When discussing tax audits, we mean an audit of a taxpayer’s account. The auditor will investigate or go over the books to conclude on issues with the tax compliance being enforced by the assessment. Representatives who have been granted authorization are responsible for adhering to the requirements outlined in the Income Tax Act of 1961.
These parts include laws that pertain to income from taxable firms or vocations, the computation of income, qualifying requirements, different tax exemptions, and tax exemptions in general. Audits of tax returns also check to see that financial records are kept accurately and in conformity with applicable tax laws.
In addition, it guarantees that all tax obligations are met on time and that agents do not have any of their income withheld. The primary objective of the audit is to confirm that the business being audited is producing accurate information on its revenue, costs, and tax-deductible expenditures.
Conduct a thorough examination into the correctness, or lack thereof, of the submitted tax return, and then report the findings of the tax auditor’s inquiry. Audits of taxes look for any instances of fraud or abuse in filing income tax returns.
In line with the Income Tax Act, please submit fundamental aspects such as compliance and depreciation. They check the correctness of income tax forms submitted by individuals or corporations while streamlining the process by which the authorities that collect income taxes calculate taxes.
The objectives of the tax audit are:
A tax audit is required of taxpayers if their annual sales or income, or their total income, is more than Rs. The annual budget is one billion dollars. However, taxpayers may be required to conduct an audit of their own accounts in certain other circumstances.
The following documents are required for the IRS audit:
If a taxpayer’s annual turnover, sales, or gross business revenues are more than one crore Indian rupees (about $150,000), then the taxpayer is required to undergo tax auditing. Nevertheless, a taxpayer’s financial records audit may also occur in various scenarios.
In the following table, we have arranged the numerous scenarios according to the following categories:
|Category of person||Threshold|
|Carrying on business (not opting for presumptive taxation scheme*)||Total sales, turnover, or gross receipts exceed Rs 1 crore in the FY|
|Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB||Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme|
|Carrying on business eligible for presumptive taxation under Section 44AD||Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit|
|Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when
the presumptive tax scheme has opted
|If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for|
|Carrying on business that is declaring profits as per presumptive taxation scheme under Section 44AD||If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for|
|Carrying on business that is declaring profits as per presumptive taxation scheme under Section 44AD||If the total sales, turnover, or gross receipts do not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses.|
|Carrying on profession||Total gross receipts exceed Rs 50 lakh in the FY|
|Carrying on the profession eligible for presumptive taxation under Section 44ADA||1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme 2. Income exceeds the maximum amount not chargeable to income tax|
|In case of loss from carrying on of business and not opting for a presumptive taxation scheme||Total sales, turnover, or gross receipts exceed Rs 1 crore|
|If the taxpayer’s total income exceeds the basic threshold limit but he has incurred a loss from carrying on a business (not opting for a presumptive taxation scheme)||In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB|
|Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below the basic threshold limit||Tax audit not applicable|
|Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding the basic threshold limit||Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit|
Tax Audit is compulsory as per the Income Tax Act. The Chartered Accountant or the Tax Auditor is required to submit his findings and observations in the form of the audit report.
If the Total taxable income is below the threshold limit (2.5 lakh for youth and 3 lakh for senior citizens), no tax audit is required.
Tax Audit is compulsory for all the LLPs, companies, and individuals whose turnover is more than the threshold limit(5 crore for FY 2020- 21)
GST audit is the audit conducted for the Goods and Services. The auditing is done when the turnover of any business exceeds the threshold limit of 2 crores
If you do not follow the guidelines for the tax audit, you will be subject to a penalty. The punishment will be the lesser of the following options, depending on the circumstances. Some acceptable reasons include the following: According to Section 273B, the taxpayer will not be subject to fines if they can demonstrate a genuine cause for the delay or failure to submit the audit report.
1. Default on the account due to the account holder’s passing away or becoming mentally or physically unable.
2. Delays brought on by difficulties with the workforce, such as lockouts and strikes.
3. A delay caused by the loss of an account as a result of theft, fire, or similar occurrence beyond the taxpayer’s control.
4. Natural disaster.
A category of individuals required to demonstrate their knowledge of income tax laws is specified in Section 44AB of the Income Tax Act of 1961. These categories consist of the following:
A person who works for themselves owns a company that generates at least one rupee in yearly revenue. A self-employed merchant brings in more than 500,000 rupees throughout the financial year.
A taxpayer who is required to make projected tax payments under Section 44AD but who asserts that the profit they have computed is lower than the total tax they have paid during the year.
Individuals who are self-employed and whose reported income for the fiscal year is more than the tax-exempt or tax-exempt amount are considered to have taxable income.
Let’s say a taxpayer subject to anticipated taxes decides to fight against this practice for a certain amount of time. In such a scenario, the taxpayer must opt out of the estimated taxation and instead choose the estimated taxation method for a period of five appraisals.
Supposedly Relevant Section 44 AE People qualified for the tax system but assert that their earnings are lower than those computed under the supposed tax system and are referred to as tax cheats.
Those who are required to pay estimated taxes following Section 44BB assert that their actual earnings are lower than the profits computed, taking estimated taxes into account.