Rs. 1 Cr. Then they are required to get his income tax audit done by the tax auditor.

3. Carrying business and eligible for presumptive scheme u/s 44AE, 44BB & 44BBB, Claim profits and gains lower than the prescribe limit under presumptive taxation scheme then they are required to conduct tax audit

4. Carrying business under section 44 AD and which is eligible for presumptive taxation but declare profit and gain are lower than as required in presumptive scheme

5.Carrying business under section 44AD and choose to opt out of the presumptive scheme then audit is applicable for next 5 years if income exceed the maximum amount which is not chargeable to tax.

6. Carrying business under sec 44AD and declaring profit as per presumptive scheme & limit of turnover not crossed 2 crore then tax audit not applicable.

7.if person carrying any profession then If gross receipts from profession cross 50 lakh then only tax audit applicable.

8. If person carrying profession & eligible for presumptive taxation u/s 44 ADA and declaring profit and Gain from business and profession is less than as required by presumptive taxation scheme is liable to tax audit.

So above we explain what is tax audit, purpose of tax audit and where it is applicable, we try to cover maximum cases here.

Author: – CMA Praveen Kumar Tiwari

Websites: – https://www.mycorporation.in/