Income Tax efiling in India for FY 2023-24 (AY 2024-25)
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A tax audit is an audit of the accounts to ensure compliance with the provisions of the Income Tax Act. In the case of companies, the Companies Act already mandates that testing be conducted. Therefore, the need for tax audits arises only for businesses that do not need to be audited according to the law governing a particular type of business organization. For example, co-operation is not required to check account books under the Co-operatives Act. Generally, the calculation of the income tax payable by an inspector is done on the basis of self-examination by the inspector. However, in the aforementioned cases, such as in excess of the benefit limit, the Act requires that the calculation of a taxpayer's income tax must be accompanied by evidence. For the purpose of providing evidence to the Revenue Department, auditors are required to submit account documents for tax audit.
The scope of tax audits includes auditing or reviewing the accounts of any business or taxpayers' work, conducted by a Chartered Accountant (CA). Tax assessments are done from an income tax perspective. The purpose of the tax audit is to assess whether the calculation of income tax liability is fair and in accordance with the provisions of the Income Tax Act. The tax audit certificate from the CA allows the Tax Department to rely on the information provided by the auditor on the return of revenue.
Objectives of Tax Audit
The objectives of the tax audit are as follows:
- Ensuring the accuracy and precision of accounting records by CA accredited accounts and simplifying the Tax Department to verify the accuracy and accuracy of information including taxpayer income tax returns.
- Reporting audits and discrepancies noted by the auditor after conducting a formal audit of accounting records
- To make available to the Revenue Department the relevant information required by the Act, including the reduction of tariffs permitted under the Act and to ensure compliance with various provisions of the Act
Applicability of Tax Audit
In order to determine whether the Tax Audit applies to the auditor, various criteria must be considered, such as whether the auditor has chosen to use the pre-tax system, the auditor's profits and the question of whether the aggregate income exceeds the basic exemption limit. The following table may be used to determine whether Tax Audit applies to an auditor:
| Taxpayer Category | Is tax testing required? |
|---|---|
| The auditor conducts business but has not selected the proposed revenue plan under the Act. | Tax audits are required if the total sale, profit or total receipts exceeds one million rupee. |
| The examiner conducts business and selects a system of exorbitant taxation under Section 44AE, 44BB or 44BBB. | Tax audits are required if the candidate is seeking a profit below the prescribed tax plan. |
| The inspector conducts business and selects a prudent tax plan under Section 44AD. | In addition, Tax Audit is required if sales, profits or total business receipts exceed two rupees. |
| where the scheme was originally selected. | Tax testing is required if the examiner has a full salary that exceeds the basic exemption limit. |
| The auditor is performing a specific function but has not selected an arrogant revenue system under the Act. | Tax audits are required if the total business receipt is more than 50 lakh rupees. |
| The inspector performs a specific function and selects a prudent tax plan under Section 44AD. | Tax Audit is required if the examiner seeks a profit below the prescribed limit under the projected tax system and has a full income that exceeds the basic exemption limit. |
| The examiner has lost business, and the examiner wishes to continue the loss in future years of testing. Also, the inspector has not selected any presumptuous scheme under the Act. | Tax testing is required if the total sale, profit or total receipts exceeds one rupee and the test revenue exceeds the basic release limit. |
| The examiner has lost business, and the examiner wishes to continue the loss in future years of testing. However, the examiner has selected a consideration scheme under the Act under Section 44AD, 44ADA, or 44AE. | Tax audits are required if the test revenue total exceeds the basic release limit. |
Statutory Audit Vs. Tax Audit
Under a variety of laws, including the Companies Act and the Registration of Associations Act, an entity may be subject to the requirement to audit its accounts. In the event that the auditor already faces a legal obligation to have the accounts audited under the Income Tax Act, then, in such cases, there is no need to undertake further audits to satisfy the audit requirement under Revenue. Tax Law. Therefore, it will be sufficient if the auditor's account books are audited under other statutory research. However, the audit under another law must be completed before the due date for filing a refund. A taxpayer may submit an audit report prescribed under the Income Tax Act which states that as the accounts have been audited in accordance with the requirements of other legislation, an audit under the Income Tax Act is not required.
Filing Requirements
An auditor may be subject to the provisions of the Act which stipulates the compulsory performance of tax audits. In such cases, the examiner is required to complete the following forms and refund of Income Tax:
- Form 3CA– This form must be used once the examination documents have been submitted for research under other laws. The books may have been inspected in terms of the Companies Act or the Registration of Associations Act. In such cases, a second audit is not required to comply with the audit requirements under the Income Tax Act.
- Form 3CB - This form is used when auditing documents are audited to meet the requirements of the Income Tax Act.
E-submission of Tax Audit Report
The auditing CA must submit an online tax audit report using the appropriate login details. The taxpayer must also add CA details to the test entry portal. If the auditor uploads the audit report, the report must be accepted by the auditor at the taxpayer's portfolio. If the report is not received within the stipulated time or if the report is rejected, the reporting process should be initiated by the auditor again from the outset.Due Date for Filing Report All taxpayers must submit a tax audit report before or by the deadline. The deadline will be 30 November in the event of an inspector entering international trade and September 30 in some cases.Penalty for DelayIf a taxpayer is required to have a tax audit but does not comply with the requirement, a minimum of the following may be imposed as a fine:
- One percent of all sales, profits or total receipts
- One lakh and fifty thousand rupees
Tax Audit Limit
The Tax Audit Limit is the amount of income, which, if exceeded, attracts the need for tax assessment under the Income Tax Act. The Tax Audit Limit is guaranteed differently in different test stages, and the amount of limit depends on whether the examiner is a sole proprietor, a corporate company, a limited corporation company (LLP), or a company. Also, in order to provide relief for MSMEs, 2020 Budget has improved the benefit limit for MSME auditors.
Limit for Proprietorship ConcernsProprietary firms are taxed as individuals under the Income Tax Act. Therefore, if the owner is running a business, a tax check is mandatory, in case the sale profit exceeds one rupee. If a person does work with a receipt for more than 50 lakh rupees, in such cases a tax assessment is mandatory.
Limit for Partnership FirmsCooperative firms involved in work with more than 50 lakh rupees must complete a tax assessment. A co-operative company involved in a business must complete a tax assessment if the sales profit exceeds one million rupees.
Limit for LLPsAs per the rules governing the LLP type of a business organization, LLPs with an annual profit of more than forty lakh rupees or a large contribution of twenty-five lakh rupees need to be audited by the CA. In the unlikely event that these criteria are not met, it should also be seen whether the above-mentioned co-operative criteria is satisfactory.
Limit for CompaniesAll types of companies including limited liability company and one-person companies need to be evaluated.
Limit for MSMEsHowever, development benefits can only be obtained by those MSMEs with a proven track record of no more than 5% of all operations. The benefit was introduced by Government as part of the budget announced on 01.02.2020.
To find out about the proposed tax in India, click here.
Frequently asked questions
Who conducts tax audit?
What provision is stated in section 44AB?
What is the penalty charged for non compliance of section 44AB?
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