A Tax audit is a process of getting the books of accounts verified by an chartered accountant before a specified date under the Income tax act provided the turnover of the taxpayer is more than the tax audit limit and accordingly has to file the tax audit report. Section 44AB of income tax act, 1961 states the Tax audit limit for the taxpayers under the Income tax law. Tax audit limit is a threshold limit based on turnover
In this article we will cover the followings:
1. Applicability of Tax audit?
2. Tax Audit Report forms
3. Due date of filing of tax audit report
4. Due date for filing of income tax return
5. Non-applicability of Tax Audit under Section 44AB
6. Accounts audited as per other statutes
7. Penal provision for delay or no filing of tax audit report
8. What is the process to get books of accounts audited?
1. Applicability of Tax audit?
Before the budget 2020, the tax audit limit was ₹100 lakhs for businesses and ₹50 lakhs for receipts in the profession during the previous year. But to reduce the tax compliance burden on small and medium scale businesses, the threshold limit increased from ₹1 crore to ₹5 crores. Further, it is stated that, the enhanced limit would be applicable only when
I. The aggregate of all receipts in cash does not exceed five percent of such total receipts.
II.The aggregate of all payments in cash does not exceed five percent of such total payments.
Note: The tax audit limit for the professional would remain same i.e. threshold of 50 lakhs turnover would be applicable.
2. Tax Audit Report forms
The assesses filing for the tax audit should furnish the report in prescribed forms. Forms prescribed by income tax board are, Forms 3CA /3CB & 3CD.
Form 3CA: This form is to be filed by those organization whose accounts has audited under income tax act, 1961 & under any other act.
Form 3CB: This form is to be filed by those organization whose accounts has audited only under the income tax act, 1961
Form 3CD: This is part of report where clauses are mentioned required to be filed by the management of the organisation
3. Due date of filing of tax audit report
Further, in case person having income from business or profession is required to furnish the tax audit report at least one month prior to the due date of filing return.
4. Due date for filing of income tax return
A specified date for filing income tax return under section 139(1) on accounts of the assesses has been amended to 31st October of the assessment year (as against 31st September previously) These changes have been brought into force from 1st April 2020.
5. Non-applicability of Tax Audit under Section 44AB
The requirements of audit under section 44AB does not apply to a person who declares profit and gain on a presumptive basis under section 44AD or Section 44ADA or Section 44AE.
Section 44 AD: When a Business person declares his total sales, turnover or gross receipts does not exceed ₹2 crores then he may pay the taxes under presumptive basis as below:
The presumptive rate of tax would be 8% of total turnover or receipts. However, it is 6% in respect of the amount which is received,
● By an account payee cheque or
● By an account payee bank draft or
● By an electronic clearing system through a bank account.
Section 44 ADA: When a professional declares his total sales, turnover or gross receipts does not exceed ₹50 lakhs then he may pay the taxes under presumptive basis. The presumptive rate would be 50% of total turnover or receipts.
Section 44 AE: When a transporter owes less than 10 transport during a year then the transporter may pay the taxes under presumptive basis as below.
Heavy vehicle: Rs. 1,000 per month per ton
Otherwise: Rs. 7,500 per month per ton
The concept of presumptive taxation was introduced to reduce the compliance and burden on small businessmen. So the taxpayers who fall under presumptive taxation schemes are not required to maintain the books of accounts or get them audited under section 44AB.
Also, person who derives income from other than the nature of business & profession is not required to audit books of accounts under section 44AB.
6. Accounts audited as per other statutes
If the books of accounts of a person are to be audited under any other law before the specified date then it will be sufficient if he gets his accounts under such other law. He should furnish the report of audit in the prescribed form (i.e. Form 3CA) in addition to the report of audit required under such other law before the specified date.
For example, if a company has to audit its accounts under the Companies Act, 2013 then the provision of compulsory audit under the income tax act does not apply to such a company.
7. Penal provision for delay or no filing of tax audit report
It may be noted that under section 217B, penal action can be taken for not getting the accounts audited and for not filing an audit report by the specified date.
8. What is the process to get books of accounts audited?
Assesses who fall under the preview of the tax audit limit stated under section 44AB should compulsory get the book of accounts audited by a Chartered Accountant electronically. Other professionals like Company Secretary, advocate are not allowed to conduct tax audit under section 44AB.
The procedure for e-filing tax audit is
1. The Chartered Accountant should register himself in the filing portal by filling details such as membership ID, enrollment date, name, and PAN. E-filing of audit report can be done at https://www.incometaxindiaefiling.gov.in/
2. The assessee who is getting his accounts audited should also get registered in the e-filing portal by filling details such as PAN, name, DOB, and residential status.
3. After registration, the assessee should add the Chartered Accountant who is required to do the audit under the Add CA option.
4. After filling the given forms, the CA should fill form 3CA/3CB & 3CD and generate XML forms.
5. The XML forms with financial statements in PDF format have to be uploaded by the chartered accountant by using his or her logins that is created after registration as a chartered accountant.
6. Finally, the assessee should approve the tax audit report by logging in from his account.
Audit report filing gets completed after the approval of assessee. Section 44AB makes it obligatory for every person carrying out business or profession to get his accounts audited if the total turnover or receipts is more than the prescribed tax audit limit.
Why is the tax audit report mandatory to file?
● Audit report ensures proper maintenance of books of accounts.
● Any kind of fraud or misleading information by taxpayers can be determined.
● It makes verification of books of accounts much easier.
Frequently Asked Questions
1. What is the tax audit limit w.e.f April 2020?
The tax audit limit has increased from 1 crore to 5 crores however to avail the enhanced limit total cash receipts and payments should not exceed 5% of total turnover or total payment.
2. Who is exempted from the section 44AB tax audit limit?
Taxpayers opting presumptive taxation scheme under section 44AD
3. How to file a tax audit?
A tax audit can be filed electronically in the Income tax e-filing portal.
4. Who files income tax audits?
Income tax audit can be done only by a Chartered Accountant and he uploads it on the e-filing portal to get the assesses approval.
5. What is the due date to file a tax audit report?
The due date for filing the tax audit is one month prior to filing the income tax return.
6. What is the penalty for the delay in the submission of a tax audit report?
The penalty for the late filing of a tax audit report is 0.5% of turnover subject to 1,50,000 limits.
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