Income Tax Audit
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Caption

Income-tax is calculated at specified rates on the total income of a person and paid directly to the Central Government. The provisions relating to the income-tax are governed by the Income-tax Act, 1961.

Income Tax Audit

Income Tax Return (ITR) is a form in which the taxpayers file data or information about his income earned and tax relevant to the income tax department.


ITR forms varies in 7 sectors i.e. ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 & ITR 7 to date. Every taxpayer should file his ITR on or before the due date to save himself/herself from the heavy penalty. The applicability of ITR forms varies depending on the sources of income of the taxpayer, the amount of the income earned and the category the taxpayer belongs to like individuals, HUF, company, etc.

Importance

The requirements for an Income Tax audit are included under section 44AB of the Income Tax Act of 1961. The Income Tax audit is an analysis of a person or company’s tax returns by any outside company to confirm that all the income, expense and reduction information is filed correctly. Tax audits have been made compulsory by the Income Tax Act that states that all taxpayers are expected to get the accounts of their company or organization audited according to the provision of the act.

Under section 44AB, the audit aims to determine the actual veracity of returns filed and the completion of other conditions as per relevant rules. The Chartered Accountant doing the tax audit has to relinquish all his/her findings and views in the form of an audit report. The audit report is given as per format open in the form numbers 3CA/3CB and 3CD.

Fulfilling statutory compliances

 Individuals and entities who are required to get their accounts audited have to file their income tax return compulsorily using a digital signature. Furthermore, the Ministry of Corporate Affairs has made it mandatory for companies to file all reports, applications, and forms using a digital signature only.

 Under GST also, a company can get registered only by verifying the GST application through a digital signature. The use of a digital signature is necessary even for filing all applications, amendments and other related forms.

The objectives of the Tax Audit are as follows:

 The Controller of Certifying Authority to issue digital signatures in India has authorized eMudhra as one of the certifying authority for issuance of Digital Signature Certificate.

 Other certifying authorities may include (n) Code Solutions, National Informatics Centre, Safescrypt and Institute for Development and Research in Banking Technology.

Classes of DSC

 A conventional system of tax audit would assure that all the companies manage the books of accounts and all other resources/expense records properly.

 A proper tax audit would also guarantee that the whole income and the requirements for reduction are precisely and correctly entered by the businessmen.

 A tax audit reduces the chance of dishonest practices.

 Tax audit promotes the administration of tax laws by a proper presentation of accounts before tax professionals and saves the time of charging officers engaged in carrying out routine verifications.

Tax Audit applies to several types of people which are defined under Section 44AB of the IT Act.

Thus, as per the laws of Section 44AB of the Income Tax Act, 1961, following is the list which describes the classes of people who have to urgently follow the income tax audit schemes and get their accounts audited:

 An individual who is involved in business and the year-end turnover of his/her business is Rs.1 crore and above.

 An individual, who is a licensed, i.e. engaged in any profession and his income declarations in a year total Rs.50 lakhs and above.

 An individual who fits for the presumptive taxation scheme under Section 44AD but later challenges that the profits for said business is lower than the values calculated per the possible taxation scheme. This is also suitable in case the income on record is more than the amount which is tax-free or not answerable for taxation.

 If the assesse who is qualified under the presumptive taxation scheme but opts out of it after a specified period, he would lose the ability to revert to the presumptive taxation scheme for a continuous term of 5 assessment years after the decision to opt out is taken.

 An individual who fits to choose the presumptive taxation scheme of selection under Section 44AE but then claims that the profits for such business are lower than the profits calculated following the presumptive taxation scheme of section 44AE.

 An individual who qualifies to choose the presumptive taxation scheme of selection under Section 44BBB but then claims that the profits for such business are lower than the profits calculated following the presumptive taxation scheme of section 44BBB.

The tax audit reports carried by a registered chartered accountant are to be presented in a designated format. Under section 44AB of the IT Act, the form that is appointed for the audit report is Form No. 3CB and the appointed particulars are to be reported in the Form No. 3CD.
In some cases when a person wishes to get their accounts audited under any law other than 44AB, then the form prescribed for audit report is Form No. 3CA and the prescribed particulars are to be reported in the Form No. 3CD.

Penalty

According to the section 271B, if a person who is expected to comply with the section 44AB fails to get their records audited in any given year, the following penalties are imposed on that person:

 • 0.5% of the total sales in case of a trade organisation or 0.5% of the total receipts in case of service of the current financial year.

 • The business may be fined with an amount of Rs.1,50,000.



However, according to the section 273B, no penalty would be imposed on the person if valid reason for such failure is proved.

Thus, tax audit is a very important requirement for individuals who are required to undergo such an audit. Failure to comply with the income tax rules would attract penalty and individuals wishing to avoid any penalty should ensure full compliance with all the rules of the income tax audit.

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