Tax Audit under section 44AB of Income Tax Act 1961
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A tax audit verifies that the taxpayers’ books of accounts and other records of their business or profession have been kept up-to-date. This appropriately reflects the assessed taxable income.
It also evaluates whether the assesses has complied with various income tax rules, such as filing taxes and deducting costs, along with other requirements.
The threshold for the Tax Audit varies depending on whether the taxpayer is carrying on a business or a profession, or both. The provisions for tax audits in India are covered by Section 44AB of the Income Tax Act of 1961.
What’s the purpose of a tax audit?
All corporations, limited liability partnerships (LLPs), and individuals whose annual revenue exceeds a certain threshold are subject to a tax audit under section 44AB of the Income Tax Act 1961.
Section 44AB: Tax Audits for Specific Assesses
- Assesses carrying on businesses are liable for a tax audit if their sales, gross receipts, or turnover exceed Rs. 1 crore during the previous year. This provision is not applicable to an assesses who opts for the presumptive taxation scheme under section 44AD and whose total sales or turnover does not exceed Rs. 2 crores.
A new clause has been included into the Finance Act 2020. Provided that, in the following cases, the limit of Rs. 1 crore has been increased to Rs. 5 crore if:
- Cash receipts/turnover do not exceed 5% of total receipts/turnover.
- Cash payments made in the previous year do not exceed 5% of total payments.
The limit was also raised from Rs. 5 crores to Rs. 10 crores by the Finance Act of 2021 and will take effect from 1st April 2021.
- Assesses carrying on professional services are liable to a tax audit if their gross receipts exceed Rs. 50 lacs during the previous year.
Tax Audit Report
After an audit of a company’s books of accounts, a practicing Chartered Accountant prepares a Tax Audit Report. A Tax Audit Report is also filed on Form No. 3CA-CD or 3CB-CD.
Applicability of Form 3CA-CD or 3CB-CD:
Form 3CA: When a person conducting business or practicing a profession is required by law to have their accounts audited. It’s an indenture for an audit report.
Form 3CB is used when an individual conducting business or practicing a profession is not compelled by law to have his accounts audited.
Form 3CD: It is a part of the Audit Report that includes the information relating to business and transactions for the relevant financial year.
Why should you choose Komplytek?
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If you are looking for quality feedback on your business processes, Komplytek is at your service. We provide our clients with high-quality audit procedures and also dependable, high-quality assessment services. Our experts are up-to-date with the latest technologies in audit practice. Our tax and audit assurance services include:
- Internal Audit before finalization of books
- Statutory Audit
- Stock Audit
- Assets Audit
- Any financial or compliance audits that are specific to a client.
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