Tax Audit means an examination of the Income Tax Return filed by the company for the assessment year and inspecting the information mentioned in the ITR is true or not. A company is liable to perform a tax audit when it becomes liable under the corporate laws in India and cross a certain threshold.
Section 44AB of the Income Tax Act, 1961, lays down the provisions for an income tax audit of businesses in India. An external agency is to be appointed to assess the ITR Return filed by the company for the financial year and submitting the different tax audit forms with the tax authority. Form 3CA or Form 3CB, and Form 3CD are filed as the tax audit report of a company every year.
Purpose Of Tax Audit
A tax audit of a company’s Income Tax Returns must be performed for the following reasons:
It is an evaluation of the accuracy of the ITR filed by the company or an individual.
It reports the accuracies, errors or irregularities in the tax return filed by a taxpayer.
It reports the information relating to the tax depreciation, compliances, etc. as per the tax laws.
It reports frauds and malpractices in filing ITR of the taxpayer.
Who Needs To Perform Tax Audit In India?
The following taxpayers need to perform a tax audit mandatorily:
Business owners who have not opted for the presumptive taxation scheme and their gross receipts, turnover or total sales are more than INR 1 crore.
Business owners who have opted for presumptive taxation scheme under Section 44AD of the Income Tax Act, 1961 and their gross receipts, turnover or total sales are more than INR 2 crores.
Taxpayers who are eligible for presumptive taxation under Section 44AE, 44BB and 44BBB, and have claimed profits less than the prescribed limit under the presumptive taxation scheme.
Business owners who are not eligible to claim presumptive taxation under Section 44AD as they have opted for it in a certain assessment year and not for the five consecutive years subsequently and their annual income is more than the maximum amount which is not chargeable to tax in the following 5 consecutive assessment years from the tax year.
Employees of an organisation who have gross receipts of more than INR 50 lakhs.
Employees of an organisation who are eligible for presumptive taxation under Section 44ADA and claim profits less than the prescribed limit under presumptive taxation scheme and when their income is more than the maximum amount not chargeable to tax.
Process Of Tax Audit Report Filing
Filing the tax audit report of a company or other taxpayers can be done in the following steps:
The tax audit report is prepared by a Chartered Accountants who holds a certificate of practice and is in full-time practice.
The tax auditor furnishes the tax audit report in a prescribed form i.e. Form 3CA, 3CB or 3CE.
Form 3CA is filed when a person carrying on business or profession is already mandated to get his accounts audited under any other law. This will be applicable for entities like a company where it is also required to be audited under the Companies Act.
Form 3CB is filed when a person carrying on business or profession is not necessary to get his accounts audited under any other law. This will be applicable for entities like individuals where they are not required to be audited under any other act.
Form 3CE is furnished where a person is a non-resident or foreign company who receive royalty or technical service fees from the Indian government or any Indian concern.
Due Date For Filing Tax Audit
A company or other taxpayer that has to compulsorily get its accounts audited must file company tax audit report with the tax authority on or before September 30 of the relevant assessment year. This deadline has been expanded for 2019 and is now October 31, 2019.
Penalty For Filing Tax Audit Report
If a taxpayer fails to get their audit done on or before September 30, then they will be liable for a penalty of which may be a sum equal to 0.5% of the turnover or the gross receipts subject to a maximum of Rs. 150,000.
However, this penalty can be waived off if there is a reasonable cause for such delay or non-filing. The reasonable cause may be:
The Tax Auditor has resigned.
Death or physical inability of the partner in charge of the Accounts has occurred.
The company is facing labour disputes such as strikes, lock-outs for a long period.
The company has faced losses due to fire or theft.
There have occurred some natural calamities.