Shreya Shrivastava|Symbiosis Law School, Hyderabad| 9th June 2020
Introduction
In India there are various audits like cost audit, statutory or company audit as per company law, stock audit, income tax audit, which are governed by various laws in India, to name some Section 44AB of the Income Tax of India, 1961, which lays down some provisions for the audit of income tax.
As the name suggests, the Income Tax audit is done to evaluate whether a company or an individual has filed the income tax return of a year. As the rules mentioned by the Income Tax Act, 1961 an external agency is hired or mandated to assess the returns filed from income, expenditures, and deductions, and other rules that are mentioned in the Act. The process of tax audit simplifies tax computation. The specific forms i.e. Form 3CA, Form 3CB, and Form 3CD have to be submitted by the Chartered Accountant of the agency concerned, as a report of audit comprising the observations.
Other Sections which lays down-regulation related to the Income-tax audit in India
Other than Section 44AB of the Income Tax Act, 1961 if under any other law taxpayers get their accounts audited then they do not have to get their auditing of the accounts again for the Income-tax audit purpose. If the tax audit report is submitted before the stipulated due date then the accounts which are audited under other laws the tax audit report filled can be submitted.
Other Sections under the Income Tax Act, 1961 are as follows:
- Section 44BB- the section is for Non- Resident of Indians (NRIs), who are involved in the business of oil minerals industry like exploration.
- Section 44BBB- the section is for the International companies which are involved in civil construction business etc. in some power projects.
- Section 44AD- this section applies on the business apart from the one’s mentioned under Section 44AE[1]
- Section 44ADA- the section is focused on the eligible professionals, income tax audit.
Tax Audit Objectives
- In an assessment year, the Income-tax returns filed by individuals and companies, its analysis and accuracy, and the maintenance of the records by the Chartered Accountant.
- After the detailed analysis the reporting of findings of inaccuracies/accuracies by the tax auditor in the filing of tax returns.
- Checking of malpractices and frauds when the income tax return is been filed.
- Regarding the depreciation of tax, compliance, etc, as per the income tax laws its essential reporting. Filing the income tax return by a company or an individual, it streamlines the process in calculation and accuracy assessment for the authorities of income tax.
Applicability of Section 44AB
With the proper assistance of the Chartered Accountant, the following persons are required to do that:
- If the total turnover of a business or gross receipts of a business of any persons exceeds over Rs. 2 crores in any previous year. If a person opted for the presumptive taxation scheme then this provision will not be applicable.
- If a profession is pursued by a person and the gross profits are exceeded by Rs. 50 lakhs in any of the previous years.
- Any eligible person for the presumptive taxation scheme, who claims that for the business the profits and gains are lower than what is computed in the presumptive taxation scheme and the income of that person exceeds the taxable amount. The provision is or will apply to those taxpayers who opt for the scheme other than ones who choose the scheme under Section 44AD and whose turnover or sales exceed Rs. 2 crores.
Tax Audit under Section 44AB
In the manner prescribed in the forms, the Chartered Accountant must report the audited accounts. The report should be inclusive of all the observations, findings, and so on. Report of auditing conducted under Section 44AB must be done following the audit reported in Form 3CD. The auditing for those persons who are necessary to audit their accounts by or under any other law must be prepared in Form 3CA or Form 3CB and the same must be reported in Form 3CD. The Chartered Accountant must file the tax audit report electronically, after the submission the taxpayer using the e-filing account approve the submitted reports.
Tax Audit Due Date
On or before 30th September of the financial year, the accounts auditing, submission of reports must be completed.
The penalty under Section 44AB
The penalty is attracted by the taxpayer of Non-compliance of the tax audit regulations, whichever is lower from the mentioned below:
- Rs. 1,50,000 or
- 0.5% of total sales or
- Gross receipts or
- Turnover
Only if the taxpayer can show reasonable cause for the non-compliance then only the penalty is waived. Under Section 271B of the Income Tax Act,1961 if the account books of any profession or business are not audited as per the Section 44AB then the assessee has to pay the penalty. If on or before 30th September the audit is not completed and report is not submitted, then a maximum of Rs. 1.5 lakh or 0.5% of the turnover has to be paid as the penalty. As per Section 273B following reasons are permitted for delay of non-filing of the report:
- Tax auditor resignation.
- Lock-outs or strikes which come under labor issues.
- Partner responsible for the accounts either died or some physical inability.
- Natural calamities.
- Theft of accounts, or fire, or any incidents which are not under the control of the assessee.
Conclusion
A tax audit is nothing but an examination of books of accounts of a taxpayer. Under the Income Tax Audit Section 44AB of the Income Tax Act, 1961 contains provisions related to the tax audit. The main aim of the examination is to make sure that the taxpayer is properly maintaining the books of accounts and other records. the audit of tax is done to curb the fraudulent tax practices. The person who is responsible for the auditing of the tax should verify that the assessee has complied with the requirements like, income tax filing, accurate deductions in income tax, etc. The auditing of tax must be done by the practicing Chartered Accountant,
[1] Specialised business in hiring, plying of goods carriages, and leasing.
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