Let’s understand the word ‘audit’ before understanding what is a tax audit. The dictionary definition of the word ‘audit’ implies it’s an official review of the finances and records of an agency, usually by an independent entity. Often a systematic analysis or examination of something is referred to. There are various forms of audit under different rules, such as business audit / statutory audit carried out under business law regulations, expense audit, stock audit etc. Similarly, an audit called ‘tax audit’ is also required by income tax law.
As the name itself suggests, a tax audit is an inspection or analysis of the accounts of every company or occupation that taxpayers perform from an income tax point of view. It simplifies the income estimation procedure for filing income returns.
Frequently Asked Questions
The dictionary definition of "audit" is testing, evaluating, examining etc. There are various types of audits required under different laws such as corporate law requiring an audit of the corporation, cost accounting law requiring a cost audit, etc. The Income-Tax Law demands that the taxpayer receives from the Income-Tax Law point of view the audit of his business/profession accounts. Section 44AB contains the regulations concerning the class of taxpayers needed to have their accounts audited by a chartered accountant. The aim of the audit under section 44AB is to ascertain compliance with various provisions of the Income-Tax Law and other conditions of the Income-Tax Law. The audit carried out by the taxpayer's chartered accountant of accounts pursuant to section 44AB 's provision is called a tax audit. In the form of an audit report, the chartered accountant carrying out the tax audit is expected to provide his conclusions, observations, etc. The tax audit report in Form Nos. 3CA/3CB and 3CD is to be issued by the chartered accountant.
Any person who carries on a business and his gross receipts in a financial year exceeds Rs 1 crore and if the gross receipt for the individual in the profession exceeds Rs 50 lakhs, they must then have their account books audited by a practicing chartered accountant under section 44AB.
It depends on various factors if there has been a loss and total taxable income is below the threshold limit (2.5 lakh for non-senior citizens and 3 lakh for senior citizens), no tax audit is required. If the loss in Business and Total Taxable Income reaches the threshold limit, the tax audit is required.
The Chartered Accountant appointed to perform an entity or an organization's tax audit is expected to submit the tax audit report electronically using their official login credentials. In their login page, the taxpayer must also note the related details about their Chartered Accountant.
The threshold for a tax audit of Rs 1 crore is proposed to be raised to Rs 5 crore with impact from AY 2020-21 (FY 2019-20) if the taxpayer's cash receipts are restricted to 5% of the gross receipts or turnover and the taxpayer's cash payments are limited to 5% of the aggregate payments
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