How would you define Tax Audit ?
Under the Indian Income-tax an assessee (an individual or an enterprise), before submitting Income-tax Return to the Income-tax authority, is often required to get the accounts audited and the amount of tax liability computed by a qualified auditor in accordance with theprovisions of the Income-tax Act and other relevant rules. This is called Tax Audit. The tax auditor is to submit tax audit report and a statement of particulars.
What are the different types of Tax Audit ?
The scope of Tax Audit in India is broad. The Companies Act has made Tax Audit compulsory for all statutory business enterprises. However, the system of Tax Audit introduced by the Income Tax Act may be classified into three categories : (1) Compulsory Tax Audit. Section 44AB of the Income Tax Act has made Tax. Audit compulsory for a person carrying on any business or profession if (a) in case of business the total sales, turnover or gross receipts exceed Rs. 40 lakhs in the previous year and (b) in case of a profession if the gross professional receipts in the previous year exceed Rs. 10 lakhs. (2) Certification for Claiming Exemptions/Deductions. In order to claim exemptions of certain income and deductions in the assessment of his income, the assesse is required to get his accounts audited and submit a certification from Chartered Accountant. (3) Selective Tax Audit. Under Section 142 (2A), the assessing officer is empowered, at any stage of proceeding before him, to direct the assessee to get his accounts audited by an “accountant” nominated by the Commissioner of Income Tax, if the officer thinks it necessary in view of the nature or complexity of the assessee’s record. Thus tax audit under section 44AB is compulsory for all cases of specified persons, while it is optional for claiming deduction, Audit under section 142(2A) applies to cases as ordered by the assessing authority.
Compulsory Tax Audit The Income Tax Act provides that the accounts of certain specified 3. Enumerate the provisions of Income Tax Act in respect of Compulsory.4A4.uAdBiti persons must be audited in the manner laid down in section The Tax Audit is compulsory (a) for a businessman if the total sales,. turnover or gross receipts exceed Rs. 40 lakhs in the previous year and (b) for a professional person if the gross professional receipts in the previous year exceed Rs. 10 lakhs. The assessee must obtain a report of audit as required under the section within the specified time and submit it along with the return of income to the income tax authority. If the assessee fails to comply with the provisions of the section, a penalty may be imposed upon him. Such penalty under section 271B is one half percentage of sales or gross receipts or Rs. 1,00,000 whichever is less. By way of exceptions the Income Tax Act however provides that certain classes of business (e.g. non-residents deriving income from shipping business, persons engaged in civil construction business and soon) shall not be subject to compulsory tax audit, even if their gross receipts, etc., exceed the specified limit. The Act provides for presumption taxation (i.e. tax at a flat rate without ascertaining profit from accounts) in respect of such businessmen. Tax Auditor Section 44AB stipulates that the tax audit report is to be given by an “Accountant”, that is, a practising Chartered Accountant within the meaning of the Chartered Accountants Act, 1949. Where the accounts of an enterprise are audited under any other law, the person appointed to conduct such audit can conduct tax audit also. No Chartered Accountant can conduct, as prescribed by The Institute of Chartered Accountants, more than 30 tax audits a year. Tax Audit Report The Tax Auditor is required to submit tax audit report and a statement of particulars in the form as specified in the Income Tax Act. Rule 6G of the Act lays down that: (a) In case of any person who carries on any business and his accounts are to be audited under any law, the audit report is to be submitted in the form 3CA. However, if the audit of accounts is not compulsory, the audit report is to be submitted in the form 3CB. In either case, the statement of particulars should be in the form 3CD. (b) The tax audit report of a professional person should be in the form 3-CC and the statement of particulars in the form 3CE.