What is a 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.
Section 44AB of the Income Tax Act, 1961 deals with the Audit of the Accounts of a certain category of persons carrying on a business or engaged in a profession. The class of taxpayers listed under this section 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, this audit required as per Section 44AB of the Income Tax Act, 1961 is called a tax audit.
The outcome of the audit is an audit report. This report is drawn by the Chartered Accountant where he or she gives his findings and observations about the compliance of the person under audit.
Objective of the Tax Audit
- If there is a proper system of doing tax audit, then it becomes possible for all businesses to do maintenance of books of accounts and other revenue or expense records properly.
- A proper tax audit ensures that the businessman should correctly and accurately do total income and claims for deduction.
- The chances of fraudulent practices reduce with the tax audit.
- Tax laws help in facilitating the administration of tax laws with the proper presentation of accounts in front of tax authorities. It also saves loads of time of Assessing officers who are engaged in carrying out routine verification.
Who all are covered under the Tax Audit?
Tax Audit is applicable for all those classes of individuals that are mentioned under Section 44B of the Income Tax Act. According to the regulations of Section 44B of the Income Tax Act, 1961, the list is mentioned below that states class of people who are mandated to get Income Tax Audit done.
- An individual who is doing business and has an annual turnover of up to Rs 1 Crore and above.
- An individual who is engaged in any profession and getting income receipts in a year up to 50 Lakh and above.
- An individual who is being qualified for the presumptive taxation scheme under Section 44AD but later claims that the profit of that said business should be lower than the profit calculated following the presumptive taxation scheme. It happens in those cases where the income on record exceeds the amount that comes under the 'tax-free' category.
- An assessee who gets qualification under the presumptive taxation scheme but opts for the scheme after a specific period, in that case, 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 qualifies to presumptive taxation scheme as per Section 44AE but then claims that profit for such business are lower than profit calculation in accordance with presumptive taxation scheme of Section 44AE.
Created
& Posted by (Ramesh Kumar Gupta)
Senior
Accounts Manager at TAXAJ
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