Tax Audit in India | Objectives | Who need to conduct them | Mandated form

Tax Audit in India- An Overview

What is Tax Audit in India?

Tax Audit or Income Tax Audit as the name suggests is an audit that aims at evaluating whether a taxpayer or a company has accurately filed their Income Tax Returns or not in a financial year. The provision for the Income Tax Audit is laid down in Section 44AB of the Income Tax Act, 1961. Tax audit in India are to be performed by the Chartered Accountants or a Chartered Accountancy Firm to ascertain whether the taxpayer or the company is compliant with the Income Tax laws.

What are the objectives of Tax Audit in India?

The main reasons for conducting a Tax Audit in India are:

  • To check that the books of accounts, files and records are properly maintained and kept.
  • To ensure all the entries in the books are transacted and well written.
  • To check any fraud or forgery in the company.
  • To analyze whether the Income Tax Returns are filed accurately or not.
  • To report the findings and interpretations made by the Tax Auditor.
  • To ensure the taxpayer’s or the company’s compliance with the mandated Income Tax laws.

Who are mandated for having Tax Audit in India?

As per the Income Tax Act, 1961 the following persons are mandatorily required to have Tax Audit in India:

  • Any person or business whose turnover/ total sales exceed Rs. 1 Crore in a financial year.
  • Any professional person having gross receipts in his/ her profession exceeding Rs.50 Lakhs.
  • Any taxpayer who has not opted for the presumptive taxation scheme as per Section 44AD of the Income Tax Act, 1961.
  • Any professional person not opting for the presumptive taxation scheme under Section 44ADA of the Income Tax Act, 1961.
  • Any business who are eligible for presumptive taxation scheme as per Section 44AE, Section 44BB and Section 44BBB, but have claimed a profit amount that are lesser than the prescribed limit in the scheme.
  • Any professional person who is eligible for the presumptive taxation scheme as per Section 44ADA, but has claimed for a profit amount lesser than the prescribed limit mentioned in the scheme.

What are the Forms required for Tax Audit in India?

Certain forms that have to be duly filled by the Tax Auditors in India while conducting Tax Audit are:

  • FORM CA- When the accounts of the taxpayer or the company is not audited as per the Section 44AB of the Income Tax Act, 1961.
  • FORM CB- When the accounts of the taxpayer or the company is audited as per the Section 44AB.
  • FORM CD- To be filled and reported with all the prescribed details

What are the Penalties for Non-compliance of Tax Audit in India?

 The penalties for not having a Tax Audit in the company or by the taxpayer are regulated as per Section 271B of the Act. Here are the mandated penalties:

  • 150,000
  • 0.5% of the gross receipts/ total sales/ turnover of the taxpayer or the company.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.