Here’s why tax audit is necessary:

• An analysis of the accuracy of income tax returns filed in an assessment year by individuals and companies, and maintenance of records by the Chartered Accountant.
• Reporting of findings by the tax auditor after a detailed analysis of accuracies/inaccuracies in tax returns filed.
• Reporting essential details regarding compliance, tax depreciation, etc., as per the laws for income tax. This streamlines the processes for the income tax authorities in calculation and assessing the accuracy of the income tax return filed by the individual or company.
• Checks frauds and malpractices in filing income tax returns.

Tax audit is compulsory for the following categories of taxpayers:

• A business owner, who has not opted for presumptive taxation scheme, with gross receipts or turnover or total sales exceeding Rs. 1 crore.
• A business owner, who has opted for presumptive taxation scheme under Section 44AD of the Income Tax Act, 1961, with gross receipts or turnover or total sales exceeding Rs. 2 crore.
• A taxpayer whose business, which is eligible for presumptive taxation under Section 44AE, 44BB and 44BBB, claims profits that are lesser than the prescribed limit under respective presumptive taxation scheme.
• A business owner who is not be eligible to claim presumptive taxation under Section 44AD because he or she has opted for it in a certain assessment year and not for any of the five consecutive years subsequently. This is applicable when his/her annual income is more than the maximum amount not chargeable to tax in the following 5 consecutive assessment years from the tax year.
• An employee of an organisation whose gross receipts is more than Rs. 50 lakhs
• An employee of an organisation that is eligible for presumptive taxation under Section 44ADA and claims profits that are lesser than the prescribed limit under presumptive taxation scheme and income is more than the maximum amount not chargeable to tax.

The following is the procedure for filing tax audit report:

• The Chartered Accountant assigned for conducting tax audit of an individual or an organisation has to present the tax audit report online, using his/her official login credentials.
• The taxpayer also has to mention the relevant information about their Chartered Accountant in their login platform.
• Once the tax audit report is uploaded by the auditor, it has to be either accepted or rejected by the taxpayer on their login portal. If the taxpayer rejects the tax audit report, the entire process has to be repeated until the tax audit report is accepted by him/her.
• Tax audit report has to be filed on or before the pre-determined due date of filing income return, i.e., 30th November of the subsequent assessment year for taxpayers who have engaged in an international transaction and 30th September of the subsequent assessment year for other taxpayers.

Non-compliance of tax audit regulations by taxpayers attracts a penalty of whichever is lower from the following:

• 0.5% of total sales or
• Turnover or
• Gross receipts or
• Rs. 1,50,000

A penalty is waived only when a taxpayer is able to show a reasonable cause for non-compliance. If the account books of a business or profession is not audited as per Section 44AB, then the assessee has to pay penalty as per Section 271B of the Income Tax Act. In case of a delay in completing audit and submitting the report on time (before or on September 30), then 0.5% of the turnover, a maximum of Rs. 1.5 lakh, has to be paid as penalty. If there is a genuine reason for delay or non-filing of audit report, then as per Section 273B, no penalty will be applicable. Among the permitted reasons are:

• Delay caused by resignation of the tax auditor
• Delay caused by death or physical inability of the partner responsible for accounts
• Delay caused by labour issues such as strikes or lock-outs
• Delay caused by loss of accounts due to theft or fire, or incidents that are not under the assessee’s control
• Natural calamities

Tax Audit reports can be presented in two different ways by tax auditors, differing on the basis of the laws under which the accounts have been audited.

• Form 3CB and Form 3CD: For tax audit reports presented under Section 44AB of the Income Tax Act, 1961, Form 3CB and the prescribed details have to be reported in the Form 3CD.
• Form 3CA and Form 3CD: When a taxpayer prefers to get the accounts audited under any law other than Section 44AB, then the relevant form is Form 3CA, while the prescribed details have to be reported in the Form 3CD.